Philippines - Agricultural sector survey (Vol. 1 of 4) : General sector report

CIRCULATING COPY FILE COPy TO BE RETURNED TO REPORTS DESK "m13NT OF INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Not For Public Use 39 Vol. 1 Re ort No. 39a-k'ti RETURN TO T.- AGRICULTURAL SECTOR SURVEY PHILIPPINES (in four volumes) VOLUME I THE GENERAL REPORT May 2, 1973 Regional Projects Department Asia Regional Office This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. PHILIPPINES AGRICULTURAL SECTOR SURVEY Table of Contents Pae No. THE GENERAL REPORT Background Data ....................................... i-ig Summary .............................................. i - v I. INTRODUCTION .......................................... 1 II. BACKGROUND ............................................ 2 Agriculture and the Economy ...................... 2 Physical Setting ................................. 4 Structure of Agriculture ......................... 4 The Resource Base ................................ 5 Regional Distribution of Production .............. 7 III. PAST AGRICULTURAL PERFORMANCE ......................... 9 The Rice Self-Sufficiency Program ................ 9 Output of Other Products ......................... 11 IV. DEVELOPMENT PLAN FY 1972-75 AND DEMAND OUTLOOK ........ 13 Development Plan ................................. 13 Demand Outlook ................................... 13 V. A STRATEGY FOR THE 1970'S ............................. 15 Fiscal Policy .................................... 15 Regional Development ............................. 15 Grain Production Targets ......................... 15 Foreign Trade .................................... 17 The Critical Role of Water Investment ............ 18 Potential for New Irrigation ..................... 19 Smallholder Credit for Fertilizers and Other Production Inputs ........................ 20 Land Use and Employment Strategy .......... 20 Land Reform and Income Redistribution ............ 20 Government Services and Organization ............. 21 -2- Page No. VI. MAJOR PRODUCTION PROGRAMS ............................. 22 A. Crops ............................................ 22 Rice ............................................. 22 Corn ............................................. 23 Sorghum .......................................... 24 Soybeans ......................................... 25 Sugar ............................................ 25 Tobacco .......................................... 26 Coconuts ......................................... 27 Rubber ........................................... 28 Abaca ............................................ 29 Bananas .......................................... 29 Cashew ........................................... 29 B. Livestock ........................................ 30 Pigs ............................................. 30 Poultry and Eggs ................................. 31 Carabao and Cattle ............................... 31 Dairy ............................................ 32 C. Fisheries ........................................ 33 Development Strategy ............................. 34 Conflict between Municipal and Commercial Fishing. 35 Trade Deficit .................................... 35 D. Forestry ......................................... 35 Public Forest Management ......................... 36 Allowable Cut .................................... 37 Licensing Policy ................................. 37 Integrated Wood Industries ....................... 37 Pulpwood, Pulp and Paper ......................... 38 VII. SUPPORTING SERVICES ................................... 40 A. Research, Extension and Credit ................... 40 Research ......................................... 40 Extension ........................................ 40 Administration ................................... 40 Credit ........................................... 41 -3- Page No. B. Land Reform and Settlement ....................... 44 Land Reform ...................................... 44 Land Settlement .................................. 47 C. Irrigation ....................................... 48 Rehabilitation and Improvement of Systems ........ 48 Future Development of Irrigation ................. 49 D. Marketing and Transportation ..................... 50 VIII. MAJOR INVESTMENT OPPORTUNITIES FOR FOREIGN FINANCING .. 51 Irrigation ....................................... 52 Projects to Assist Smallholders .................. 55 Forestry ......................................... 57 Fisheries ........................................ 58 Regional Planning and Other Preinvestment Studies. 58 Preinvestment Requirements ....................... 59 FIGURES 7018 : Structural Chart of Agricultural Services - 1972 7281 : Philippines, Changes in Area Harvested and Yields of Major Crops, 1964-66 and 1969-71 MAPS 10133 : Climatic Regions 10215 : Relief, Regions and Provinces 10397 : Land Use 10217 : Transport System 10218 : Rice Flow (1968) -4- ANNEXES Volume II 1. Physical Environment for Agriculture 2. Forestry 3. Irrigation 4. Livestock 5. Fisheries Volume III 6. Rice Production 7. Corn and Feed Grain Production 8. Sugar and Tobacco Production 9. Rice: Estimates of Supply and Disappearance 10. Crops Marketing Volume IV 11. Agricultural Credit 12. Tree Crops 13. Land Reform and Settlement 14. Production Economics - Rice and Corn 15. Statistical Annex PHILIPPINES AGRICULTURAL SECTOR SURVEY BACKGROUND DATA Currency unit: Peso () Currency conversion: 1 US$ = V 6.5 approx. 1 V = US$0.154 approx. Area Total Land Area 30.0 million ha of which: (i) Forests 15.9 " i" (ii) Farmholdings 9.8 " " (iii) Managed Pastures 0.8 " (iv) Other 3.5 " Population Total (mid-1971) 38 million Annual growth rate (1960-70) 3.1% 2 (Density (1971) 128 per km Net Domestic Product Total (1971 1/) P 27,854 million Annual growth rate, constant 1967 prices (1960-71) 5.4% Per capita NDP 736 (US$113) Industrial Origin of NDP Annual Growth Share 1966-71 in 1971 Agriculture 4.9% 33.0% Manufacturing 8.4% 19.3% Trade 6.8% 15.6% All other sectors 4.7% 32.1% Employment Agricultural Employment (March 1971) 5.6 million Share of Total Employment 49% 1/ Preliminary. - ii - Production of Main Crops in 1961 and 1971 ('000 m tons) 1961 1971 Palay 3,704 5,343 Maize 1,210 2,005 Sugarcane 1,709 2,980 1/ Coconuts (million nuts) 6,195 7,814 Logs ('000 m3) 6,596 11,005 Fish 455 989 2/ Area Harvested of Main Crops in 1961 and 1971 ('000 ha) 1961 1971 Palay 3,198 3,113 Maize 2,046 2,392 Sugarcane 232 442 Coconuts 1,200 2,048 Annual Growth Rates in Percent for Main Products, 1961-71 Palay Maize Sugarcane Coconuts Logs Fish Area Harvested 0.1 2.3 5.4 5.1 - - Yield per ha 3.5 3.2 -1.0 -1.9 3/ - - Production 3.6 5.7 4.2 1.2 7.3 2/ 9.5 2/ Livestock Numbers ('000 heads) 1961 1970 Carabao 3,452 4,432 Cattle 1,055 1,679 Hogs 6,191 6,456 Chicken 49,984 56,999 Agricultural Exports and Imports Value of Agricultural Exports, 1970 US$744 million Share of Total Exports 70.1% Principal Agricultural Export Products Logs and Lumber, Sugar, Copra, Coconut Oil Value of Agricultural Imports, 1970 US$172 million Share of Total Imports 15.8% 1/ Preliminary. 2/ 1970. 3/ Nuts per bearing tree. - iii - Principal Agricultural Imports Cereal and Cereal Preparations, Dairy Products, Textile Fibers, Fish and Fish Preparations Wholesale Price Index in Manila 1971 1955 = 100 All Products 237.7 Food 259.8 Consumer Price Index in Manila 1971 1955 - 100 All Products 224.0 Food 275.1 Distribution of Farm Holdings by Size (1960) Percentage Distribution Number of Farms Area Farms Area '000 ('000 ha) Under 1 ha 250 125 11.5 1.6 1 - 1.9 ha 642 796 29.6 10.2 2 - 4.9 ha 864 2,426 39.9 31.2 5 - 9.9 ha 290 1,845 13.4 23.7 10 - 24.9 ha 109 1,396 5.0 10.0 Over 25 12 1,184 0.6 15.3 2,167 7,772 100.0 100.0 PHILIPPINES AGRICULTURAL SECTOR SURVEY SUMMARY i. The major goals of the Government of the Philippines for the Agricultural Sector are self-sufficiency in cereals, particularly rice and corn, expansion of agricultural exports, intensification of land reform and distribution, and conservation of natural resources. This report reviews the prospects and performance of the sector in relation to these objectives and looks at the longer run potential for agriculture. ii. Agriculture is the most important sector in the Philippine economy, accounting for one-third of net domestic product, one-half of total employ- ment and 70 percent of commodity export earnings. Agriculture still employs about 45 percent of the labor force even though non-agricultural employment has grown rapidly over the past decade. iii. Philippines agriculture is largely made up of small units with low productivity, yields and income. There is pressure of people on land and migration from densely settled areas is considerable. The mission estimates that there are perhaps 2 to 2.5 million ha of unused farming land, including 1 million ha of cogon grass lands which are difficult to rehabilitate. During the decade of the 1960's, the area brought under cultivation increased about 1-1/2 million ha. iv. To accomplish self-sufficiency in food production and to maintain agricultural exports, the mission estimates the growth rates shown below would be realistic: Rice 4-1/2% Corn 9% Fish 6% Livestock 7-3/4% Sugar 2-1/2% Coconut 3% Logs 2% Woodpulp 7% Such objectives will require a doubling of recent annual Government expenditures on agriculture and natural resources to about # 700-800 million (in 1972 prices) within 5 years. v. The Development Plan FY 1972-75 envisions an annual growthiin rice output of 6 percent per annum, as in the late 1960's, but the growth rate probably will be smaller. The high rate in the 1960's came from the rapid spread of High Yielding Varieties (HYV) which now blanket the irrigated rice area. Progress from here on will be slower and will depend largely on extension of irrigation and the spread of IIYV-fertilizer technology on rainfed lowlands as well. - ii - vi. The Mission estimates that the irrigated rice area - including both regular and palagad (dry season) crops - will need to be expanded by about 75 percent, or some 640,000 ha by 1980. This can come partly from an extensive program of rehabilitation covering some 260,000 ha of existing irrigation systems which require repair and improvement for dry season cropping. The remainder will have to come from new irrigation projects also with the same capabilities for dry season production. The National Irrigation Administration (NIA) should survey the condition of existing systems and develop a program for rehabilitating them within 8-10 years. A program to add new irrigated cropland of about 45,000 ha a year will also be required. NIA has identified a series of projects which can provide this level. Such a program would require greatly increased public expenditures and at least a doubling of the NIA engineering staff. vii. There are opportunities in other commodities to increase output and improve the incomes of smallholders in a better regional balance than heretofore. Corn, in particular, has an immediate large potential, especially in Mindanao and the Cagayan Valley. The recent development of downy mildew resistant HYV's which are responsive to fertilizers provide a means for doubling yields by 1980. This would meet requirements for the expanding broiler and pig industries and later in the 1970's enable exports of corn, for which the world outlook is favorable. There is need to establish drying and storage facilities to accommodate the prospective large production increase. viii. Sorghum and soybeans (to meet an increasing import deficit in soybean meal) also hold promise but assured market outlets for producers are a necessary condition for increased production. For soybeans, equip- ment to defat or heat beans for direct feeding to livestock should be explored. ix. For copra, a major export commodity, large areas of overage trees in Western Visayas and S. Tagalog need to be replanted but the world market price outlook is relatively unfavorable. Fertilization and intercropping can improve yields and reduce costs of production. Better drying equipment for copra would improve quality and eliminate the threat of aflotoxin. x. Export markets are favorable for tobacco, important in Ilocos and Cagayan. But both output and quality have declined. A program to improve production methods and establish quality control in curing is needed. xi. In the past, the Philippines have had difficulty in meeting its sugar quota in the preferential U.S. market, leading to some reductions in quota. Delays in harvesting and milling have reduced the sugar recovery per ha, particularly in the W. Visayas, the principal producing region. The most immediate way to increase sugar output is to invest in trucks for hauling cane and to reimpose discipline in harvesting and million schedules. xii. Large swamp areas are available in Mindanao, Samar, Bohol, and Palawan for development of smallholder fishponds. Fish production per ha - iii - can be doubled or more within this decade by the technology of fertilization, supplemental feed and management of fish population, as has been demonstrated in Taiwan and by ongoing research in the Philippines. xiii. Cattle ranching offers a considerable potential, over the long run, for export trade. The Visayas and Mindanao are free of hoof and mouth disease. Under present conditions, grazing is not very productive. Improved pastures greatly increase carrying capacity, and grazing can be greatly extended in area by rehabilitation of cogon lands. Cattle raising also integrates well with coconut and sugar enterprises. xiv. Presidential Decree No. 27, dated October 21, 1972, makes the com- mitment to transform as many as one million share tenants into full owner- cultivators. In the past, progress in implementing land reform programs was slow; only some 50,000 sharecroppers have been converted to leasehold with secure rights of occupancy and better sharing arrangements, and about 3,400 families accorded full ownership. Details of the new program are still being evolved but it is evident that the administrative and financial capacity of the Philippine Government will be severely tested within the next'few years. In addition to the incentive of ownership, government plans to make available production credit supported by enlarged extension services and improvements in infrastructure, particularly irrigation facilities, in order to increase productivity by HYV-fertilizer technology. An Agrarian Reform Fund of 1 2 billion has been established to guarantee payments to landlords for land and to credit institutions in the event of default by former tenants. xv. The land settlement program offers a means for alleviating the pres- sure of people on land and the ills resulting from squatters moving onto hill- sides. Performance of settlements so far has been disappointing. Large areas are available for settlement in Mindanao and the Cagayan Valley, both partic- ularly well suited for corn production, and to some extent in Palawan and Mindoro. The same constraints for supporting services and infrastructure which have weakened land reform programs in the past operate with even more force in land settlements, partly due to their location in remote areas. Land settlement projects must be better planned and supported. xvi. Extensive forest resources appear to offer good prospects for increasing export earnings during the 1970's, but they have not been managed well. Illegal logging activities and squatters have made progressive inroads. Output of areas under licenses has fallen short of the allowable cut level. Government has recently established better management and control of its commercial forest lands; prohibited further inroads of squatters; and put into effect licensing policies which encourage more efficient use of the forests and low-cost production in order to compete with other log ekporters to Japan. xvii. A large forest area in Northeast Luzon still remains to be. exploited, although the prevalence of typhoons makes shipping hazardous during 6 months in the year. The development of wood industries export centers in Mindanao, where most forest lands are located, would add signif- icantly to export capabilities as well as provide additional employment. There appears to be an outstanding opportunity to develop a pulp industry - iv - for which world demand is rising rapidly. This would involve establishment of rapid growing softwood plantations on cutover lands and a large investment in pulp mills. The increasing import deficit for pulp and waste paper indicates that new mills would be required in the next few years. xviii. The Philippines has made considerable progress in developing institutions to provide credit for small farmers, most notably the rural banks. But the flow of credit to smallholders is far from adequate and most have to rely on moneylenders and other noninstitutional sources. The land reform program will place an additional heavy burden, particularly for supervised credit, on rural credit institutions which have had little ex- perience in dealing with sharecroppers. Further, there is need for rapid expansion of facilities since many localities in the land reform area are not served by rural banks or branches of the Philippine National Bank (institutions mostly for short-term credit) and by the Development Bank of the Philippines (for longer-term credit). xix. Recent steps to reorganize and consolidate agencies and functions concerned with agricultural development should do much to improve administra- tion and coordination of agricultural programs. The Philippines has suffered a proliferation of agencies and lines of authority, much of it outside of the the Department of Agriculture and Natural Resources (Figure 7018). The Philippines Council for Agricultural Research under the Secretary, DANR will coordinate the scattered research activities which in the past have for the most part gone their own way. The major part of extension activities have been transferred to DANR, thus strengthening the link between research and extension. (It would also appear desirable to integrate the extension activities of the Department of Agrarian Reform as well). Marketing and price stabilization activities have also been placed under the purview of DANR. At the same time, the major Bureaus within DANR have been restructured and given broader responsibility. xx. To bring new technology to the small farmer, a considerable strengthening of the research establishment and extension services will be required. Research has done well in H1YV's of rice and quite recently in corn. But the technical base for sorghum and soybeans is not yet in hand, and diseases affecting sugar cane and coconut are widespread. Research on fishpond culture is making progress but research on livestock (and forage), and forestry is still grossly inadequate. Moreover, surveys of land classification and water resources are needed for planning the best use of resources and appropriate cropping patterns. xxi. The large number of small farmers makes for a difficult extension task. Present manpower allows roughly for 1 extension agent for 1,400 farmers. To be effective at least a three-fold expansion of well-trained staff is required. The need is especially urgent in land reform areas. xxii. The lack of roads and ports make transport of products difficult and expensive. A large improvement is required to move economically the substantial increases expected in production. It is especially important for the development of new areas. xxiii. Section VIII, Major Investment Opportunities for Foreign Investment, presents an array of potential new projects suitable for foreign financing. These opportunities are in the fields of irrigation; credit, rural develop- ment in land reform areas and land settlement; tobacco, corn, and coconut production and processing; forestry products; and fisheries. I. INTRODUCTION 1.01 The major goals of the Government of the Philippines for the agricultural sector, as outlined in the Development Plan, 1972-75, are: (a) To be self-sufficient in cereals, particularly rice, the major food staple, and corn both for food and animal feed; (b) To expand agricultural exports which provide most of the foreign exchange earnings from foreign trade; (c) To intensify the land reform and land distribution program as incentive for increased productivity and to minimize social unrest; and (d) To conserve natural resources. 