Oil Palm Industry in Mindanao: Value Chain Analysis and Competitiveness Strategy

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

COMPETITIVENESS STRATEGY:
OIL PALM
Mindanao
DEPARTMENT OF AGRICULTURE
Mindanao Regions
September 2014
0
CONTENTS
CONTENTS Page
EXECUTIVE SUMMARY 5
Section 1: Introduction 10
A. Background Information and Objectives 10
B. Objective of the Value Chain 11
C Methodology and Approaches 11
Section 2: Overview of the Palm Industry 13
A. Production Description 13
B. Production Trends 16
Section 3: Nature and Structure of Industry 28
A. Value Chain Mapping 28
B. Key Players and Functions 31
C. Nature of Inter-Firm Relationships 37
D. Price and Cost Structure 40
Section 4: Markets and Market Opportunities 41
A. Markets and Market Trends 41
B. Price Trends 49
Section 5: Support Markets 52
A. Financial Services 52
B. Non-Financial Services 52
Section 6: Enabling Environment 54
A. Formal Rules, Regulation and Policies 54
B. Informal Rules and Social-Cultural Norms 55
Section 7: Constrains and Opportunities 56
Section 8: Competitiveness Direction 60
A. Competitiveness Vision 60
B. Priority Constraints / Opportunities and Interventions 61
Section 9: Recommendations 71
Annexes : Ranking and Prioritization 72
Annex 1: Northern Mindanao 74
Annex 2: Davao Region 75
Annex 3: Soccsksargen 76
Annex 4: Caraga 77
Annex 5: ARMM 74
MB/II: Final Report_September 2014

LIST OF TABLES
TABLES Page
1 Summary of Constraints, Opportunities and Proposed Intervention 7
2 Food and Non-Food Application of Palm Oil 15
3 Key Products Produced and Traded by Mindanao Region 16
4 World Production of Fresh Fruit Bunch: 2013 17
5 Countries Delivering the Highest Average Yield in 2013 17
6 Area Planted to Palm Oil (in Hectares) 19
7 Breakdown in FRESH FRUIT BUNCHES Production in The Philippines (in MT) 19
8 Top Five Oil Palm producing Provinces in The Philippines: Production Volume and 20
Average Yield
9 Potential Land Areas in Mindanao for Oil Palm 21
10 Production Trends: Northern Mindanao 21
11 Production Trends: Davao Region 23
12 Production Trends: Soccsksargen 24
13 Production Trends: Caraga 25
14 Major Plantation in Agusan Del Sur 26
15 Production Trends: ARMM 26
16 Breakdown of Area Planted to Oil Palm by District in Maguindanao as of December 27
2012
17 Palm Oil Production in The Philippines (in MT) CY 2009-2013 27
18 List of PCA Accredited Nurseries in Mindanao as of June 2013 33
19 Existing Oil Mills in Mindanao 37
20 Sample Contractual Arrangement Between Farmers and Oil Mills in Mindanao 39
21 Farm Establishment and Maintenance Cost (Year 1 Year 3) 40
22 Average Income of Farmers in Mindanao During the 6th to 25th Year 41
23 Relative Financial Position of VC Players of the Oil Palm in Mindanao 41
24 Philippines CPO Export, CY 2009 - 2013 43
25 Philippine Palm Oil Imports from Malaysia 44
26 Quality Standards of Fresh Fruit Bunch in The Philippines 48
27 Fresh Fruit Bunch Price Formula (Buluan-Mindanao) 49
28 Constraints and Opportunities 51
29 Summary of Priority Constraints / Opportunities and Intervention 56
30 Summary of Priority Constraints/Opportunities and Interventions 65

LIST OF FIGURES
No. Title Page

1 Uses of Oil Palm By-products and Biomass in Food and Manufacturing
13
Industries
2 Cross Section of an Oil Palm Fruitlet 14
3 Percentage Breakdown of World Production of FRESH FRUIT BUNCHES by
16
Region, 2013
4 Best Oil Palm Growing Regions in the World 18
5 Percentage Breakdown of FRESH FRUIT BUNCHES Production in the
20
Philippines by Region, 2013
6 Palm Oil Value Chain Map in Mindanao 28
7 Trucks from all over Region 12 and neighboring provinces waiting for their
turn to deliver FRESH FRUIT BUNCHES at Kenram Mill in Isulan Sultan 29
Kudarat
8 Geographic Flow of FRESH FRUIT BUNCHES and Palm Oil from Mindanao 30
9 Some of the Oil Palm Nurseries in Mindanao 32
10 Innovations to Facilitate Intercropping in Oil Palm Plantation 34
11 Intercropping Plan Proposed by Bali Oil Palm to Bukidnon Farmers 35
12 Relative Financial Position of Players in the Palm Oil Value Chain 42
13 Global Consumption of Vegetable Oils in Million Metric Tons, 1995/1996 to
45
2013/2014
14 World Consumption of Palm Oil, 2013/2014 46
15 Major Trade Flows of Global Supply and Demand of Palm Oil 47
16 RSPO Sustainable Certification Seal 48
17 Quality Standard on Ripeness Imposed by Oil Mills 49
18 Price Trend of Crude Palm Oil in the International Market, 2009 to 2014 50
19 Synthesis of Competitiveness Vision of the Oil Palm Industry in Mindanao,
60
2015-2020

ACRONYMS
ABERDI A. Brown Energy Resource Development Inc.

ARMM Autonomous Region for Muslim Mindanao
BAS Bureau of Agricultural Research
CARP Comprehensive Agrarian Reform Program
CLOA Certificate of Land Ownership Award
CPKO Crude Palm Kernel Oil
CPO Crude Palm Oil
DA Department of Agriculture
DAR Department of Agrarian Reform
FFB Fresh Fruit Bunches
FGD Focus Group Discussion
ISPO Indonesian Sustainable Palm Oil
KIDI Kenram Industrial Development Inc.
KII Key Informant Interview
LBP Land Bank of the Philippines
MDF Medium Density Fiber
MinDA Mindanao Development Authority
MLGU Municipal Local Government Unit
MRDP Mindanao Rural Development Project
NCCAP National Climate Change Action Plan
PCA Philippine Coconut Authorities
PDP Philippine Development Plan
PKC Palm Kernel Cake
PLGU Provincial Local Government Unit
PNLP