1.02 This report reviews the performance and prospects of the sector in relation to these objectives. It also looks to the longer run potential of agriculture to achieve rapid growth in the 1970's shared more widely among the rural community. Thus, this report is concerned with major constraints on agricultural development, measures to overcome them, and the strategy for development in the 1970's and the priorities which emerge therefrom. 1.03 This report is based on the findings of the Agricultural Sector Survey Mission which visited the Philippines in February and May, 1972. The mission members were: Mission Leader N.M. Koffsky Deputy Leader F. Lowenstein Agriculturalist H.T. Chang Agricultural Economist C.H. Chung Livestock C.E. Bell, Jr. (Consultant) Agricultural Marketing P. Calkin (Consultant) Irrigation R.M. Fagerberg (Consultant) Forestry K. Heiburg-Iurgensen (Consultant) Tree Crops J.G. Ohler (Consultant) Agricultural Credit E.A. Tenenbaum (Consultant) In preparing its report, the mission had the assistance of P. Scandizzo of the Bank staff. 1.04 The report was reviewed with the Government of the Philippines in January 1973 and updated to take into account developments between May and December 1972. However, most of the statistics are those which were avail- able to the mission at the time of its visit in May 1972. - 2 - II. BACKGROUND Agriculture and the Economy 2.01 Agriculture is still the most important sector in the Philippines economy, accounting for about one-third of Net Domestic Product (NDP), one- half of total employment and 70 percent of commodity export earnings (Table 1). As might be expected in an economy which is broadening its base, these proportions have shown reductions in the past decade. Table 1: AGRICULTURE'S SHARE OF THE ECONOMY Percent of Percent of Percent of Year NDP Employment Export Value 1960 35 61 85 1965 32 57/1 87 1970 32 49-- 70 /I March, 1971. Source: National Economic Council, Bureau of the Census and Statistics; and Central Bank of the Philippines. 2.02 In the first half of the 1960's agricultural output grew slowly, in fact less than the 3 percent annual population increase (Table 2). In the last half as the improved rice varieties took hold, it accelerated sharply even beyond the substantial rate of growth recorded in the non-agricultural sector. Table 2: AVERAGE ANNUAL GROWTH RATES Period Agriculture Non-Agricultural 1960-65 2.4 5.2 1965-70 6.4 6.1 Source: Statistical Annex, Table 2.2. 2.03 Employment in agriculture, on the other hand, increased during the early period of low growth and levelled off during the later years. Although most of the increase in labor force between 1965 and 1970 was accommodated in non-agricultural employment, unemployment continued high with more than half in rural areas (Table 3). Moreover, since the new - 3 - rice varieties have not increased total labor requirements over the tradi- tional varieties 1/, underemployment reflecting seasonal slack of farm operations also remained high. Table 3: LABOR FORCE AND EMPLOYMENT (in million) Year Labor Force Employment Unemployment Agr. Non-Agr. 1960 9.1 5.2 3.3 0.6 1965 10.8 5.7 4.4 0.7 1971 (March) 12.3 5.6 6.0 0.7 Source: Labor Force Reports, Bureau of the Census and Statistics. 2.04 With a rapid growth rate in agriculture and little change in employment, productivity per worker in agriculture increased sharply in 1965-70, largely from increases in rice (Table 4). Productivity in the non-agricultural sector, on the other hand, remained much the same. /1 Table 4: NDP PER WORKER-- (in pesos) Agr. as Year Agriculture Non-Agriculture % of Non-ASr. 1960 1,065 3,088 34 1965 1,096 2,990 37/2 1971 1,646 3,123 53-- /1 In constant 1967 prices. /2 In 1971 prices, income per worker in agriculture was 63% of non-agricultural workers. Source: Statistical Annex, Table 2.2 and Table 3 above. 2.05 Thus, the gap in incomes between workers in agriculture and those in other sectors has narrowed appreciably although incomes in agriculture are still substantially lower. Those who used improved technology, such as HYV's for rice, shared in the higher agricultural incomes but those in agriculture who continued in traditional ways of farming and fishing were largely unaffected. 1/ R. Barker and E. Quintana, Farm Management Studies of Costs and Returns in Rice Production. International Rice Research Institute, Los Banos. -4- Physical Setting 2.06 With 7,100 islands, the Philippines is the largest archipelago in the world. Most of the area (98%) is encompassed in the 45 largest islands. The entire country is situated on a series of stress lines, along which considerable faulting, folding and volcanic activities have resulted in a large number of mountain ranges dividing the islands further into many relatively small watersheds and isolated alluvial plains. Central Luzon contains the largest plain area (about 750,000 ha) followed by the Cotabato Valley in Mindanao of about 500,000 ha. Also, in Mindanao, the upland plateau of Bukidnon is the third largest integral land area. The Cagayan Valley in Northeast Luzon ranks fourth (Map IBRD 10215). 2.07 This geographic setting of scattered islands and numerous mountain ranges makes transport of commodities to and from the farm difficult and costly. Thus the Cagayan region has among the lowest prices received by farmers for palay in the Philippines, whereas adjoining Central Luzon has the highest. 2.08 The territorial waters of the Philippines provide fishing grounds covering some 1.6 million sq km. However, the Philippine Islands are characterized by an extremely narrow continental shelf and a precipitous continental slope so that the more suitable shallow areas for fishing cover a much smaller area of about 185,000 sq km. 2.09 The generally north-south alignment of mountain ranges shadow part of major islands from either the north-east or north-west monsoons, with considerable variation in rainfall regionally from distinct dry/wet seasons to fairly even monthly distributions (Map IBRD 10133). Annual rainfall generally ranges from 1,500 mm to over 4,000 mm. The country, spanning from 5N to 20*N, lies in the path of tropical typhoons, with the largest incidence in North Luzon (averaging over 3 a year in 1948-70) and relatively little in southern Mindanao (only 2 in the 23-year period). 2.10 Temperatures vary little as between regions and months, providing a year round growing season throughout the Philippines. Humidity is also high and combined with high temperatures make it difficult to store crops and their seeds without rapid deterioration. Structure of Agriculture 2.11 Philippines agriculture is largely made up of small units on which low productivity yields low incomes. Even as far back as 1960 (latest data available), 80 percent of the 2.2 million farm units were less than 5 ha in size and covered 43% of the cultivated area; 40% were less than 2 ha and covered 12% of the cultivated area. This latter group makes up the bulk of those with the lowest levels of income 1/. Small holdings primarily produce 1/ "In 1965, about 90% of all families with incomes of less than r 1,000 lived in rural areas. These represented some 36% of all rural families but accounted for only 12% of total income received by rural families. (Bureau of Census and Statistics, Family Income and Expenditures, Sur- vey of Households, Bulletin No. 22 July 1968)". - 5 - the food grains for domestic use and coconut for export. On the other hand, larger scale operations are involved in sugar, bananas, and pineapple for export, and are increasingly taking over poultry and swine production. A similar contrast prevails in marine fishing where there are some 500,000 small subsistence fishermen along with about 30,000 engaged in commercial fishing. 2.12 About half of palay and corn farmers are tenants, almost all on a basis of sharecropping, usually 50 percent of the crop. These latter farm units average 2.2 ha for palay farmer and 1.6 ha for corn, significantly smaller than the average size held by owners. 1/ There has been scant progress so far in improving their situation under land reform and land settlement programs. 2.13 There is considerable pressure of people on land in the Philippines. In 1970 the population density was 128 people/sq km compared with the Asian average of 86. Lowland areas best suited for rice have been fully occupied for over a decade. Migration is heavy from overcrowded regions of Central Luzon and the Visayas to the Cagayan Valley in Northeast Luzon and Mindanao in the south. Squatters (Kaingineros) have spread onto hillsides leaving behind serious problems of erosion or an increasing accumulation of lands taken over by cogon grass which serves no productive purpose. Although it is difficult to clear cogon grass, there are possibilities for rehabilitating major portions of this land. The Resource Base 2.14 As might be expected from the topography, there is a great variety of soils ranging from deep alluvial deposits, constantly being augmented, to residual soils derived from shale and sandstone which are not very fertile. On the whole, the soils are potentially productive if properly managed. But the prevailing soil management practices of widespread hill and mountainside culture without regard to soil conservation, continuous mono-culture with little or no fertilizer application, and the lack of drainage systems have greatly limited their potential. 2.15 Out of a total land area of some 30 million ha, more than half is in forests (Table 5). About one-third is presently under cultivation or in plantations. It is estimated that some 300,000 ha a year are brought into cultivation from forest lands and open lands, but there is a substantial offset in land abandoned by squatters, which is no longer productive. 1/ Based on the 1960 Census of Agriculture. A recent rough estimate places the number of tenants at about 1 million averaging about 1.8 ha per tenant. - 6 - Table 5: LAND USE, 1971 Area Proportion ('000 ha) (%) Forest Productive 14,114 47.0 Unproductive 1,785 6.0 Total 15,899 53.0 Non-Forest Open Land 2,646 8.8 Managed pasture 840 2.8 Marsh and Swamps 215 .7 Cultivated and Plantation 9,795 32.7 Subtotal 13,496 45.0 Urban and Others 605 2.0 Total 14,101 47.0 GRAND TOTAL 30,000 100.0 Source: Philippines Forestry Statistics, 1971. 2.16 The mission estimates that there are perhaps 1.0 - 1.5 million ha of fairly level or slightly rolling lands which might still be suitable for cultivation (Annex 13, para 13). In addition, perhaps 1 million ha of cogon grass lands, which are difficult to rehabilitate, might be in this category. Such information as is available indicates that most of these lands are in the Cagayan Valley, Mindanao and Palawan. Organized settlement on these lands could do much to alleviate the problems stemming from squatters. According to the Bureau of Fisheries, there are also some 500,000 ha of mangroves and swamp lands which could be developed as fishponds, about three times the present fishpond area. 2.17 Even though there is still some flexibility in extending the resource base, this alone will not suffice to meet increasing demands for food for a population which will approach 50 millions by 1980 or to improve incomes for most farm peoples. These goals can only be realized by improving the productivity of the resource base. - 7- Regional Distribution of Production 2.18 Areas where corn and some important commercial crops are grown are shown on Map IBRD 10397. Palay, which is not shown, is produced throughout the Philippines. The distribution of palay production and popu- lation by regions indicates that the main surplus region is Central Luzon and the principal deficit areas, E. Visayas and S. Tagalog (Table 6). This is reflected in the Rice Flow Map (IBRD 10218). Table 6: DISTRIBUTION OF POPULATION AND RICE PRODUCTION, 1970 % of % of Palay Region Population Output Ilocos 5.0 4.4 Cagayan 4.0/1 9.8 Central Luzon 17.5L- 27.0 S. Tagalog 18.6 11.8 Bicol 8.1 10.6 W. Visayas 10.3 11.4 E. Visayas 14.8 5.4 N. & E. Mindanao 8.2 5.3 S. & W. Mindanao 13.5 14.3 /1 Includes Hanila area with 3.6% of the population. Source: Bureau of Census and Statistics and Bureau of Agricultural Economics (BAEcon). 2.19 The most important regions for other commodities and the percentage of the crops in a recent year were as follows: Corn: S. & W. Mindanao (50%), W. Visayas (10%) and E. Visayas (9%). Coconut: S. & W. Mindanao (34%), E. Visayas (27%) and N. & E. Mindanao (14%). Sugar Cane: W. Visayas (72%), Central Luzon (12%). Bananas: W. Visayas (31%), E. Visayas (18%) and N. & E. Mindanao (14%). Virginia Tobacco: Ilocos (93%). Native Tobacco: Cagayan (48%), S. & W. Mindanao (20%). Abaca: Bicol (37%), W. Visayas (27%) and S. & W. Mindanao (20%). Soybeans: W. Visayas (72%). - 8 - Livestock on farms are more evenly distributed. Cattle: S. & W. Mindanao (28%), S. Tagalog (13%), Central Luzon (12%). Hogs: E. Visayas (17%), N. & E. Mindanao (15%) and Tagalog (14%). Chickens: S. Tagalog (21%), N. & E. Mindanao (20%) and Central Luzon (17%). 2.20 Mindanao Island accounts for 75 percent of logs produced and Luzon Island 18 percent. Most of the marine commercial fish catch (58 percent) comes from the Sulu Sea alongside Palawan Island, and 24 percent from the Visayas Sea. Fishpond production is heaviest in Central and Southern Luzon (70 percent). 2.21 There has been a substantial regional concentration of various commodities, in line with comparative advantage. In most instances, the regions of heaviest production have the highest yields per ha. - 9 - III. PAST AGRICULTURAL PERFORRANCE 3.01 Table 7 indicates the relative importance of the several sub- sectors in Agricultural NDP and their average growth rates in recent years. The growth rates in the mid 60's were, as a whole, more rapid than in the late 60's and early 70's. Table 7: CONTRIBUTION OF SUBSECTORS TO AGRICULTURAL NDP Value /1 Growth Rate1 /1 Added, 1971-- 1965-71 1967-71-- Crops 54.5 8.0 6.1 Livestock 17.1 - 0.7 Fisheries 10.6 6.2 8.9 Forestry 17.8 8.2 2.9 Total 100.0 6.0 4.7 /1 In 1967 prices. Source: OSCAS, NEC and BAEcon (See Statistical Annex Table 2.2 and 2.7). 3.02 Most of the expansion took place in crops and fisheries. Among the crops, palay (paddy rice), corn and sugar cane provided the major pro- duction increases in the recent period. In fisheries, where high rates of growth were sustained throughout the 1960's, the gains more recently have come from subsistence fishing and fish pond activities rather than from commercial marine fisheries. Forestry output showed rapid growth, but most of its growth occurred before 1969. The livestock subsector made little progress. The Rice Self-Sufficiency Program 3.03 The palay area (35% of the total cropped area) has remained much the same in the past decade; yields per ha, however, rose about 6% a year following the spread of the high yielding varieties (HYV's), since the mid-1960's (Figure 7281). This was primarily on irrigated lands which account for about 30% of the rice area. 3.04 Despite the sharp rise in yields and the resulting increase in output, the Philippines did not attain self-sufficiency in rice, except in 1967/68, according to mission estimates. Although imports of rice stopped from 1968/69 to 1970/71, there were declines in stocks of rice in these years (Table 8). Rice imports rose to 635,000 tons in 1971/72. Import requirements are heavy again in 1972/73. So far imports of 337,000 tons have been arranged but this will fall far short of ensuring an adequate stock position for the lean summer months. - 10 - Table 8: SUPPLY AND DISTRIBUTION OF RICE, 1965/66 TO 1971/72 ('000 metric tons) Year Ending Production Net Change Disappearance June 30 Imports in Stocks 1966 2,355 327 - 17 2,699 1967 2,368 215 - 75 2,657 1968 2,686 119 236 2,569 1969 2,644 (27) - 87 2,704 1970 3,173 (1) -115 3,288 1971 3,239 17 - 94 3,350 1972 3,090 635 337 3,388 Source: Annex 9, Table 1. 3.05 In 1971-72, the crop suffered severe damage from Tongro disease and hurricanes. In 1972-73, severe floods caused a crop failure in a large part of Central Luzon. These natural disasters further retarded progress towards self-sufficiency in rice. Nevertheless, significant progress towards self-sufficiency has been achieved, even though this goal has remained just beyond reach for several years. 3.06 There has been an upward trend in yields per hectare since 1957/58. Three factors are involved: greater use of improved varieties; reduction of the lower yielding upland rice area; and the expansion of irrigated cultiva- tion. The use of fertilizer on irrigated palay (about 900,000 ha) was about 50 kg/ha of N in 1972, but little fertilizer was used on rainfed lowland paddy and upland rice. 3.07 The average yield in 1970/71 (39 cavans) was 13% higher than in 1968/69 (30.3 cavans). Even with the floods, the average yield in 1972/73 is estimated at 36.5 cavans per ha. 3.08 The rapid increase in yields since 1966/67 was caused primarily by the introduction and expansion of HYV's. The National Food and Agri- cultural Council (NFAC) reported that the total HYV area increased from 83,000 ha in 1966/67 to 1.2 million ha in 1970/71. Over the same period, however, the reported average yield/ha of HYV rice decreased from 100 cavans to 66 cavans. NFAC attributed the decline in yield to the following causes: decreasing use of inputs due to rising cost; tight credit; replacement of IR-8 varieties with better taste qualities but lower yield (IR-5, IR-20, IR-22, and C-4); severe rat damage, with an average loss of 3 cavans per ha; insufficient supervision by extension workers due to the latter's lack of transportation facility; inadequate post-harvest facilities; and three major typhoons in 1970/71 and 19 minor ones. Over the two-year period, there was a loss in harvested area of about 6.5%. 3.09 As a general rule, the average yield of new varieties for any crop will decline as the area expands. In the Philippines, HYV planting began initially in irrigated areas. THE HYV area in NFAC's programmed - 11 - area (1970/71) of about 1.2 million ha was considerably greater than the mission's estimate of less than 900,000 ha irrigated. Therefore, NFAC reports suggest that HYV's spilled onto some 300,000 ha of rainfed paddy in 1970/71. While this expansion of HYV area has been the main contribu- tion to the rapid production increase since 1966, continued expansion can no longer be expected to increase the national average rice yield at the same rate, even though the national average paddy yield is a mere 1.7 MT/ha. 3.10 Past performance for rice production suggests the following courses of action for the future: i. More substantial exapnsion of lowland irrigated area, expansion of the HYV area on rainfed paddy in areas with relatively even distribution of rainfall, and improvement of drainage of the paddies. ii. Improving yields on existing irrigated land by an expanded irrigation rehabilitation program and by inducing the use of more inputs by farmers through reduction of risks. iii. Extension of still better HYV's with higher disease resistance. iv. Controlled reduction of the area planted to upland rice on slopes that are too steep and diversion of some rainfed lowland paddy to other crops. Output of Other Products 3.11 Most of the increase in the output of crops other than palay came from expansion of area (Figure 7281). 3.12 The area in corn (28% of cropped area) has increased about 600,000 ha since 1960. While yields also show a substantial rise, this was largely a reflection of expansion into areas of Mindanao with better growing con- ditions rather than any advance in crop technology. The average for corn of 0.8 mt/ha is far below the 2 ton yield obtained in Thailand, also under rainfed conditions and traditional farming. 3.13 The coconut area (21% of the total) doubled since 1960, an increase of about 1 million ha. During this period, however, yields of the bearing area declined about 20%. Similarly, the area in sugarcane (4% of total cropped area), increased almost 200,000 ha, almost double from 1960 but sugarcane yields declined almost 10%. The recovery of sugar per ha was reduced about 30%, reflecting delays in milling as well. For Virginia tobacco, which has a favorable export potential, there has been little improvement in yields and the small area involved has been reduced in recent years. - 12 - 3.14 Fertilizer use is low, only 5-7% of the consumption per ha of arable land in Taiwan and the Republic of Korea. Most of it is used on sugarcane land and more recently on the HYV's of rice. Little has been used so far on corn land; the prevalence of downy mildew disease makes this a risky venture. Seeds resistant to this disease, however, have been developed recently. 3.15 Most of the commercial forest areas are under license for timber cutting. However, many are not exploited intensively. On fully half of the area, production of logs is far below the allowable cut. These are largely the smaller operations under relatively short-term licenses. 3.16 The territorial waters are fished quite intensively, especially those near shore by small fishermen, and sharp increases in marine fish output have tapered off in recent years. Fish pond activities, which pro- vide about 10% of the total fish supply, have expanded both in area and yield per ha. Although yields average about twice as high as in Indonesia, they are still less than one-third of those attained in Taiwan under modern technology. - 13 - IV. DEVELOPMENT PLAN FY 1972-75 -1/ AND DEMAND OUTLOOK Development Plan 4.01 Prior to the recent natural calamities, the government development plan for agriculture looked to an increase of 5.7% in the sector in the first year, FY-1972, which according to the plan would achieve self-suffi- ciency in food grains; and annual increases thereafter to 1975 of 5.1% to facilitate agriculture diversification and expansion of exports. With two years of poor rice crops, the plan is hardly likely to be realized. Even beforehand, there was little likelihood of attaining plan targets by FY-1975 of production increases projected for palay (6.1% a year), yellow corn (8.2%), fish (5.8%) and livestock products (6-8%) given the development effort envisioned in the plan. 2/ By contrast, the plan targets for the major export commodities are less ambitious and could well be realized (in the case of copra it is being exceeded); copra 4-1/2% a year; sugar, 3.8%; and logs, 2%. On the other hand, projected increases of 10% a year for cigar leaf tobacco are quite out of keeping with the present low state and uncertain prospects of the industry. 4.02 Although agriculture has a high priority in the Development Plan, projected government expenditures for agriculture and natural resources by FY-1975 would still be only 7-1/2% of total government outlays, about: the same percentage as in FY-1971. This would not provide for the significant increase in manpower which a more intensive agricultural development program would clearly require (see para 5.01). Demand Outlook 4.03 On the whole, the Philippines need not be concerned that supplies will outrun demand for food in domestic markets for some years to come. Prices have risen on a broad front extending beyond the impact of the cur- rent shortage of rice. In fact, it will be difficult to meet projected increases in demand in the current decade of over 40% for rice; 100% for corn, mostly for expanding livestock feed requirements; 80% for meat; and 60% for fish. For the latter two, the prospects for commensurate increases in supply are not sanguine and prices will likely continue to rise more rapidly than for other foods. 4.04 Some uncertainties and constraints are attached to the prospects for export commodities. Sugar exports are entirely dependent on the pre- ferential U.S. sugar quota, which may be revised for 1975 and beyond. The Philippines has had difficulty in meeting its quota, leading to some reduc- tions in the past and domestic use is also expanding. More,recently it has been more successful, partly by borrowing from the early harvest of the next crop. 1/ Four Year Development Plan FY 1972-75, July 23, 1971. 2/ The feasibility of plan targets is examined in some detail in the pertinent annexes. - 14 - 4.05 Coconut products, of which the Philippines is the world's largest exporter, is encountering increasing competition from substitute products. While the volume of exports is anticipated to rise about one-third by 1980, lower prices will be an offsetting factor. 4.06 The export prospects for forest products are quite favorable. Prices are expected to continue firm and, while there is increasing compe- tition from Indonesia, the Japanese market for logs is expanding rapidly. There appear to be favorable opportunities to participate in export markets for pulpwood and pulp (a matter for import substitution as well). 4.07 Outside of these major export earners, exports of bananas are not likely to continue for long their rapid penetration of the Japanese market, with no alternative markets in sight. Exports of abaca for cordage have declined because of competition from synthetic fibers; some is being processed for export as high quality pulp for paper but the prospect for developing a large outlet is slim. 4.08 There is a significant potential to increase exports of cigar (native) and flue-cured (Virginia) tobacco, for which world prices are expected to continue favorable. But this can be realized only by greatly improving quality and production, both of which have declined sharply. 4.09 World markets are expected to continue strong for feed grains and beef. Once the domestic needs are met, the Philippines would be in a favorable position to exploit their advantages of location relative to the Japanese market for feed grains and the absence of hoof and mouth disease in cattle in the Visayas and Mindanao, a rarity in Asia. But these are prospects more for the 1980's than the 1970's. There is some potential for developing rubber exports for which production is expanding rapidly although from a very small base. However, the outlook is for prices to continue weak. 4.10 To meet the larger requirements, explained above, the production targets for agriculture would have to expand between 1972 and 1980 by the following rates: Rice 4-1/2% /1 Corn 9% Fish 6% Livestock 7-3/4% Sugar 2-1/2% Coconut 3% Logs 2% Wood 7% /1 This would require increases averaging 7-1/2% a year between 1972 and 1975 to attain self- sufficiency and about 2.7% a year thereafter to keep up with population growth. - 15 - V. A STRATEGY FOR THE 1970'S Fiscal Policy 5.01 In fiscal 1970/71, agriculture was more or less self-supporting. Government expenditure for Agriculture and Natural Resources totalled f 306 million. This was just about the collections from the stabilization of export tax on logs, sugar and coconut products. These taxes under the governing legislation were scheduled to phase out by the end of fiscal 1974 but their future at this time is uncertain. In any case, looking ahead, Government expenditures on agriculture and natural resources are likely to substantially exceed revenues obtained therefrom. Given the land and water resources which are still untapped as well as the Government's desire to spread the benefits of development throughout the rural popula- tion, this may well be intensified. Specifically, the needs for rehabilita- tion and expansion of the irrigated area for rice, for a larger and improved program of land settlement, and for the large increase in trained manpower required for these and other agricultural development programs should lead to an increase in annual government expenditures within five years or so of the order of f 700-800 million (in 1972 prices), compared with the P .400 mil- lion estimated for FY-1972. It is noted that the National Irrigation Adminis- tration will need to double its engineering staff to mount a significant rehabilitation program (para 7.28) and that the extension worker/farmer ratio is approximately 1:1,400 whereas 1:300-400, or even lower for land reform areas, is needed to be effective (Annex 6, para 23). Yet, considering the tight public finance position, fiscal policy should be such as to raise considerable additional resources within the most prosperous segments of the rural population. Regional Development 5.02 Most islands offer opportunities for development but many have been by-passed. With a higher level of resources going into agriculture, it should be possible to implement a more balanced regional development policy. Government development activities have largely centered in Central Luzon and more recently in some parts of Mindanao as well. While there is still need to increase efforts there, other regions offer considerable potential for sustained long term agricultural growth. However, substantial outlays for infrastructure will be required to bring this potential into production, particularly in the Cagayan Valley and elsewhere in Mindanao to accommodate immigration and land settlement. Development during the 1970's should look to a better regional balance; otherwise the disparities among regions will widen further and agricultural growth will taper off. Grain Production Targets 5.03 A major goal of the Development Plan FY 1972-75 is to achieve self- sufficiency in rice. Under Philippine circumstances, progress towards this objective has merit on several counts. There are large areas well suited to intensive rice cultivation. Palay is the main product of 50% of all - 16 - farmers; predominantly small farmers with limited alternatives. Finally, Government is reluctant to rely on a volatile world market for its staple food. Table 9 shows mission projections of palay requirements for domestic indicating that production would need to increase by 24% from 1972 to 1975 in order to regain marginal self-sufficiency by that year, and by 14% from 1975 to 1980 to continue in that state. Risks of weather and blights aside, the mission believes these levels are well within the Philippine capabilities. However, it would require a substantial improvement and expansion of irriga- tion facilities, particularly to provide for dry season cropping, and rapid spread of HYV-fertilizer technology on rainfed lowlands. By 1975, self- sufficiency in rice would require an increase in the irrigated cropped area of about 280,000 ha from the present 900,000 ha, and the extension of HYV's on rainfed lowlands to 750,000 ha on top of the present level of 300,000 ha. To maintain self-sufficiency in 1975-80 would require an additional 360,000 ha of irrigated cropped area and most of the remaining rainfed lowlands in HYV's (Annex 6, Table 18). Table 9: PALAY REOUIREMENTS (million metric tons) Year Requirements /1 Production 1971/72 5,720 5,100 1974/75 6,320 6,330 /2 1979/80 7,220 7,250 /2 /1 Based on per capita consumption of 91 kg rice, the figure used by Government in estimating requirements for human consumption. This is slightly higher than per capita disappearance of 90.6 kg in the peak year 1970 (Annex 9, Table 1). /2 Assuming rice self-sufficiency. Source: Annex 9, para 7. 5.04 Under these circumstances, pricing policy has a key role to play in spreading the new rice technology over wider areas and to smaller farmers. Until fertilizer usage is more widespread, fertilizer prices should not be set so high as to discourage more use. These prices are relatively high by international standards (Annex 14, Table 6). It would be quite harmful to the development effort if they were increased further. 5.05 As the nation moves from an import position to self-sufficiency where small surpluses may be generated from tine to time, pricing policy should be readjusted. At that time, price support operations and buffer stocks for contingencies will become more sophisticated to manage. In this respect, private rice mills or marketing cooperatives can serve as agents of the Grain Authority for purchase at the support price or for extending crop loans (possibly financed by the local rural bank). This would require a bonded warehouse receipt system which could also serve as the mechanism for government control over its stocks without actual physical possession. Mismanagement of government stocks in the past has been largely due to a breakdown of the validity of the quedan or warehouse receipt system. - 17 - 5.06 Corn requirements for the Philippines are expected to increase sharply and most of the increase will be for animal feed. Although sorghum production is now very small and will remain small in relation to corn, it is expected to increase and contribute to the future animal feed supply. Food requirements for corn are projected to rise about 18% by 1979/80, but feed requirements are expected to almost quadruple (Table 10). Table 10: FEED GRAIN REQUIRENENTS ('000 metric tons) 1971/72 1974/75 1979/80 Corn Food 1,443 1,490 1,702 Feed 396 538 1,569 Other 104 346 427 Total 1,943 2,374 3,698 Sorghum (over 90% feed) 14 34 90 Grand Total 157 2 3,788 Source: Annex 7, Table 12. 5.07 In the short term, incentives are necessary to stimulate the adoption of the new HYV's of corn and use of fertilizers from which there is a very large yield potential. As this progresses, however, forward policy should look to gradually lower prices to support expansion of live- stock enterprises, and perhaps by the end of the decade enable the Philip- pines to participate in a favorable export market. The same will hold true for grain sorghum and soybeans when the technical base for high yielding production is developed. Foreign Trade 5.08 Rising exports of copper in recent years have somewhat diminished the previous overriding importance of agriculture to export earnings. The value of agricultural exports rose over 6% a year from 1960-1965; sin e then the rate has slowed to 3%. Although exports of bananas and cannied pineapple have increased rapidly in the last few years, coconut products, forest products and sugar still account for 92% of all agricultural exports (Table 11). Exportable supplies of these major products have been a limiting factor. Export prices for logs and sugar have strengthened since thelmid 1960's while those of coconut products, for which the Philippines is the major world supplier, have weakened in response to increasing competition from other vegetable oils. - 18 - Table 11: VALUE OF EXPORTS (million dollars) Year Coconuts Forest Sugar Total All Products Products Agriculture Exports 1960 178 101 138 478 560 1965 270 191 142 657 768 1970 209 280 196 744 1,062 Source: Central Bank of the Philippines. 5.09 Beyond the risks of an export base limited to a few products, the direction of export trade has been increasingly to the U.S. (coconut oil, sugar and pineapple) and Japan (forest products, bananas and copper con- centrates). Export to those two countries represented 74% of the total in 1965 and 81% in 1970. 5.10 Imports of agricultural products (Table 12) represent a fairly small proportion of total imports (some 16% in 1970) and vary substantially with the need for importing rice. This will again be a large factor in the data for 1971 and 1972. Table 12: VALUE OF IMPORTS (million dollars) Year Food Raw Total All Products Textile Agriculture Imports Fibers 1960 85 20 120 604 1965 155 35 209 808 1970 104 40 172 1,090 Source: Central Bank of the Philippines. 5.11 Rice aside, there may be profitable opportunities for import substitution, particularly for animal feedstuffs which increased from US$2.6 million in 1965 to $8.1 million in 1970, for imports of pulp and waste paper (from $3.4 million to $6.4 million), and possibly for imports of canned fish (which rose from $13.4 million to $20.4 million). The Critical Role of Water Investment 5.12 It is clear that the Philippines cannot reach self-sufficiency in rice without irrigation. Yet, the performance of irrigation systems in the Philippines falls far short of their potential. The mission estimates that out of a total area of 959,000 ha which could be served, only 630,000 ha - 19 - are served in main season and 254,000 ha in the palagad (dry) season (Table 13). This represents a discounting of about 20% from official esti- mates. Table 13: IRRIGATED AREA, POTENTIAL AND SERVED Systems Potential Area Cropped Area (000 ha) Regular Palagad Total --------(000 ha)--------- NIA 407 305 136 441 ISU (pumps) 239 110 38 149 Communal (NIA) 222 133 53 187 Communal (private) 90 81 27 108 959 630 254 884 Source: Mission Estimates. 5.13 The National Irrigation Administration (NIA) gravity system is the main component. In addition, NIA constructed or rehabilitated a sub- stantial part of small communal operated systems, averaging 250-300 ha. The Irrigation Service Unit (ISU), now under the administrative supervision of NIA, is responsible for pump irrigation schemes. 5.14 Operations are generally disappointing. The cropping intensity of the main NIA systems is only 108% 1/, largely as a result of accumulating neglect of proper maintenance. The record of the pump irrigation schemes is even less satisfactory; in particular during the palagad season many pumps function on a limited basis, if at all. Potential for New Irrigation 5.15 The mission estimates that potentially over 1.3 million ha of new lands could be brought under irrigation (Table 14). But under existing conditions, continued neglect of proper operation and maintenance, progres- sively reduces the potential benefits from new projects. Rehabilitation of existing projects and proper operation and maintenance of rehabilitated and new projects are essential to larger rice production. Table 14: POTENTIAL FOR NEW IRRIGATION ('000 ha) NIA Gravity 815 NIA Communal 150 Pump Irrigation 385 Total 1,350 Source: Annex 3, Table 4. 1/ Total cropped area as percentage of potential area. - 20 - Smallholder Credit for Fertilizers and Other Production Inputs 5.16 HYV-fertilizer technology has the potential to increase yields of rice and corn, which are low by international standards. About two-thirds of the rice area (mostly rainfed lowlands) and almost all of the corn area receive little, if any, fertilizers and plant protection. To exploit this potential will require a large increase in credit to smallholders for financing production inputs, along with an intensive extension program. Land Use and Employment Strategy 5.17 Government realizes that the use of land must be aligned better with land capabilities. Recent reforms of the forestry code prohibit the further encroachment of kaingin and cropping of slope lands over 18%. Organized land settlement schemes on arable lands still unsettled offer some opportunities to accommodate migration without the ills associated with kaingin. Reforestation with fast-growing species of denuded forest lands to alleviate runoff and flooding and to provide a base for pulp industry is also a matter of high priority. Replanting of prime forest lands after logging needs to be emphasized and enforced much better than in the past, especially as the longer term outlook for exports is favorable. 5.18 Cogon lands, covering some 4-5 million ha present a formidable problem of rehabilitation but at the same time a large opportunity to extend the resource base. Most of it is on slopes which restrict its potential use to woodlands or grazing, pointing specifically to the develop- ment of pulpwood enterprises and cattle ranching. Perhaps 1 million ha are suitable for cropping. Preliminary investigations are necessary to deter- mine the feasibility of bringing these lands into productive purposes. 5.19 The potential for increasing employment in agriculture, which has been essentially static for some years, depends largely on extension of activities to lands not presently in use. So far the new rice technology has not increased overall labor use, although as cropping during the dry season expands, underemployment during the slack season can be substantially reduced. Land Reform and Income Redistribution 5.20 Presidential Decree No. 27 provides for transforming perhaps as many as 1 million sharecroppers into owner-cultivators within the next 4 or 4 years. In the past, progress in land reform has been largely to extend leasehold status to a small proportion of tenants. By providing security of tenure and better sharing arrangements, the lot of the tenant was generally improved although productivity of leasehold units remained much the same as those remaining as share tenants. The challenge of land reform lies not only in providing the incentive of land titles but also in supplying credit and Government supporting services necessary to improve productivity and income. Government recognizes that these are essential to success of the land reform program and has begun to strengthen these activities. - 21 - Government Services and Organization 5.21 Although the Filipino farmer is generally literate and receptive to change, as has been evidenced in rice, development and adoption of improved technology depends very largely on the research base and the ex- tension activities which bridge research and the cultivator. The research, extension and credit establishments in the Philippines are more advanced than in most other developing countries but are still quite inadequate in manpower and organization to effectively support a strong development effort. However, recent administrative reforms for consolidating and co- ordinating such activities hold promise for more effective programs in the future. (The current state of these activities is discussed in Chapter VII and in the pertinent annexes relating to crops, livestock, forestry and fisheries.) - 22 - VI. MAJOR PRODUCTION PROGRAMS A. Crops Rice 6.01 Even if there is rapid recovery from the recent floods, the Philippines will not find it easy to regain the momentum in rice output achieved in the latter 1960's. In that period, production rose some 5-1/2% a year, reflecting yield increases averaging about 6% along with some decline in area planted to upland rice. From 1972 to 1980, the mission estimates that a growth target for rice averaging about 4-1/2% per annum would be realistic. 6.02 The impressive gain in yields in 1965-70 was due to three main factors: - Introduction and rapid extension of high yielding varieties were barely introduced only five years ago, by 1971 they covered over 50% of the lowland area. Most of the irrigated area and part of the non-irrigated lowlands are now covered. - Expansion of the irrigated rice area, including both wet and dry season crops, for which the new varieties are best adapted. However, little fertilizer is used. Perhaps one third of the lowland rice area receives fertilizer applications, usually in less than recommended quantities. - The low-yielding upland rice area has been reduced about a third since 1965 which has had the effect of raising average yields. 6.03 Even with this very significant progress in high yielding varieties, yields average only 1.7 tons of palay per hectare, still among the lowest in Asia. It is clear that a large potential for increasing yields in the future is in expansion of the irrigated area both from improvements in present irrigation systems and from conversion to irrigation of rainfed lowlands. At the same time, the spread of high yielding varieties on rainfed paddy in areas with relatively even distribution of rainfall should be accelerated. The large gains that can accrue from such shifts are indicated in the differences in yields normally obtained under the several categories: - 23 - Lowland Palay Metric Tons per Ha Irrigated, HYV 2.9 Rainfed, HYV 1.8 Rainfed, Traditional 1.1 Upland Traditional 0.8 Average 1.7 6.04 There is a further potential for higher yields from increased use of fertilizers, particularly where little or none is now applied. Although DANR recommends the use of from 60-100 Kg N per ha on irrigated lands, the meager evidence assembled on farm costs and returns in Annex 14 suggests that rates this high, although still bringing added output, may be unprofitable to many. Thus, considerable care should be exercised in pressing such recommendations except on lands where there is good irrigation and drainage. This emphasizes the importance of coordination between water engineering and agricultural administration (Annex 6). 6.05 Results of field trials on rainfed lowland paddy involving certified HYV seeds, fertilizers, plant protection and rather strict regime of field operations have encouraged hopes for significant yield increases on rainfed lowlands. A program has been initiated to cover some 50,000 ha this year. If this should prove out, despite the rather demanding requirements on the cultivator, Government plans to extend the program rapidly on areas with favorable rainfall distribution. 6.06 Should the irrigated crop area be expanded, as appears feasible to the mission, by close to 650,000 ha by 1980 (370,000 ha regular crop and 275,000 ha palagad crop), and most of the rainfed lowlands put under HYV's, some 200,000 ha of upland rice could go to other uses. Some would likely go to corn, which under current conditions, could yield as much net return as upland rice (Annex 14). With improved varieties, corn could yield much better than upland rice. Corn 6.07 Corn production also showed considerable progress, increasing over 50% during 1965-70, a little more than half due to expansion of area (26%) but with yields up as well (22%). Even so, corn yields average only 0.8 tons/hectare compared with 2 tons in Thailand. There is thus very considerable room for improvement. 6.08 White corn, used mainly for food, accounts for about 90% of produc- tion and yellow corn, mainly for feed, the remainder. More than half is produced in Mindanao, mostly in S & W Mindanao, and about 10% in the Cagayan Valley, Northeast Luzon. These are predominantly white corn. Southern Tagalog, which produces mostly yellow corn, accounts for about 8%. - 24 - 6.09 By 1980, requirements for corn are projected to increase to 4 million tons, double the current level. Most of the increase will represent rising demands for feed, particularly from the expanding pig and poultry industries. 6.10 The prevalence of downy mildew disease is the central limiting factor to attaining high yields. This has led to very slow adoption of high yielding varieties (some 13% of the area) and very little use of fer- tilizers (applied to less than 10% of the corn area). Under experimental conditions, and when the incidence of the disease is low, HYV's have yielded twice as much as the traditional varieties even without fertilization, and with fertilizers have more than doubled again. 6.11 Last year, downy mildew resistant white corn synthetic varieties were introduced, and this year yellow corn varieties, which open the way to a major breakthrough, were introduced. As these become firmly established, the practice of fertilization (recommended at about 60 Kg N per hectare which would clearly be profitable) is likely to expand rapidly. 6.12 While it would be unrealistic to assume that experimental yields can be translated into average farm performance, there is a clear potential for meeting domestic requirements by 1980 without requiring additional corn area. However, feed grain deficits are likely to continue through the mid-1970's. 6.13 Beyond 1980, and perhaps before, there is the distinct potential for exporting feed grains, particularly for participation in the expanding Japanese market. The pending Magat project area in the Cagayan Valley appears to be quite suitable for growing corn under irrigation as well as rice and could provide a substantial step up in production by that time. In the meantime, the largest potential continues in Mindanao where the livestock industry will likely continue to be centered. Sorghum 6.14 Sorghum was introduced only recently in the Philippines. Research findings and farmers' experience are so limited that it is difficult to put its potential in proper perspective. Only some 15,000 tons were produced in 1970/71, almost all in Cotabato, Mindanao. Yields averaged better than 2 tons/ha, again with very little fertilizers or plant protection. Prelimi- nary field trials indicate significant response to nitrogen up to 90 Kg N per ha. 6.15 Because it is a new crop, farmers have experienced difficulties in seed viability, cultural, practices and threshing as well as in finding markets. Nevertheless, there is clearly an optimistic case for integrating sorghum into the feed grain program. It is more tolerant than corn to drought and water logging and may well do better on marginal lands presently in corn. - 25 - 6.16 Further, a thriving world trade has developed for sorghum as for other feed grains and the Philippines' potential to eventually participate in exports would be enhanced if current obstacles can be overcome. Soybeans 6.17 Soybeans is a minor crop in the Philippines and experience over the past decade has been disappointing. The area in soybeans and yields have declined since the early 1960's and current production - largely in the Western Visayas - is only 1,000 to 2,000 tons, used mainly as food. 6.18 Recently the poultry and swine industries have created a strong and growing demand for soybean meal. Almost 50,000 tons were imported in 1971 and the needs by 1975 may well approach 150,000 tons if local production remains the same. 6.19 There is practically no market for local soybeans to be processed into oil and meal. Production is insufficient to support such enterprise and a duty effectively keeps out imports of soybeans which local production could supplement. The most practical solutions appear to be to eliminate the duty so as to increase supplies for local oil mills to extract oil and produce meal or to equip feed mills to defat or heat beans, which otherwise cannot be fed to livestock directly. 6.20 High yielding varieties cover about 25% of the relatively small soybean area, mostly in Ilocos where yields averaging about 1 ton/ha have been reported in 1971/72. Regional trials of HYV's have reported yields of 2 to 3 tons/ha in wet season and 1.3 tons/ha in dry season. 6.21 The Philippines has the capability and the need for development of soybeans. But to break the present impasse, it is essential to provide processing outlets for producers. Sugar 6.22 Although production of sugar has increased some 60% in the past 10 years, it has come about only through almost doubling the sugar cane area. Not only have yields of sugar cane declined but also the sugar re- covery from cane. The result has been a drop of 30% in sugar yield per ha from the late 1950's, most pronounced in the Western Visayas which account for almost three-fourths of production. The decline in yields is bas!ically due to expansion of sugar cane into marginal lands, particularly slope lands without corrective soil conservation practices, and to delays between harvesting and milling which reduce sugar content rapidly after 48 hours. Disruptions in delivery of cane to mills appear to be related to the dis- organized expansion of sugar mills in areas within adequate sugar cane sup- plies. Additionally, insects and diseases are prevalent, particularly the ratoon-stunting disease. - 26 - 6.23 Thus, sugar has become a high cost industry unable to compete in export markets in the past other than under the quotas established in the preferential U.S. market. Future prospects for the Philippines in the U.S. will depend to a substantial degree on the demonstrated capabilities to supply larger supplies. 6.24 Under recent high world prices and favorable future price prospects, the Philippines could compete in world markets, but the supplies over and above domestic consumption and the U.S. market available for export probably cannot be expanded significantly. Rising domestic use will use the larger supplies which could be produced. If the future U. S. import quota for the Phillipines is reduced, larger exports to world markets would be desirable. Such exports would require a larger export quota under the International Sugar Agreement (ISA) than the 60,000 ton residual quota now allocated to the country (the Phillipines can export 60,000 tons to replace shortfalls by other countries). The allocation of larger ISA quota for the Phillipines will depend principally upon proving that the Phillipines has the productive capacity to fill a larger quota. The mission estimates that the Phillipine sugar industry will not be able to fill a U. S. import quota of 1-1/2 million tons and a larger ISA export quota. 6.25 Most producers of sugar cane now use improved varieties, a fair quantity of fertilizers, pesticides and mechanization. To begin recovery to yields which prevailed 10-15 years ago, the most immediate potential is to restore the sugar recovery rate. This would require reimposition of discipline in harvesting and milling schedules, which in turn would mean additional farm machinery (possibly on a pooled basis for small farm units) to speed up land preparation ahd harvesting, and additional trucks for handling cane. By this action alone, it would be possible to meet prospective domestic and export requirements from some 30,000-40,000 fewer hectares than at present, an opportunity to divert marginal lands to cattle grazing which integrates well with sugar enterprise. 6.26 Over the longer run, if the export outlook warrants, extension of irrigation facilities in areas with distinct dry season (only 7% of sugar cane is presently irrigated), further improvement in varieties especially those resistant to ratoon-stunting disease, and the adoption of contour cultivation on hill slopes, which presents no serious techno- logical problems, could well bring complete recovery in yields to previous levels. Tobacco 6.27 The Philippines has a considerable potential to increase export earnings from tobacco, especially Virginia type. However, both area and production of Virginia tobacco, produced mainly in Ilocos region, are about 40% below the 1960 levels: and show no distinct trend in yields. Native type tobacco, produced largely in the Cagayan Valley has recorded little change in area but with some increase in yields and production in 1971 was about 20% above 1960. - 27 - 6.28 On the whole the crops are increasingly of low quality, substan- tially due to insects and diseases and improper curing methods. With high production costs and low yields, Philippines tobacco does not compete well with Indonesia in foreign markets. 6.29 The majority of tobacco growers in the Philippines do not use fertilizers and use of pesticides and soil fumigants is quite limited. Consequently, even though improved varieties are used, much of the potential gain is lost. There is an urgent need for strong research and extension programs which unfortunately do not exist at present. Coconuts 6.30 The Philippines is by far the largest producer and exporter of coconut products. In the last 10 years, copra production rose almost 50%, entirely due to expansion of the bearing area. Yields are among the highest in the world, a testimony more to the very favorable climatic and soil conditions for coconut which prevail in major producing areas of the Phil- ippines than to progressive practices and management. Coconut is ess entially a small holder enterprise, largely owner operated. Some 68% of coconut farms are under 5 ha in size and only 1% are 16 ha and over. 6.31 Substantial regional shifts in production have occurred in the past decade (Table 15). Table 15: DISTRIBUTION OF COCONUT PRODUCTION Region 1960 1970 Cagayan /1 /1 C. Luzon 1 /1 S. Tagalog 40 11 Bicol 15 6 E. Visayas 11 27 W. Visayas 7 8 S&W Mindanao 10 34 N&E Mindanao 16 14 Total 100 100 /1 Less than 1%. Source: BAEcon, DANR. 6.32 Most of the expansion in area was in E. Visayas and S&W Mindanao. Nut yields per tree were also highest, some 22% higher than the national average in the former and 57% higher in S&W Mindanao. Yields in 19701were damaged in S. Tagalog and Bicol by typhoons. The cadang-cadang disease is prevalent in Bicol and making headway in E. Visayas as well. There is a heavy incidence of old trees (over 60 years) in S. Tagalog (108,000 ha) and in W. Visayas (65,000 ha). - 28 - 6.33 Overall, about 5% of coconut farms use fertilizer although in Davao and Cotobato almost one third do. Where it has been used, yields are doubled or more by the fifth year. However, partly because of the long period for trees to react to fertilizers, the principal gain will likely come from its use on coconuts in connection with intercropping and improved grazing. 6.34 The Philippines will probably not lack for supplies in the coming decade. The expansion of area in the 1960's more or less assures a con- tinued rise in production of 3% a year or more. In view of increasing supplies of competitive oilseeds, finding outlets for larger supplies of copra may become more difficult except at lower prices. Unless costs of production are substantially reduced and the quality of copra, which has come into some disfavor, is significantly improved, the outlook is not optimistic. 6.35 Programs of fertilization along with intercropping (and grazing) offer opportunities to increase yields and lower production costs on many plantations. A major impact over the longer run would flow from a program to rejuvenate the old areas in S. Tagalog and W. Visayas. (The costs of rejuvenating and interplanting a coconut plantation are shown in detail in Annex 12, Appendix B.) Some form of income support would be necessary until new plantings come into production, even though replantings are spaced out over 7 years or so. 6.36 The traditional system for making copra results in uneven drying, high humidity and high free fatty acid contents which stimulate molds, attracts insects and makes the copra susceptible to aflotoxin contamination. Simple, inexpensive copra-drying installations which produce good quality copra are used in other countries and could be used in the Philippines. In view of the larger number of smallholders involved, cooperatives may be the appropriate instrument to operate copra kilns, monitor quality and market the copra for individual members. Rubber 6.37 There are some prospects for rubber as a smallholder crop in the Philippines although the price outlook in export markets is not optimistic. The area in rubber is now expanding rapidly from a very small base and in 1972 is estimated to be at least 29,000 ha. An important part of the increase has come in smallholder enterprises in the Makilala district of North Cotobato. Recent yields average about 900 kg/ha which compares very favorably with yields of Malaysian smallholders. Apparently this is due to the introduction of high yielding clones in the early 1960's. So far experiments have not indicated significant results from fertilizing. 6.38 The Development Bank of the Philippines provides financing for smallholders with the first payment due in the eighth year after planting (after the trees have been tapped two years). In the initial stage only part of the land is put in rubber with the rest reserved for subsistence - 29 - farming until the rubber comes into production. In the Makilala district, most farmers can finance the planting of additional rubber area with the proceeds from the first planted rubber. 6.39 Apparently there are considerable areas which could be brought into rubber. The Makilala area has about 56,000 ha of suitable soils. The province of Bukidnon and Agusan contain 139,000 ha and 59,000 ha respective- ly of the same soils, about 90,000 ha of similar soils are present in Coto- bato. Others, no doubt, can be identified as well. Presently, smallholder rubber is purchased and processed in factories of the larger estates. As the expansion of smallholders continues, the establishment of processing and marketing cooperatives will likely provide opportunities to increase their total return from the crop. Abaca 6.40 Some 25 years ago, over 500,000 ha were planted to abaca. Since then, with better returns from other crops, increasing competition from synthetics and other fibers and heavy damage by mosaic disease, the abaca area has declined to 155,000 ha. 6.41 In the last year or so, prices have firmed up, partly due to renewed interest in abaca fiber for the pulp and paper industry, particularly for high quality stripped fiber. Stripping is a very difficult task unless done with stripping machines several of which may be attached to one power plant such as a diesel or gasoline engine. Thus, this process lends some attraction for smallholders who can organize into some cooperative form. While Bicol and Visayas have traditionally been the main source of abaca, yields and net returns are much higher in Davao (Mindanao), where soils and climatic conditions are better. 6.42 Demand as yet is still limited and large scale development would be inappropriate for the time being. Bananas 6.43 A thriving export trade has developed to Japan. Bananas are substantially large enterprises which tie in small growers as well by contractual arrangements for inputs, technical assistance, and market services. 6.44 This industry operates with high technology and efficiency. But the scope for further rapid expansion in the Japanese market may be limited by increasing competition from other suppliers. Cashew 6.45 Although a cashew development program has been established, there is as yet little information on which to base its potential. The program projects average yields of 1.5 ton/ha which appear over optimistic. Trials should be conducted before large scale plantings are undertaken to ensure that suitable soils and climatic conditions are available in the selected - 30 - areas. Further, there is need for a selection program to identify the best performing varieties. In view of current limited cashew production, it would be well to delay heavy investment in processing equipment until the prospects for volume production are clearer. In the meantime, raw nuts could be exported to India where there is ample processing capacity and a shortage of nuts. B. Livestock 6.46 As might be expected, the livestock subsector as a whole has not expanded as fast as the rest of agriculture. The subsector contributed 17% of value added (in constant prices) in the agricultural sector in 1970 com- pared with 23% a decade earlier. Per capita consumption of fresh meat (as distinct from fish) declined some 10% during the 10 year period 1/. However, fairly sharp gains were recorded for eggs and for milk, the latter very largely from imports of dry skim milk and powdered whole milk. 6.47 Total demand for meat is projected to rise some 80% by 1980 reflecting population growth and the effect of rising consumer incomes. Concurrently, the demand for eggs and the demand for milk are projected to rise about 65%. Government production targets in the current agricultural development program (FY 1972-75) are generally consistent with the longer run requirements. For the immediate years ahead, government places priority on poultry and pigs (pork accounts for 60% of total meat consumption) as the most rapid way of increasing the meat supply. These industries have modernized and expanded rapidly in recent years while beef output has continued more or less unchanged and remains characterized by inefficient land use and poor management. Pigs 6.48 The prospects for continued rapid expansion in pork production are quite favorable. Commercial piggeries, which range up to 2,000 sows and are highly efficient, now account for about 10% of pork output and are rapidly increasing their share. Even so, there is room for many smaller producers with units of 25 sows and over, if they are provided credit and technical assistance. 6.49 However, the potential for expansion of the pig industry (and of poultry as well) will not be realized without an adequate feed base. The current feed shortage has required substantial imports of yellow corn from the U.S. under PL 480. Furthermore while mill by-products now provide some 80% of the grain component in concentrate feeds, by 1980 they will 1/ The official figures are much lower than data from 1971 food consumption surveys undertaken by U.P. College of Agriculture. - 31 - likely have the capability of supplying less than 50% of the larger grain requirements (Annex 4, Table 17). Corn or its equivalent will be needed to make up the deficit. Thus, the development of corn (and sorghum) production is an integral part of expanding livestock programs. 6.50 It would be well to locate pig enterprises in those areas where yellow corn and sorghum are developed. The plains of southern Cotabato would appear to offer opportunity in this respect. Mindanao normally produces about four times its own needs of corn and ships most to Manila or Cebu mills. Prices are low and frequently depressed because of transportation difficulties, especially in times of favorable harvests. On the other hand, local pig growers have difficulty in obtaining corn between harvests due to lack of storage facilities. The establishment of the pig industry in the Cagayan Valley in northeast Luzon, also suitable for corn production, would provide another dimension to that area's development. Poultry and Eggs 6.51 Commercial production of broilers and eggs has reached a hLgh stage of development. Commercial broiler output accounts for about 30% of the nations poultry meat and specialized production units supply about 75% of the eggs. The trend is toward large units, contract production and integration of services under centralized management. At the center is the feed industry, a highly competitive business which depends on large volume and narrow margins. Experience in other countries, which apparently is being repeated in the Philippines, is that integrated firms rapidly dominate the poultry meat and egg market, and that independent growers need to secure a contractual arrangement with a firm in order to market output. This need not work to the disadvantage of the small producer if he can be assured technical assistance, dependable supply of quality in- puts, and market security. It is doubtful that the alternative of producer cooperatives in the Philippine setting would have the management and scale of operations to compete successfully. Carabao and Cattle 6.52 The plan target of 6% annual increase in beef production is not likely to be realized. Some two-thirds of the nation's beef supply comes from carabao (water buffalo), primarily a work animal for small farmers. Significant increases from cattle in the next few years could come only from depletion of cattle inventories and thus, at the expense of production thereafter. Nevertheless there is a large, latent potential to develop a viable cattle industry not only to meet internal demand but also to participate in export trade. The Philippines is free of hoof and mouth disease. in the Visayas and Mindanao regions. 6.53 Cattle ranching in the Philippines is carried out under conditions which are not conducive to investment in pasture improvement and equipment for improved efficiency. Prior to Presidential Decree No. 7, ranchers operated on Government-owned land under pasture permits or lease agreements which lacked assurance of renewal and usually were not recognized as collateral - 32 - for credit. Thus, few cattle ranchers were in a position to adopt better techniques. Under the decree, leases will be long-term (25-50 years) and will be considered as collateral for medium- and long-term loans for development. There are a number of corporations operating large holdings (up to 10,000-15,000 ha) which are well managed and equipped. Frequently, these also operate other crop or agri-business enterprises which share over- head costs. 6.54 Increases in beef supply will be produced primarily from grass, cultivated forages and waste products from other agricultural enterprises, such as the sugar industry. As population pressures increase, cattle enterprises are likely to be pushed toward steeper and less productive areas. The need for revision of leasing and credit arrangements to provide incentives for improving productivity of hill grasslands will become even more urgent. For this, research on managing and improving hill pastures is needed. Limited research findings so far have provided a set of interim pasture recommendations. Some 30 pasture extension technicians have been fielded by the Bureau of Animal Husbandry. 6.55 The practice of grazing cattle under coconuts may well represent one of the best potentials for increasing the beef supply. There are some 1.8 million ha of coconut plantings. Generally, little fertilizer is used and the grass undercover has a capacity of only 1/2 to 1 animals per ha. It has been demonstrated that fertilizer applications of 250 to 500 kg/ha per year not only increase the carrying capacity of some grasses to 2-4 animals per ha but also increases production of nuts as well. 6.56 Some 40% of commercial coconut area is located in Mindanao and 20% in Eastern Visayas. Both regions have areas of favorable rainfall distribution for grass and legumes, and extensive ranching on natural grasslands, which could provide weaners for the coconut growers. 6.57 Negros also has a good potential for cattle production in conjunction with the sugar industry. Considerable marginal sugar lands could be used more profitably in intensive beef production. The soils are among the best in the Philippines for improved pasture development. One sugar grower is carrying up to 7 animals per ha on fertilized African Star grass with overhead irrigation during the dry season. In addition, by- products of the sugar industry could be used for fattening yearlings before marketing. Dairy 6.58 The limited demand for fresh milk and high costs of production offer little opportunity for expansion of commercial dairy units. Over - 33 - 90% of total milk consumed is in the form of canned milk (filled 1/, recon- stituted 2/ or condensed), largely manufactured from imported ingredients. Prices of locally produced milk are much too high to be used in these products, which are widely accepted and provide a relatively cheap source of milk proteins. Government policy to encourage local manufacture rather than imports of the final products has brought significan,t savings of foreign exchange. Although it may be, as the Bureau of Animal Industry estimates, that the current population of female carabaos could physically supply the nation's milk requirements, the practical problem of colliecting milk from owners of 1-3 carabao scattered over the islands is a major limiting factor. C. Fisheries 6.59 There is a pressing need to expand fish output. Although the fish catch more than doubled in the past decade (Table 16), domestic demand outpaced supply. Retail prices of fish, which is the principal source of animal protein in the Philippine diet, rose faster than other foods. 6.60 The marine catch represents some 90% of the total with the remain- der from fishponds, mostly of brackish water (Table 16). Table 16: FISH PRODUCTION AND GROWTH RATES 1970 Average Growth Rates Category Production 1965-70 ('000 tons) % Marine, Municipal 382 4.9 Marine, Commercial 511 10.9 /1 Fishponds 96 8.8 Total 989 8.2 Source: Philippines Fisheries Commission. /1 It is unlikely that this high rate of increase was realized. Much of the increase was recorded in 1968, when apparently there was improvement in the collection of data. 6.61 Municipal, or subsistence, fishing involving small traditional craft (bancas) usually non-mechanized, operating close to shore still supply 1/ "Filled milk" is reconstituted skim milk powddr with vegetable oil added. 2/ Reconstituted skim milk powder with butterfat added. - 34 - most of fish production. It is estimated that some 500,000 fishermen engage in this activity although many also work in logging and farming. Thus, output averages about 1 ton per fisherman although with motorized bancas the average catch is about doubled. Perhaps one-sixth of the bancas are presently motorized. 6.62 The rate of increase in commercial catch has slowed appreciably since 1965. In fact, the catch of commercial fishing vessels in 1969 and 1970 was below that of 1968, although the tonnage of the commercial fleet continued to increase. There are some 31,000 fishermen employed in com- mercial fishing, only slightly more than in 1965, averaging over 12 tons catch per fisherman. Almost all commercial fishing takes place in the territorial waters of the Philippines, which while covering an extensive area, contain limited shallow areas which are more suitable for fishing. 6.63 The increase in fishpond output of about 50% during the past 5 years reflected about equally expansion of area and improved yields. Although yields of pond milkfish approaching 600 kg/ha in the Philippines are twice the average yields in Indonesia, they are still far below the 2,000 kg/ha obtained in Taiwan where advanced techniques of fertilization, supplemental feed and intensive management of fish populations are commonly practiced. Development Strategy 6.64 By 1980, domestic demand for fish is projected to increase about 60%, or some 600,000 tons, over 1970. It appears quite unlikely that marine fisheries which provided over 90% of the increase in production during the 1960's can contribute as much in the 1970's. The municipal catch appears to be approaching its potential limit. Catches in many commercial fishing grounds around Luzon are recording declines, although those off Mindanao continue to increase. The potential for further rapid expansion of commercial fishing would appear to be in extension of activities into more remote fish- ing areas of the Sulu Sea, the Northern Celebes Sea and the South China Sea. But in view of fairly intensive fishing by other nationals in these waters, the prospects for the Philippines are quite uncertain. 6.65 The clearest potential for meeting a major part of demands in the 1970's appears to be in improving and extending fish farming as rapidly as possible. It is quite realistic to look for a doubling of yields per hectare in this decade from the technology of fishpond production which has been demonstrated in Taiwan and research conducted in the Philippines. Soil, water and climatic conditions of Philippine ponds are extremely favor- able to growth of milkfish and its natural food organisms. Experiments on catfish in fresh water ponds have yielded as well as milkfish in brackish water. At the same time, there are some 500,000 ha of mangrove and swamp lands available for development which provide a base for expansion of the present area of 168,000 ha. Large swamp areas are available in Mindanao, Samar, Bohol and Palawan, thus affording substantial opportunities for more balanced regional development. It is recognized that many of these swamp areas have Very limited access, and a coordinated program of roads and market facilities would be required. - .35 - 6.66 Nor should the commercial fishing fleet be neglected. Most of the vessels are over 10 years old and the need for replacement as well as improvement of existing vessels with modern equipment and machinery is becoming pressing. Further, experimental exploitation of more distant fishing grounds will require the addition of some modern larger vessels. 6.67 Some 70% of the commercial catch is landed at Navotas, near Manila. This is being improved as a fishing port and market with full facilities under a loan by the Asian Development Bank. The needs for ports and,market facilities elsewhere, particularly in the Southern reaches, already pressing, will become more urgent with rising production and demand. Conflict between Municipal and Commercial Fishing 6.68 Although commercial vessels are licensed by the Philippines Fisheries Commission to fish beyond the 3-mile limit, there is considerable crossover into near shore waters reserved for municipal fishermen. In fact, Z. Russek 1/ estimates that 40-45% of the commercial catch comes from these waters. Enlargement of the commercial fleet could have serious adverse effects on the small fishermen unless commercial activity in coastal waters is progressively limited. By the same token, such action would make room for more municipal fishermen or, conversely, by widespread mechanization of bancas, improve the catch and incomes of those presently engaged. Trade Deficit 6.69 In 1971, there was a net trade deficit of about US$16 million representing less than 4% of the total fish supply. Most of the imports are canned mackerel from Japan and fishmeal from Peru which up to now have been available at prices low enough to discourage domestic competition. If this situation should be changed, as perhaps might result from rising labor costs in Japan and from continued interruption of the Peruvian catch, the potential for import substitutions would be enhanced, although in the case of fishmeal, the availability of other animal protein feeds would be a limiting factor. D. Forestry 6.70 There are some 14 million ha of productive or commercial iorest lands in the Philippines. Almost all are dipterocarp forests, predominantly of the lauan, or Philippine Mahogany group, which is highly prized in export markets. The Bureau of Forestry estimates that the commercial forests contain almost 2 billion cu m of sound wood, of which some 1.3 billion cu m are in old growth dipterocarps. More than half of the old growths are in Mindanao and almost 30% in Luzon. 1/ FAO/UNDP/SF Deep Sea Fishing Development Project. - 36 - 6.71 Most of the commercial forest area is under license for timber cutting, although not all are being exploited actively (log production is only two-thirds of the allowable cut). Some areas in the Sierra Madre mountains in northeast Luzon, which are presently inaccessible, are still to be developed. 6.72 Although production of logs rose rapidly from 6.3 million cu m in 1960 to 11.1 million cu m in 1968, it has been essentially stable since then (Statistical Annex Table 3.2). 1/ The largest increase occurred in Mindanao, which now accounts for about 75% of the total cut. In view of the large forest resources available, it is evident that under improved management and practices, production could be increased substantially without jeopardizing the resource base. 6.73 Some 80% of logs produced are exported, almost all to Japan. Increasing competition for that market has come from Malaysia and more recently from Indonesia, where substantial Japanese investments in logging operations have been made and which is now the largest supplier to Japan. C.I.F. prices for logs from Malaysia and from Indonesia particularly run consistently below those from the Philippines, although the differentials have narrowed appreciably in recent years. 6.74 Wood processing operations are still quite small. The Philippine lumber industry is primarily oriented to the domestic market and operates well below capacity. Production of plywood has not changed much in the past 5 years and that of veneer dropped sharply. These are largely for export to the U.S. 6.75 Although the nation is well endowed with wood materials, it is incurring an increasing import deficit in pulp and waste paper. In 1970, some 60,000 tons valued at US$7.5 million were imported as compared with about 24,000 tons valued at US$3.4 million in 1965. Paper use per capita is relatively low and so far insufficient to support an economic size mill. Public Forest Management 6.76 Management and control of the forests have been unsatisfactory but the situation is likely to improve as a result of recent actions by the Government. The commercial forest land area has been reduced about 200,000 ha a year partly from the legitimate release of land designated as suitable for agricultural use but largely from illegal logging operations and the inroads of squatters (kaingineros) who engage in shifting cultivation. Much of the illegal activity has taken place on lands which, because of steep slopes or other characteristics, should best be left in trees. The results have been denuded lands, heavy runoff problems and soil erosion, particularly noticeable in Central Luzon, and large areas taken over by the useless cogon grass which is difficult to eradicate. It should be noted that some 1.4 1/ Production and exports of logs declined in 1972 reflecting economic recession in Japan. - 37 - million ha of important watershed lands are critically degraded, with re- planting averaging less than 10,000 ha a year in the past decade. 6.77 Under the new Forestry Reform Code, all lands of 18% slope or more which have not been titled are declared in the Permanent Forest or Forest Reserve. Further inroads of kainging are prohibited and activities of present squatters on these slope lands will be controlled to avoid further damage from shifting cultivation. Whereas formerly three agencies shared responsibility for implementation of control regulations, these have been consolidated into a new Bureau of Forestry Development with broad authority over forest programs. 6.78 This is not to say that the entire public forest area should be preserved. This would be unrealistic in the Philippine context of consider- able population pressure on land. But there is need to promote efficient land use and to reserve under proper forest management the most productive areas encompassing some 8.5-9 million ha. So far, only 4.9 million ha have been classified as a forest reserve, although almost 4 million ha more has been identified as meeting the criteria for permanent forest land. Allowable Cut 6.79 As a rule of thumb, the allowable cut for lauan stands has been established at 1% of the standing volume, or I to 1.5 cu m/ha per year. Some evidence is accumulating from experience in Mindanao that net growth rates of 3-5 and sometimes up to 7 cu m/ha per year are quite typical. Although this would need to be verified by further research, there appears to be a potential, with careful thinnings in which pulpwood is removed, to produce stands of nearly purely lauans with a commercial log volume of about 150 cu m/ha in less than 40 years. Under such extensive management, it would be possible to increase the allowable cut. Licensing Policy 6.80 Government licensing policy has an important bearing on the effective use of the forests and the costs of production. Large-scale operators under license agreements running 10-25 years, which presently account for,about one-third of the licensed area and half of output, cut over 90% of the allowed cut whereas the performance of smaller and shorter term licensees falls con- siderably below. Costs of production of logs to shipboard under lallge scale operations are estimated to be 25-30% less than under average sized operations either in the Philippines or in Indonesia (Annex 2 Table 13). This is an important consideration in meeting the increasing competition from Indonesia. Government has recently terminated or suspended activities of most short-term licensees and declared its intention to convert most into long-tera leases of up to 25 years in order to provide incentive for more effective use and protection of the forests. Integrated Wood Industries 6.81 Under present conditions, it is more profitable to export logs to Japan than to process them in the Philippines for export, thus foregoing the - 38 - benefits of employment and income that might accrue from the latter course. Although tariffs on processed products and shipping costs are limiting factors, the essential fact is that Japan's wood industries have the capability of using all of the wood, including mill wastes, whereas the Philippines industry, which is quite small and scattered, does not. Thus, Japan's industry can afford to pay generally higher prices for logs than the industries of the Philippines. While some progress was made in exporting plywood and veneer to the U.S. in earlier years, since 1968 they have declined. In order for the Philippines to compete more effectively in world markets for wood products, an important pre-condition would be the establishment of an array of wood industries in close proximity, which would include as well as reconstituted board manufactures and pulp mills. 6.82 The Bureau of Forestry has been studying the potential of establishing a wood processing and export center to handle approximately 1 mil cu m of wood annually at Casiguran Sound in Northeast Luzon, an area of unexploited virgin forests. However, the prevalence of typhoons which would make shipping hazardous for about 6 months a year represents a consider- able deterrent to such development. Other possibilities for such centers are in Mindanao where most forest activities take place and where some infra- structure exists. 6.83 Expansion of wood processing for export should not be viewed as a substitute for the important Japanese market for logs which is quite profit- able, but rather as a supplementary activity to provide an outlet for addi- tional production that can be forthcoming from the forests. Pulpwood, Pulp and Paper 6.84 Perhaps the most promising new prospects for wood materials are in the pulpwood and pulp industry, not merely for import substitution and meet- ing domestic demands for paper products, which have more than doubled in the past decade, but more important as an export for which there is strong worldwide demand. In particular, Japan's consumption of paper products has increased 12-13% a year in the past 20 years. It is estimated that Japanese import needs for pulpwood will be more than twice as large in 1975 as in 1969 and more than 5 times larger by 1985. 1/ In the latter year it is further estimated that the traditional suppliers of pulpwood to Japan would fall short of meeting her requirements for pulpwood by some 16 mil cu m. 1/ Unpublished report of Tuolumne Corporation, 1971. - 39 - 6.85 The Philippines is in a favorable position to exploit such opportun- ities. Major technical advances have resulted in a rapid increase in the use of some hardwoods in many paper products. Further, current harvesting practices discard young growth and softwoods that are suitable for pulping. But to become a major supplier, plantations of fast-growing species (7-15 years) - abizza, eucalyptus and pine - should be established. Much of the cut over lands which are unsuitable for cultivation would be best used for this purpose. The mission estimates that the Philippines has the enormous potential of producing about 50 mil cu m of pulpwood a year, which could well lead to a dominant position in world export markets. 6.86 Five or six years hence, demand for pulp and paper in the Philippines is expected to exceed domestic supply by some 200,000 tons. This would provide immediate opportunity for 1 or 2 economic sized mills, which might well become part of an integrated wood processing center as noted previously. - 40 - VII. SUPPORTING SERVICES A. Research, Extension, Administration and Credit Research 7.01 On the whole, the Philippines is building a competent research establishment. Its Bureau of Agricultural Economics (BAEcon) is developing increasing competence to provide data and analyses for agricultural policy decision-makers. The research institutions are well-advanced in HYV rice and quite recently in corn for which downy mildew resistant varieties have been developed. Research on sugarcane has had a long and generally fruitful history but varieties resistant to the ratoon stunting disease have not yet been developed. Other research is less impressive, particularly for coconut on which the cadang-cadang disease is making substantial inroads. Research on sorghum and soybeans has not yet had time to make a large contribution to development of a feed base. 7.02 The research community is scattered among various bureaus of the Department of Agriculture and Natural Resources (DANR), and universities, and beyond that to numerous independent commodity institutions more or less going their own ways. This has not been conducive to coordination and the cross flow of information or to determining the appropriate priorities and emphasis on research. The recent formation of the Philippine Council for Agricultural Research chaired by the Secretary DANR is an important step toward correcting these deficiencies. Extension 7.03 More effective extension services for agriculture and water manage- ment will be required if resource productivity is to be significantly improved. This is of critical importance in the land reform program. Extension activi- ties have been even less satisfactory than research both in manpower and effectiveness. The mainstream of extension, the Agricultural Productivity Commission (APC), which was formerly an independent agency, has only recently been integrated as the Bureau of Extension (BAEX) into DANR and the research- base. However, the Department of Agrarian Affairs (DAR) responsible for land reform and land settlement still maintains an extension service in the land reform area which now encompasses much of the nation. Overall, there is a ratio of 1 extension worker to perhaps 1,400 farmers, but an extension agent can hardly deal effectively with more than one-third of that number and for tenants under land reform more nearly 1 to 200. While it is urgent to expand the supply of trained extension workers severalfold, there is also the need to bring extension activities together within the DANR. Administration 7.04 Until recent administrative reforms authorized by Presidential Decree No. 1, the problem of fragmented and scattered authorities pervaded - 41 - much of the management of agricultural development (see Figure 7018 for the situation pre-decree). DANR has been strengthened in several particulars to provide for wider authority and more effective coordination and administra- tion of programs. These relate most notably to activities in forestry, fisheries, and livestock development; the transfer of the National Grain Administration (formerly Rice and Corn Administration) under DANR supervision as well as the Philippines Virginia Tobacco Administration both of which were formerly independent agencies; and the actions taken with respect to research and extension mentioned above. Credit 7.05 Constraints in agricultural credit represents a formidable obstacle to agricultural development. Not only has the supply of credit been inadequate to finance production inputs and farm development but some funds normally directed to agricultural activities have been diverted to other sectors of the economy. Further, institutional credit has been reserved for larger commercial operations while the great bulk of smallholders and tenants (the three-fourths of all farmers with less than 3 ha) have had to rely heavily on moneylenders and other non-institutional sources. Table 17: NEW AGRICULTURAL LOANS, 1969-71 (billion pesos) Credit for: 1969 1970 1971 Production 1.9 2.5 2.9 Marketing 1.3 2.3 2.8 Total 3.2 4.8 5.7 Production loans as % of Agriculture NDP 19 21 20 Source: Ad Hoc Committee on Agricultural Credit, 1972. 7.06 New production credit from institutional sources has more or less kept pace with the rise in Agricultural Net Product but still finances only 20 percent of such product (Table 17). Even this may be an overstatement since new loans also include renewals. The mission estimates that, as of the end of 1971, agricultural loans outstanding for both production and marketing totalled 3.4 billion pesos compared with 3.3 billion at the end of 1970 (Table 18). In view of the rise in prices during 1971 of some 15 percent, credit outstanding declined substantially in real terms. - 42 - Table 18: AGRICULTURAL LOANS OUTSTANDING, 1970 AND 1971 (million pesos) Source Dec. 31, 1970 Dec. 31, 1971 Philippine National Bank 973 989 Other Commercial Banks 1,274 1,221 Development Bank Philippines 396 396 Private Development Banks 82 86 Rural Banks 502 601 Agricultural Credit Administration 54 65 Total 3,281 3,358 Source: Mission estimates. 7.07 Most production credit is granted by rural banks (whose clientele is prescribed to be farmers with 50 ha or less) and the Philippine National Bank (the latter the main source of credit for sugar planters). The Agricul- tural Credit Administration, a government agency to provide credit to small farmers in land reform areas, accounted for only about 1% of total production credit in 1971. Most credit for marketing is provided by the Government- owned Philippine National Bank (PNB) and privately owned commercial banks. Longer-term loans have come largely from the government Development Bank of the Philippines (DBP), which also makes funds available to the private develop- ment banks. Altogether longer-term credit from these institutions accounted for less than 15% of credit outstanding at the end of 1971, a fairly low level for investment in farm improvements. 7.08 The demand for institutional agricultural credit is expected to rise rapidly for several reasons. First, spread of HYV technology will require increasing expenditures for production inputs, particularly fertilizers. At present, perhaps only 30% of the riceland is fertilized and very little of cornland is so treated. Together these crops, 3.1 million ha of rice and 2.4 million ha of corn, account for more than half of all cropped land in the nation. Second, the land reform program, which is expected to convert into owners perhaps as many as a million tenants on 1.8 million ha of rice and cornland, will create an additional need for credit, partly to supplant credit previously furnished by the landlord, but also for capital improvements to enhance productivity. Third, long-term development loans will also be needed especially to exploit the large potentials for smallholder fishponds, cattle enterprises and tree farming. 7.09 Following the Presidential Decree on land reform, Government moved to strengthen the financial resources of the major credit institutions and to make them more responsive to the needs of smiallholders. It is estimated that to provide the production credit needs of the land reform program will require expansion of production credit of. about ? 350 million over the next 4 or 5 years. This will place a considerable additional - 43 - burden on the private rural banking system, the main source of such credit to smallholders. In 1972, rural banks granted total agricultural loans of about 0 725 million. 7.10 Moreover, rural banks have had few dealings with sharecroppers, who generally lacked collateral security. It is recognized that to service the new owners will likely involve higher risks than the rural banks have faced heretofore. Thus, the rural banks have been authorized redisc6unting privileges of 100%, Government guarantees of 85% of the loans made, and low- cost money from the Central Bank (1%) providing the loans are supervised by agricultural technicians. 7.11 Despite fairly rapid expansion, rural banks do not yet provide geographic coverage of the nation. Of some 600 banks, two-thirds are in Luzon while coverage of other islands is quite sparse. PNB is also planning to extend branches to areas whick lack credit facilities, particularly in Mindanao. DBP is also expanding its activities. Additional financial resources have been provided to both PNB and DBP. 7.12 Government plans to rely primarily on these institutions - rural banks, PNB and DBP - to provide short and longer-term investment credit under the land reform program rather than on the Agricultural Credit Administration (ACA), which in addition to cooperative marketing functions has provided credit to cooperatives and members of cooperatives, particularly in areas with land reform programs. This decision reflects the poor performance of ACA relative to rural banks in collection of loans. During 1964-71, collections amounted to only 64% of releases; collections from production loans associated with land reform were only about 40% of releases. 7.13 An Agrarian Reform Fund, established by Presidential Decree No. 85, will finance and/or guarantee payment to landowners for farms acquired by tenants as well as guarantee production loans. The Fund has resources of about ? 2 billion, consisting of securities held by the Central Bank, Govern- ment guarantee funds provided by earlier appropriations, real estate, shares of stocks of private corporations and other assets of Government controlled financial institutions, and peso proceeds of foreign loans. Government expects a high rate of default in the initial years of the program, and consequently a considerable drain on the fund. 7.14 The Land reform program will place heavy operational strain on the institutions entrusted to provide credit support to the program, particularly the rural banks. A rapid expansion in banking facilities to areas which are inadequately served, if at all, and in the training of competent technicians for credit supervision will be required in order to improve productivity of the former tenants and minimize defaults on lans. - 44 - B. Land Reform and Settlement Land Reform 7.15 Share tenants make up perhaps 40% of all farmers in the Philippines; most are engaged in rice and corn production. As a group they rank among the poorest in the nation. Since 1963, the expressed intent of government has been to convert them into owner-cultivators on economic family - size farms. On the whole land reform and land settlement programs have made very limited progress toward this end. By 1971, little more than 50,000 share croppers, only 5% or so of the total, had been converted to lease holders with secure tenure on the farms they cultivated and more favorable crop sharing arrange- ments, which increased their incomes although farm productivity was much the same as under share cropping. 1/ This was the first stage of the program. The second stage of full-ownership has been accorded to only about 3,400 farm families (including those pending court approval). There has been little consolidation of holdings into "economic - size" farms. 7.16 Following the declaration of martial law, President Marcos issued Presidential Decree No. 27 on October 21, 1972, extracts of which are reproduced below: "This shall apply to tenant farmers of private agricultural lands primarily devoted to rice and corn under a system of sharecrop or lease-tenancy, whether classified as landed estate or not; The tenant farmer, whether in land classified as landed estate or not, shall be deemed owner of a portion constitut- ing a family-size farm of five (5) hectares if not irrigated and three (3) hectares if irrigated; In all cases, the landowner may retain an area of not more than seven (7) hectares if such landowner is cultivating such area or will now cultivate it; For the purpose of determining the cost of the land to be transferred to the tenant-farmer pursuant to this Decree, the value of the land shall be equivalent to two and one-half (2-1/2) times the average harvest of three normal crop years immediately preceding the promulgation of this Decree; The total cost of the land, including interest at the rate of six (6) percent per annum, shall be paid by the tenant in fifteen (15) years of fifteen (15) equal annual amortizations; 1/ P. R. Sandoval and B. V. Gaon "An Economic Analysis of the Effects of Land Reform in Selected Areas in the Philippines", unpublished data, 1972. - 45 - In case of default, the amortizations due shall be paid by the farmers' cooperative in which the defaulting tenant-fairmer is a worker, with the cooperative having the right of recourse against him; The government shall guarantee such amortizations with shares of stock in government-owned and government-controlled corporations; No title to the land owned by the tenant-farmers under this Decree shall be actually issued to a tenant-farmer unless and until the tenant-farmer has become a full-pledged member of a duly recognized farmers' cooperative; Title to land acquired pursuant to this Decree or the Land Reform Program of the Government shall not be transferable except by hereditary succession or to the Government in accordance with the provisions of this Decree, the Code of Agrarian Reforms and other existing laws and regulations; The Department of Agrarian Reform through its Secretary is hereby empowered to promulgate rules and regulations for the implementation of this Decree." 7.17 At the time, this report was prepared, the development of the program was at an early stage and handicapped by lack of data on the numbers of tenants and landlords, and the size distribution and location of their holdings. It was estimated that there are about one million tenants on approximately 1.8 million ha of rice and corn lands held by some 350,000 landlords. It is also believed that about 80% of the landlords have holdings of less than 7 ha. If this latter group is exempted, a large number of the share tenants would not be under the program. Further, the exemption of all non-tenanted rice and corn land would place outside of the program an area larger than the tenanted area, although again these lands appear to be largely in small holdings and the extent to which these are in larger owner-operated units is not known. 1/ Thus, the Decree, narrowly interpreted would appear to offer little opportunity for land redistribution or to enlarge the silze of tenant holdings which now average about 1.8 ha. 7.18 In any case, there is not enough rice and corn land to satisfy the criteria of economic farm units of 3 ha of irrigated land or 5 ha of non-irrigated land for all farms whether owner-operated or tenanted. The total number of rice and corn farmers probably exceeds 2 million whereas the total of rice and corn lands is not much more than 4 million ha, of which considerably less than 1 million ha are irrigated. While these criteria do not appear to be attainable, it should be voted that rice and corn yields 1/ Landowners holding 100 ha or more have been directed to report their holdings by January 31, 1973, and those with lesser holdings by June 30, 1973. - 46 - are low and there is a large potential to increase production on present small holdings from HYV technology, expansion of irrigation and dry season cropping. In view of the slim prospects for affecting much in the way of larger sized units, the main priority for land reform appears to be in improving the situation for tenants on lands which they presently occupy, although programs of land redistribution and new land settlements can help alleviate to some extent the situation for those with very small holdings. 7.19 Even if the land reform program is substantially limited over the next 4 or 5 years to transforming present tenants into owner-cultivators, the administrative and financial capacity of the Philippine government will be severely tested. To identify tenants, conduct the necessary land surveys, determine the cooperatives (in which membership has been made a precondition for a certificate of title to be issued) will require a sharp expansion of government manpower concerned with these activities. Nor, as the government recognized, will it be enough to provide land titles without providing the means for the new owner to improve productivity of his holding. This will require production credit, partly to supplant that previously supplied by the landlord, effectively supervised to ensure its appropriate use and a large component of technical advisory extension services which may require perhaps 1 extension technician for 200 farms whereas the overall ratio for all farms in the Philippines is at present on the order of 1 to 1,400 and the ratio for share tenants even more inadequate. Moreover the infrastructure program in land reform areas, particularly irrigation, rural roads and market facilities where these are inadequate, will need to be substantially accelerated. 7.20 Presidential Decree No 85 dated December 24, 1972 established an Agrarian Reform Fund of some 1 2 billion of government assets and guarantee funds to finance and guarantee payment to landowners for land acquired by tenants as well as to guarantee lands to former tenants for production purposes made by credit institutions, primarily the rural banks but also by other institutions where rural bank services are not available or inadequate. 7.21 Preliminary plans of government are to offer landowners several payment options: (a) Straight 15-year payment at 6% interest. The Agrarian Reform Fund will guarantee payment in the event the tenant defaults; (b) Cash payment of 10% and balance in 25-year tax free bonds at 6% interest; (c) An annuity of up to 15 years at which time the full purchase price is paid. An insurance feature provides for immediate payment in the event of death of the landlord within the first 7 years. In the event of death of the tenant, optional insurance could provide relief for his heirs; - 47 - (d) A leasehold plan similar to the existing program; (e) Exchange for shares in portfolio of assets held by the Agrarian Reform Fund. 7.22 Based on experience with loans made by the Agricultural Credit Administration in land reform areas, government anticipates fairly high rates of default at least in the first few years of the program. Require ments for credit on the Agrarian Reform Fund for transfer of all tenanted land area expected to total some r 1.2 billion within the next 5 years. Production credit extended by rural banks and other institutions for tenanted lands is projected to require expansion of 1 350 millions of institutional credit by the fifth year, again with high default rates anticipated in the initial years. In the event of continued defaults other than by reasons of forces beyond the control of the tenant, production credit will be cut off and government will take over the land. Whether high default rates actually materialize will depend substantially on the effectiveness of the support- ing services of supervised credit and advisory extension activities. Land Settlement 7.23 By 1972, organized land settlement had covered only about 26,000 families, most of whom were already squatters on the land. Experience with land settlements has not been satisfactory, largely a result of limited supporting services provided by government and because of location in remote areas difficulties in marketing and transportation. By far most of the new lands brought under cultivation during the past decade has been developed by squatters, frequently on lands unsuitable for cultivation. There are perhaps a million ha or so of forest and other lands (exclusive of cogon lands) which can be made available for settlement, mostly in Cagayon Valley, Mindanao, Palawan and perhaps Mindoro. This would roughly approximate the area taken over by squatters in the past decade. Thus, the major contribution of organized land settlement would be to offer better opportunities for those who are migrating while at the same time reducing the ills of erosion and loss of land to cogon grass which has attended the movement of squatters onto hillsides. Land settlement offers only a very limited potential to restructure Philippines agriculture into larger sized units. 7.24 The private sector offers a means for greatly improving land settle- ment programs. As an example, in the Ste. Tomas scheme in Davao del Norte, smallholders contract with corporations under long term arrangements to manage their lands for growing bananas for export. With a guaranteed minimum profit of Y 500/ha annually and the option of supplementary work, incomes to the smallholder are assured and are higher than could be obtained otherwise. 7.25 Similarly, the potential for future land settlements could be greatly enhanced by participation of the private sector in providing assured markets, financial support and technical services. This should be encouraged for corn or other feed grains for which demand prospects are good. There - 48 - are potential areas in the Cagayan Valley and Mindanao (North Cotobato and areas adjoining Bukidnon for such settlement. C. Irrigation Rehabilitation and Improvement of Systems 7.26 Rehabilitation of existing systems is a matter of high priority. It should include repair of facilities, comprehensive improvements for drainage and water management and control and access roads, as in projects in the Upper Pampanga and Cotabato. The economic advantage of rehabilitation is quite clear. The present "run-of-river" type new project costs about f 1,500/ha. A thorough rehabilitation costs about I 800/ha. Under the latter situation, the present crop intensity of 108% could be increased to 148%. Reports from farmers in pilot projects indicate that the rehabilitation program increase yields of palay an average of about 25%. Thus, there is a potential to increase output of present NIA irrigated lands by some 70%. 7.27 The date below simulate the increase in output per ha under progressively intensive stages of gravity irrigation systems. Table 19: ESTIMATED RESULTS OF INVESTMENT IN VARIOUS STAGES OF GRAVITY IRRIGATION SYSTEMS Additional Cropping Additional Cost of Stage Yield Intensity Output Output System cavans/ha % cavans/ha cavans/ha P/ha Rainfed lowlands 40 100 40 - - Run-of-river irrigation 55 108 60 20 1,500 Rehabilitation & Improve- ment 70 150 105 45 800 Rehabilitation, Improve- ment & Storage 87 190 165 60 2,200 Thus, to convert rainfed to run of river irrigation without control and water management as has been the practice, would involve an investment of V 75/cavan for the additional annual output; to add on rehabilitation and improvement would cost f 18/cavan; and to add water storage hereon would require a further investment of I 37/cavan. To go from rainfed to an improved system either with or without storage would require an investment of about f 35/cavan. While investment costs per cavan of annual output may be roughly the same with or without built-in water storage, storage may be - 49 - necessary as in the expansion of the Magat irrigation area. Also storage provides other advantages. The reduction of flooding in wet season and assurance of water supply in dry season would reduce the risks of farming. With assured water supply equitably shared, the collection of water charges would be considerably enhanced. Further, in most cases there is usually a power component of the dam project which reduces the investment cost atrributable to irrigation. At the same time, unless these considerations clearly out- weight the benefits obtained without storage, investment priorities should go to the latter since it would affect almost twice as many farmers for the same investment. Also, it is quite clear that the traditional run of the river system is quite unsatisfactory despite the social and political aspects of covering a wider area for the same investment. 7.28 About 260,000 ha under present NIA gravity systems should be rehabilitated. This estimate excludes the area under rehabilitation in the Upper Pampanga and small projects under 3,000 ha which should receive some repaid and turned over to local management and maintenance. Even so, to accomplish the task within an 8-10 year period would require more than twice the present engineering staff of NIA. Future Development of Irrigation 7.29 Even if the rehabilitation program is completed by 1980 increasing the irrigated cropped rice area by 100,000 ha or so, this would account for only about one-sixth of the increase in irrigated area necessary to meet requirements for rice by that time. The remainder would have to come largely from extension of irrigation to new crop land on the order of 45,000 ha a year (at cropping intensity of 150%). 7.30 Pump irrigation offers some potential. But the state of disrepair of existing systems pumping surface water suggests that the major effort over the next several years should be directed towards their reestablishment rather than to large scale expansion. Pumping water rights and priorities need to be established as well. The UNDP Project for Groundwater Develop- ment has uncovered some potential in the Laguna region, but by and large little is known about the availability of groundwater. A thorough survey of groundwater resources for the entire country is needed. 7.31 Thus, expansion of NIA gravity sytems offers the principal means for meeting rice requirements within the current decade. Fortunately, there are large opportunities to expand irrigation. Only one-third of the lowland paddy cropped area of 2.7 million ha is presently irrigated and there is a potential for irrigating an additional 1.3 million ha. Even in Central Luzon, where the largest concentrations of irrigation exist, irrigated paddy lands are less than half of the lowland paddy area in wet season and in dry season extends to only 40% of the area covered in wet season. 7.32 In addition to the Upper Pampanga, Cotobato and Angat-Magat improvement projects already undertaken, projects proposed by Government for foreign assistance (listed in Section VIII) would provide about half - 50 - of the needed expansion of irrigated crop area by 1980. 1/ The Upper Pampanga Project (improvement of 46,000 ha existing and addition of 31,000 ha new) is the main element to the mid-1970's. The Magat Dam project (improvement of 40,000 ha existing and 60,000 ha new) is the principal project for the later 1970's. 7.33 Beyond 1980, a major potential may be in transbasin diversion of Casecnan River water excess to Cagayan needs to Central Luzon in order to expand the Upper Pampanga project area of 77,000 ha by an additional 50,000 to 75,000 ha. Although irrigable areas have not yet been defined in the Cotabato Plain, Mindanao, it is conservatively estimaed that about 100,000 ha of land could be put under irrigation. 7.34 With more intensive exploitation of water, the need for a water resources master plan has becore more pressing. It is most urgent for Central Luzon, including an evaluation of the needs of the Cagayan Valley and the capability of transbasin diversion to Central Luzon. Water resource studies of other areas, particualrly in Cotobato, should follow. 7.35 Manpower will be a major constraint to carry on enlarged programs both for rehabilitation and new irrigation projects. It will require a training program to develop a staff much larger than the present one. A training program staffed with NIA personnel and perhaps a few expatriates in key positions will be required. Also some training abroad of young Filipinos might be needed. D. Marketing and Transportation 7.36 Marketing of agricultural commodities is almost entirely in the private sector. Government intervention is largely limited to the purchase and distribution of rice for stabilization purposes. Operations under the independent Rice and Corn Administration (RCA) which was recently superseded by the National Grains Authority under the supervison of the Secretary DANR, proved unsatisfactory. During the period of self-sufficiency in rice, 1968-70, government purchases of palay were insufficient to maintain farm prices at announced support levels. Thereafter, until the recent rise in world prices, the large spread between domestic and world prices enabled RCA to import and sell at a profit although at prices still below those of domestic rice. Margins of rice millers have been squeezed also by price controls, impeding investment in facilities for more efficient operations. Further, government stocks suffered heavy losses, partly because the quedan or warehouse receipt proved untrustworthy. 7.37 As the nation once again approaches a balance between production and requirements of rice, the NGA will need to reinforce domestic purchase operations so as to provide the security of the support price to palay farmers. 1/ Based on NIA tabulations dated 12/22/72. - 51 - Moreover, similar support operations may be necessary to stimulate production of corn and other feed grains. NGA plans to conduct palay support purchases through a network of private mills acting as agents of NGA. It will be important to assure that government maintains control of its stocks. 7.38 NGA is not permitted to sell at a loss. This may make for discon- tinuance of operations as supplies improve and prices fall, a time when increased support operations should be forthcoming. The practice of selling imported rice at less than prices of domestic rice also acts as a disincentive to the producer. 7.39 Government-sponsored marketing cooperatives for palay have not made much headway, partly because of high overhead costs which lower the returns to cooperating farmers below those received from traders. Yet: there is a definite need for cooperatives in some cases which can provide drying and storage facilities as well as other marketing services, especially in areas where communication and transport are difficult and competition among traders limited. 7.40 Market facilities are poorly geared both in capacity and lo:ation to handle an increasing volume of agricultural products. Rice milling facili- ties are underutilized in many areas although a substantial number are not very efficient in converting palay into rice. There is a general lack of drying facilities, an important factor in a climate of high humidity, for rice and corn. More drying facilities for corn will be especially important in Mindanao and the Cagayan Valley, where very large increases in output can be expected in the future. Feed mills are also required in livestock production centers, particularly in Mindanao. Navotas, near Manila, is the only fishing port being constructed with full facilities, although most fishing takes place in southern waters and future increases in fish catch are expected to come from there. 7.41 The physiography of the islands makes transport difficult between island and intra-island as well, adding substantially to the costs of marketing, and thus lowering prices to producers. Roads, especially feeder roads, and ports are needed to facilitate inter-island, intra-island, and export shipment (Map 10217). VIII. MAJOR INVESTMENT OPPORTUNITIES FOR FOREIGN FINANCING 8.01 Investment opportunities noted below reflect the priorities of development strategy in the 1970's. The principal emphasis is on improving the condition of smallholders, most of whom are producers of palay and corn. For palay farmers, improvement and expansion of the irrigated rice area along with the continued spread of HYV-fertilizer technology,(on rainfed lowlands as well) holds the most promise. For corn farmers, the use of new varieties and fertilizers offers the potential to double output by the end of the decade and to begin to participate in favorable export trade. - 52 - In order to exploit the potentials of HYV-fertilizer technology, cultivators will need credit to finance fertilizers and other inputs. Credit is also needed for draying and storage facilities and feed mills, which otherwise will be an increasing constraint on such development. 8.02 The land reform program will rpquire a great expansion in production credit, partly to supplant credit previously advanced by the landlord but more important to finance fertilizers and other inputs in order to make land more productive. A corollary requirement is a rapid strengthening of supporting extension and credit supervision services. An integrated rural development approach in selected areas which provides infrastructure, credit (both short and long term) and the full range of supporting facilities and services appears to be promising. At the same time, opportunities for new land settlement can help alleviate the pressure of people on land and the ills which result from the spread of squatters on steep slopelands. 8.03 Large scale development of smallholder fishponds for which the Philippines is very well suited and for which large areas are available is also of high priority. While there are also opportunities to assist small holders in improving coconut and tobacco production and marketing particularly for export, these are perhaps not as urgent, partly as a reflection of market prospects. 8.04 Extensive forest resources, which are presently inadequately exploited, can provide the base for development of large scale pump and wood industries to greatly increase export earnings. Oleo-resin production from Benguet pine could increase employment and incomes of forest residents. There is need for reforestation of denuded areas and improved watershed management. Also, the rehabilitation of some 4 million ha of cogon grass lands would provide considerable opportunity for pine plantations, cattle grazing and some areas suitable for upland crops. 8.05 While potential investments noted below relate to specific projects, general program assistance will also be required, particularly to finance heavy imports of fertilizers and protein animal feed. The Government has already begun discussions with external financing agencies on many of the projects listed below. Irrigation 8.06 For the foreseeable future, expansion of irrigated rice is clearly a matter of the highest priority. This includes rehabilitation of existing irrigation systems to increase the area served in both wet and dry seasons and development of new irrigation projects with the same capabilities. By 1980, the cropped irrigated rice area will need to be enlarged by some 640,000 ha if the nation is to provide for is minimum requirements of rice. 8.07 Possible projects at various stages of preparaion and negotiation with lending agencies include: - 53 - (a) Penaranda - Aurora Project in Central Luzon for improvement of some 19,000 ha of existing irrigation scheme in Penaranda area, including trans-basin transfer of water from Aurora in Cagayan Valley to provide dry season irrigation. IBRD/IDA financing has been requested. Preparation of feasibility report is being financed by IBRD. (b) Central Luzon Master Water Plan to provide information on available water resources so as to identify priority projects and facilitate preparation of feasibility reports. The study will also be concerned with potential trans-basin diversion of water from the Cagayan Valley which is excess to its needs. Total estimated cost of study is about US$2.1 million, of which US$2.0 million is from foreign assistance. The Government has requested IBRD/IDA to include this in possible loan or credit for Penaranda-Aurora. (c) Tarlac Project in Central Luzon for rehabilitation of 30,000 ha to provide for dry season irrigation. Feasibility study is being undertaken by NIA and IBRD financing may be sought. (d) Groundwater Development in Laguna area of S. Tagalog covering about 10,000 ha in both wet and dry seasons pending feasibility report being prepared by an UNDP Team. IBRD financing may be sought. (e) Magat Dam Project, Cagayan Valley, to provide water, improve 40,000 ha of existing irrigation and extend irrigation on an additional 60,000 ha. Estimated cost US$127 million, including power component, of which about US$60 million is from foreign sources. Feasibility study Is scheduled for com- pletion with USBR assistance, IBRD or ADB financing may be sought. (f) Three packaged projects in Mindanao covering 41,000 ha of new irrigation. (1) Saug-Compostala 13,300 ha (2) Bunawan-Salvacion 9,300 ha (3) Kabulnan-Labu-Labu 18,500 ha Estimated total cost U$$8.8 million. Feasibility study is being conducted by NIA-PES team. ADB technical assistance and financing may be sought. (g) Angat-Magat Irrigation Development, to improve a total of 63,000 ha of existing irrigation schemes in two areas. ADB financed the feasibility study and may finance the project. - 54 - (h) Laguna Lake Water Quality and Management, involves qualitative and analytical study of the Laguna Lake water for use in irrigation, fishery and water supply, including tidal and hydraulic controls. UNDP is financing the study with ADB as the executing agency. Investment plan pending outcome of the study underway. (i) Irrigation/Electrification Project, using diesel engines in pump irrigation to serve 35,400 ha and to provide electricity to 17,000 homes in 8 provinces (Cagayan, Isabela, N. Viscaya, Ilocos Norte, Abra, Camarines Sur and Capiz). Government is negotiating with Japan for inclusion of the project in Japanese commodity loan. (j) Solana-Baggo Project, for construction of an overflow dam and installation of propeller pumps to irrigate about 5,200 ha in Baggao and Solana Municipalities of Cagayan Province, Cagayan Valley. A Japanese loan may be sought. (k) LLDA Irrigation Project, for irrigation of cultivable land around the Laguna Lake, Laguna and Rizal Provinces of S. Tagalog. Feasibility study is being conducted by Hydrotech- nical Corporation and financed by USAID loan. Investment plan pending outcome of study. (1) Agusan No. 1 Project, construction of a dam to store water of Agusan River in Davao, Minadnao for irrigation, flood control and hydro-power generation. Preliminary study made by USBR. Feasibility study to be conducted by Bureau of Public Works. Investment plan undecided. (m) Lake Sebu Project, S. Cotobato, Mindanao, same nature and status of study as (1) above. (n) Matuno River Project, N. Viscaya, Cagayan Valley, same nature and status of study as (1) above. (o) Polangui No. 4 Project, Bukidnon, Mindanao, same nature and status of study as (1) above. (p) Tago River Project, a multi-purpose project in Mindanao for irrigating 30,000 ha, hydro-power generation, flood control, water supply feeder road and agricultural extension. ADB technical assistance for preparing feasibility study may be sought. (q) Jalaur River Project, Iloilo Province, Panay, pre-feasibility study completed by Michael Baker, Jr., Consultants, in 1964 as an irrigation and power project. A re-study is being done by NIA on feasibility as a single purpose irrigation project. - 55 - (r) Balog-Balog Irrigation Project, Tarlac, Central Luzon, construction of dam across Balog-Balog River to irrigate 25,000 ha. Land classification completed. External technical assistance for feasibility study being sought. (s) Balingtingon Irrigation Project, to harness water resources of Sumacbao River in Pampanga River Basin, Central Luzon, for irrigation, hydro power, flood control and other water uses. Feasibility study is being conducted by the Bureau of Public Works. (t) Casecnan Trans-Basin Diversion Project, to provide water from the Cagayan Valley to expand the Upper Pampanga Project from the prospective 77,000 ha presently underway to 120,000 to 150,000 ha. Estimated cost US$150 million (including power component) involving about US$70 million foreign financing. A reconnaissance study report was prepared by Engineering Consultants, Incorporated in 1971. Since this is a major project, its implementation probably will not begin until after 1980, when the second major project, Magat Dam, will hopefully be completed, the first major project being the Upper Pampanga River Project now under construction. 8.08 The above do not exhaust the needs or the possibilities by any means. NIA has tentatively identified over 30 project areas, very largely outside of Central Luzon, which are presently scheduled to be funded from local sources. Other projects may well be identified after 1975 by the Central Luzon Master Plan. Projects to Assist Smallholders 8.09 Other means to improve the situation for smallholders should be considered as shown below: (a) Credit for Fertilizers and Production Inputs is needed to assist smallholders improve productivity of their lands. Only one-third of the rice area is fertilized and very little of the corn area. These crops account for over half of the total cultivated area. Recent findings indicate a substantial production potential for the spread of HYV- fertilizer technology on rainfed lowland rice and on corn. At the same time, credit for these purposes is an,essential component of the land reform program. Credit will also be needed to promote the use of fertilizers in fishpond culture. Rural banks, the main credit institutions for small farmersl, had outstanding loans of r 725 million at the end of 1972. If funds are made available, this might well double within 5 years. Perhaps 40% or so of the increase would be needed to finance fertilizers. - 56 - (b) Rural Development Projects in selected land reform areas offer a means to provide infrastructure, development credit and comprehensive supporting facilities and services. Projects might well involve about US$10 million each with perhaps half to be supplied by foreign assistance. Considering that there are perhaps 1 million share tenants in land reform areas, there should be scope for a number of such projects. (c) New Land Settlements in Mindanao, Cagayan Valley, Palawan and Mindanao should be considered. Performance of existing settlements has been disappointing. Much more infrastructure effective extension services and marketing facilities are required. Participation by the private sector to provide core services relating to production and marketing of products, such as corn, could well enhance the chances for success. A number of such projects might be prepared. (d) A project to improve production and marketing of tobacco would benefit many smallholders in Ilocos and Cagayan. A favorable export market exists but both production and quality have declined. The feasibility study should look to ways to provide better control of plantings, much more effective extension services and quality control in curing. A tentative estimate of total cost is about US$10 million. There would probably be needed to support more than the foreign exchange component which would be small. (e) Credit for expanding corn drying and storage facilities and feed mills will be needed to accommodate a doubling in corn output by 1980. The principal areas concerned are Mindanao and the Cagayan Valley where such facilities are quite meager. Corn is essentially a smallholder crop with the average farm size smaller than for palay. This might involve about US$15 million, mostly foreign financed, which will be provided under the current IBRD loan to DBP for rice mills with appropriate modification. Heating units to process soybeans for animal feed could also be financed in the same way. (f) Rejuvenation of coconut holdings, again largely a smallholder crop, is perhaps less urgent from a national standpoint in view of poor price prospects in world markets. Yet there are large areas in Western Visayas and S. Tagalog with overage trees and low yields. A replanting program involving intercropping and fertilization could substantially reduce costs of production and improve their cultivation incomes. Quality of copra must be improved by better drying facilities throughout the Philippines; otherwise export - 57 - markets will be jeopardized. Financing of replantings, and fertilizers, and improved drying equipment might roughly involve about US$20 million of which about one-fourth might be from the outside. Forestry 8.10 Of the three major agricultural export commodities, logs and wood products appear to have the most favorable long run prospects. There are a number of proposed projects for which pre-feasibility studies should be encouraged. (a) Development of a wood export center at Casiguran Bay in northeast Luzon to tap the largest remaining unexploited forest resource; providing for financing the necessary infrastructure of access roads and port facilities', and credit for the private sector to establish wood processing facilities. A rough estimate of total investment might run US$50 million or more with a large foreign assistance component. (b) Integrated wood industries center in Mindanao, also for export, would provide credit for a full range of wood processing facilities in close proximity so as to make full economic use of wood materials available. This would broaden the export base beyond the export of logs to Japan. While much of the infrastructure is in place, some additional roads and improved port facilities would be needed. A rough estimate of total investment is perhaps US$30 million, again with a considerable foreign exchange component. (c) Development of pulp and paper industry in Mindanao might well be part of the integrated center involved in (b) above. Within the next five or six years, the Philippines will likely require up to 200,000 tons of pulp for paper more than the prospective local supply. This would make economic at least one economic size mill. In the initial period, the plant would make use of thinnings of forests and wastes from log ging and other wood processing industries. But over the longer run further development of the pulp industry would depend on establishment of quick growing plantations of soft woods as noted in (d) below. Estimated credit needs for a pulp and paper mill total US$50 million, largely a foreign exchange item. (d) Credits for establishment of tree plantations in Mindanao to provide a base for exports of pulpwood and pulp for which there is increasing world demand. Considerable forest areas have been logged over and could well be replanted with abizza, eucalyptus or pine which mature - 58 - usually within 7-15 years. This would lead in time to further investment in pulp mills. Pending the pre-feasibility study, no estimate of costs or potential size of the area that might be involved can be approximated. (e) Credits for developing oleo-resin production from Banguet pine in Northwestern Luzon would make several contributions: (i) Alleviate erosion and siltation from areas denuded by logging and squatters, (ii) improve incomes of hill inhabitants, and (iii) substitute for imports of pine oleo-resin derivatives. There are 214,000 ha of Benguet pine forests mainly in the Agno and Cagayan catchment areas. Some tapping is taking place, apparently with favorable income results to participants. A major part of these forests might well be reserved for oleo-resin production. Processing facilities would be required. (A feasibility study of production and market potentials is required.) (f) An allied study is needed to determine methods for economic rehabilitation of cogon lands which could be used for forestry, pasture for cattle or in some instances for cropping. It is estimated that perhaps 4-5 million ha are in cogon lands. Fisheries 8.11 Fish provides half of the animal protein in the filipino diet and demand is projected to increase about 60% during this decade. IBRD is currently considering a fisheries credit project emphasizing more efficient vessels as replacements in the marine fishing fleet together with supporting small operations. Included would be financing for preparation of projects for fish marketing and for expansion of smallholder fish ponds. Total investment is estimated at US$18.75 million with a foreign exchange component of about US$8.4 million. Regional Planning and Other Preinvestment Studies 8.12 Various annexes of the report stress the importance of land classification, soil surveys and water resource studies (beyond that for Central Luzon) as means for promoting better planning and better resource use. - 59 - Preinvestment Requirements Study Comments 1. Land Classification NIA and DANR (Annex 3, para 82 to 83 and Annex 13, para 64). 2. Soil survey Suitable for UNDP and FAO (Annex 1, para 67). 3. Survey of condition of NIA (Annex 3, para 19 and 20) existing irrigation systems, rehabilitation 4. Preparation of New Irriga- Suitable for private consultant (Annex 3, tion Projects and Central para 101 ff) Luzon Master Water Plan 5. Feasibility study - Casec- Suitable for private consultant (Annex 3, nan River (trans-basin) para 111). project 6. Rural Development in Land Suitable for FAO/IBRD and others (Annex Reform Area 13, para 34). 7. New Land Settlement Suitable for FAO/IBRD and others (Annex 13, para 34). 8. Corn druing and storage By IBRD in context of modification of existing loan (Annex 10, para 78). 9. Tobacco, production and marketing 10. Copra rejuvenation and marketing 11. Tree plantations for pulp Suitable for FAO/IBRD (Annex 2, para 133, 142 and 144). 12. Pulp and paper mill Suitable for private consultant (Annex 2, para 101). 13. Wood industries centers Suitable for private consultant (Annex 2, para 142 and 146). 14. Oelo-resin production Suitable for FAO/IBRD (Annex 2, para 145) 15. Rehabilitation cogon lands DAIR and UNDP/FAO (Annex 2, para 146 and 141). 16. Fish marketing Consultants financed under proposed IBRD fisheries loan (Annex 5, para 68). 17. Fish ponds Consultants financed under proposed IBRD fisheries loan (Annex 5, para 67. STRUCTURAL CHART OF AGRICULTURAL SERVICES·1972 鹵中 百襼一蘆襼＿.__7o,. PHILIPPINES: CHANGES IN AREA HARVESTED AND YIELDS OF MAJOR CROPS 1964 - 66 and 1969 - 71 (1959 - 61 100) Palay 1964-66 1969-71 Corn 1964-66 1969-71 Coconut 1964-66 1969-71 Sugarcane 1964-66 1969-71 Virginia tobacco 1964-66 1969-71 Native tobacco 1964-66 1969-71 40 60 80 100 120 140 160 Area Yield World Bank - 7281 右： iвRO-iozi5 118° 1 О° 1 2° 124° � g° оесемеев гч�z CLASS�FICATION OF PROVINCES, П ��I�'��I' `�� BV GEOCRAPMICAL REGIONS, С1 r //вв1 w �° w w 1.C�TYOFMANILA �а72 V11.WESTERNVISAVAS I Qp9Ь��j 1\L�I`1 �1\`V1O1 \V /�1 \�� 1 1\О• I1 ,�LV 35. Ak1an С/ �в° 1В° 11.1LOCOS 36. Antiaue -'- '• " 1. АЬга 37. I1oi1o 2. иосогNоrге за. саиг, \ А аrн --------- Di5lriCt boundones з илдлгsи, зs. ие9гл:О��ддпгдi 2 г д -- Region0l boundaries л �а ип�лп ао. Rлты лп ' ) s. мллпга�пггле�пла .{ F 10 -•-,- lnternalional boundaries в вепулаг . .- '�' 8 7. lгидао V111. EASTERN V15AYAa �.' ELEVATION �N FEET е. кдппвд�АVачал лг. вonoi � , а2. Свг„, ,�`,' � �---- т. cncnrnи vnuev лз. иогт<т �еч,е 1,500 Опд Over в. вагдплг ла. аллтдгп идчгг �' - д 50о - 1,499 io. са5ачдп а5. Бапгт samar З 777 г г ieaьaia 4в. Neqros Фlепгаl --'� �� � О- 499 12. Nuдva Vizeaya q7, Normern 5дтаг � 1V. CENTRAL LUZON лВ. Wesrorп Samar �� i6° i7. вагаап 4 1/,'' ?S - - 16° га. вwаеап ix. иОRтневи а еАSтваи о �� оВ иег 12 ,,� 15. Nueva Ecija MINDANAO 7hе�Ьпгпгдаггет shnwn �т rhis rrгap Jп �ги! 16. РагпРапуа 49. Agusan де1 Иопе irrlП!)� епг/orarrnrnr �+r апrргапге Ь�� lh.• I7. Pangasinaп 50. BukiAnoп � lvпп(ЛUлггkопгlrraaJ/ilinrгs 1В тагtвс 57. Lanao де1 None _ 19. 2ambales 52. Lапдо де1 5лг 53 Miwmis Огсiдепtдl �•�- ^ V. $OUTMERN TAGALOG ц, Misamis Orlenrat � о вагап а: • �$ 9 5о о so ioo �so zoo ?t. Caviм 55. s�двал eoi илггв .'. ` � кiсоматёвs г 22 L 5в. 5un9aodelSur 19'� -- __•� (' �'"а s7. Аиляп dei sor �� � Ь � z3. магидлалд �. �т�9л�п �' � 14 24. М�пдогл Occidencal р 2ь мтдл�оОгттдг � - е - •,2 МΡ х. sоитневи а wьsтвви 13 2в. Раlаwап v v С� 2r. оле=лп мiиоnипо Ау�� � 28 �� 28 вixai 59. Согаьд,о � 14° �4° Бо. оачал �� илг,е 2� '' D р�� Р о с i f i с и. вiСои ы. zатьодп9л dei иогге .��•,-' _ 30 2в. Агьдч в2. 2атЬлап9а де� 5�г _ ° О с е о п зо. сата,�плг илггд s3. s��o L�0 г �'' ll зг Сатагiпек аиг Ga_ Souгh СогаЬат �О \` 32 3в. сагапдлапег в5. Од.,л дд� алг Vp 3� 33 МлгЬдtе � � 3п. sлггп�лп ss. оа.дп Or�enwi � . •идгип,�,пп�Р. �,• '�Z9 С7�у `� _ 2 � --_ 5 2а � � ` �� 4 � � \ 1 �о а Sou1h China 4 � � :; ,� �� � 3 ;, � а 47 _ _ �z° Se o �г 4� �-- --_ ` Г• �г° 4 ,° _ ' \°а° 4�', " � Г,о j35 `"�-� ' i О� �° '4 � о --38- ., /° а��/ 43 ото i','ьлп а \ ЗЬ', 37 �' , `O1i � � � i � II еЬидУlQ -4I �� � � 39 42 Q. -_ t� о 26 , Т . о �б - 1,' io° �Э f � 41 �1 � io° �0 Риегго Priпcesa � �� }� 55 а S1v �� 46 , о�.✓ / - С( �� (�- i ? � � � Q 1f49 , '�,56 ����""'� 54 Su/и Sea С ап - -- �--- 53 _ е `- � /�� 9 -- о а _ - - � 5, - =� 5о �' �f --- - � �--;--- - в° - -• "Ь2 .s �2 r в° �1__ 60 �е; ;ЬЬ с н i и д СогоЬаг rap��, � ,_ Отдпиди _ _ (�лj о , и � -- \{ viЕтидt7 5л G" Zamбoaпg - Q� Pacific � � Осеоп Q Х ' .t. � ...г �г� Souin рΡ �--- ЬS ьс� Слгпа `� ---- - , �i aнi��aaiиess G�o �� -. \ 64 ', кнмЕб� Seo � � О ' - � �i нсР �s Q ОС� ,�ие иам � � � р 0 ' � Се/eбes Sea 6> �,� д о р ', евии _ % - �.( /,,J� р� РЛА L АyУ уΡr�-б % �v'рД ` I N D U N Е � А 1 0° 22° 124° 1 6° 110' 10' 14 b CLASSIFICATION OF PROVINCES BY GEOGRAPHICAL REGIONS, 1972 9 PHILIPPINES JCITY OF MANI1LA WESTERNVSAYA5 L A N D U S E I1CDOS 35,,LAN. 0A 3S ANTICIIJE (AS OF 1972) 4. LA UION 39. NEGR0S OCCIDENTAL CROP LAND SMUNTA1 NPRVNCE 2 0MB2A] ANNUAL CRCPS 7 AFCAO PAIgyi ig F.CALI1GAAPAYAO P2. USGADDY RICE CAGAYANVALLEY N-TH LEYTE OTHEF UPLAND CROPS ICORN, TOBACCO, UPLAND RICE, PINEAPPLE, c1 AAY..AN 4 ESR SAL ] PERMANENTCROPSPERENNIALI 12 N3EVA VIZCAYA 47. NORT0HEAN SAMAR COCNUT TREES CENTRAL LIZDN 4 0.~WETERN SAR -M MIXED COCONUT TREES ABACA, PADDY RICE AND CORN 13. BATAANX NO6THERN 3EAST9RN .OTHER PERMANENT CROPS IFRUITS, COFFEE. RUBBEA, BANANA) 14 BUC.A-N MINDANAO S EAT I 1. NAECA 4,AU3 N CEL N " 11 GS;SLAND YA41LA 2 AGUSANDEL NORT = GRASSLAND 1 TARLA 02. LANAD DEL SUR FOREST 12 ZAMBALES 53 MISAMIO OCCIDENTAL S..THERf. TAGALOG 64 9tSA415 ATENTAL .. ~ FOREST ICOMMERCIM. 0n PRIMARV) 26AAGA5 2 DRTEEL N02 I SECONDARY FOREST, SPARSE PINE, GRASSLAND 20 -00AGAS 6E. SUP1DA0 DEL 4463191 212C0VTE57 AGUSAN DEL SUR - FISH PONDS 20 xO.CEN E S FISH PONDS ANDi/FR ANGROvE SWAMPS AND MAnSItES 23. -11DIU0DUECOSD X62090WSCM 25 M-NORA OENTAL M. DANA 2G. PALAY,AN 5S COTABATO Z. .... 1 :AI.AGDE ..L000 ------Districi bOLndanes 62 ZAM9 ..AN -DELfEURRegon.i bOndOlS 29 AtL.Y -5T HCTABATD--nerainl onoe 1. S6 5.D-VA0 DEL SUR 32 CATANDUAN"S D R0 50 100 0 200 250 3.SDREE>GON o 50 100 Is5, maý MILES 4 Source~5- p-p~rd by ea o....f SosD-prri I Ag~rcut-r and N-n,r,l Resu;- Ph,1 Pp-e, 429 0c - 4 CMi da oon 1126 'TAIWAN4 -- - - ,n16n3 -" - ( IWAN -A " I ·· SOUTH sea 2 PULPPINES [ -3 - 6 .VITNAM I~.2l~ ----' . s, ~~ ~C e / e e sS e a 493RUN~ 6 MA AYS - DN51 2°g 1BRD-10217R 118° 1 0° 1 2° 124° 1 6° APH1L 1973- CLASSIFICATION OF PROVINCES. .� nLJI1 ID�IP.ICC BV GEOGRAPHICAL REGIONS, Г Г1 ` Г I'VLJ 1972 � .� _ °�г� TRANSP�RT SYSTEM 1. С1ТУ OF МАи1LА V11. WESTERN VISAVAS Э5 Ak1an с 18° ie° '-------- - IL ILOCOS зб. Апйуие -�� �$°п Vicente Gen.SonroS Рго)еС1 LОСОIIФП 1. АЬга 37 11oi1o . z. иопо:иогге зв, сап�г -АPOГ1,! � Primory Highv/oys з посо.5иг зо Negrm Осг�аепгэ� L°оя9' � а. Сэип�ип ло. вотыоп /�2 r -�-°-•_.-. Railways 5 моипглт Ргпrтае ) _ О � 6, веп9иег vui. ЕАSтЕии иsavns �1 ' .� Ргиеiр0l Por�s 7. lfugao П1. бohol � � 8 : у - е. каьпдг�АраVап лz, сеьи �' 1 Э - Tugue�ar°о � Trunk Lие Aiiporl лз. иипnегпСе�ге °J } d�J -------- DiSfriC1 ВоиПдопеS �и. слОАVли vACLEV 1 � � _ s. вэгэпег лл- soumern СеУге г'-�\' io сэ эvэп лs. еа:гегп sa�ar � °, ' 11 9 - Region0l Bou�тdaries д as ие9го: о�fепгаi \ 3, `. 5 . 11я яп п. �sabzia л2 ип�тегп5ап,аг �;, � ' --- �пlеrпаtюпоl 3oundories ,2. ииа°ашгглчэ '- � '� 11l ) ав. wе.гегп sап,аг 4 � г;' 7� M1� / w сЕитвАL шzои $°пп i ,6 � � -_ � � iь° и ва�,�ап ix. иоRтнЕви а ЕАSтЕви Ferno oi Г `•i �� �ь° w вwагап мiиопило с Ве^9иег �; г i' ,г $гг� (` 12 -'С 3 тпг q,пгмд�„�г, ,ц„�„г „п rncr п �!. ✓�� ,г„г г5 иигеа ec�ia лв Ади�п dei ио�т ТhотЪ3 � � п . г г.�. гр�. 16, РэтРапдэ 5о 8ukiдnon �, � 1 . �� nnph�� гпJ�исгrпг•ги нг игггl. unj..• ! \ П'nr1J UипА anJ гг. л11гlwгг� 17 Pan9asinan 51. Lапао де1 Noiгe Bugollon °9uir°П 1\ tв. т,пiлс 52. Lanao дг1 5иг -' _ S\ д Jo/� 19. Zлтьаlег 53. Misamis Оееiдепгаl ,'� н. м�аат�, о,гепглi I � 1�5 1 ��8 V.50UTHERN TAGAIOG � � 55. 5ипдаи dei иогге ! Тягlяе �' / С°Ьи�г �п ю о 5о ioo iso гоо zo, вагапд„ 56. sur� ао dei sur �', i � i� г � N ' 21. Cavite _ KILOME'ER5 22. Laguna !i7 Agusan Пс1 5ui 1\ �9 -� ' - " - -'�`4� 2з. ма��пгwуиа 5в. сагп�дшп , �j6- ;� 14 I �"�` 2л. мinduinoccideпai Olongopo -, .�, г S.Fегпяддо _\�'J�� z5 м�пди�и опепгаi х. гоитневи а wesreRи г 27 °� za. aaiawaп м�иолидо V}�� MAN l р8�З, р 2]. Оиегоп 5д. Сиtаьаlо �,/14 �� .. za, в,а� ео. оа°ап dei ип�и /� Р О С i f/ С 14° ia° �'Covn �' � ��� SГOгС uz )ose Р°п япi6яп 61. Zarnboaпga де1 Nогге Togoyfay \ 9 и-29соАг sz. zатьоапд,амsиг N°ги9бй '• -�'- z.'•�и�еп�С, 30 а2 63 5и�и �� о ° О с е о п зо. сатаппе: ипгге '��' .i� � з1. сата��пе: sиг �� somn согэьто с- , -�, �/ 5° п � 32. сагапдиэпег 65. Da.ao dei 5ur •� �` � 20г', Вагопg°s 1( `~+ t ,�\ .� Noq,d Gry ;� 3� 33 Магьаlе 66. Davao Orien:il � � ��� �--W ! ,� зл. 5иподоп ��� '�Co,ltapon ,�2З г: Сiит ')�Toбaco � V яс � �/'• �-�- 29 иа� � - , � � � `� . - МlNDO� 024 ' ° ��-�% о - 1 цI , 34 � South Chino �� i2� }�� 9 я� ��s'п-1о5 оа ` Odi о °п '�. 5апlоsе-, '.,Г' 4� � �(j�бatr��0� 47� iz° Se а 5� .г '' С�' � � 33 � соiьо�ов., ��Э м А R �Z° ��;,� � 4 / �-- -- ' МА SВА:�\�с �tz , 48 /'�� и��СиGоп' Г t� � � Coiб°logom i � ` ''1 ; � RoKas\ �4J �• ���i5\ .. к� Г ' 35,-- � �r�o 1 � � PANAY _38 _-. ° �/i� '' �('`�-���°i � j ° �ЗЬ, �gd,z� �! огп�4�43 °'� г 1 5°п lose ;'� 1о / � �1.,( ` С де Виеп°vism По-i1о 1� _� д , � . � � -� � восоlод $ � BU�`^p п � � �J / \ ��J � Ри1и�°пдя o�s )'i �`и( ' 44 � � г-` Vl1 � 3 2 �уьо - �� : \J ( ю° ,LS ( % мoasin �� ю° о� гег о Ргiпсеsя NEGR� / (�� 41 � Surl`11'�° �7 РА ( А W А N� � ��ВОНОС � 55 °пL°- l %� eayar,°п. 4Ь �',, С? / �v % f • �,umqguete �58 �� , �` / Naspi � 49; ,J -i - �\г2 / � � _� '� . � �п ,56 � .SU/U Sг0 �С °�е�°П S4 q , ///� Da пя � - �_ 53 � Х, � r� ' Ог mi: '�' 1G9япг �' 1 f S�%1\ -_ M�NOA NA О, -ЬЪеяд;яп �/S1 �г � 5о I�'гr;- ��� 8° Ь 2 е° � , � 5/� � �� Ьр � � i66 / Г/ �i и С н i и 4 oiaiwnи �� ' � СогяЬдг -.� 1 1 r i; �/�° ' � � �' иетиеМ Zamбoaпga � . � i-- � �у Man<� Q Расilгс `�' S9 l\ '�, Digos � г Осеоп Q �-�д �яп � , I �( --� �r'� SоитА �Г5/[AN ; IЬS . s1 Сnю° NILIPPINES �D - ---- �- кнмев� 5ео 1о1о.$:ЬЗ О�-- б4 �еп S°пг;оs деР 1� r. 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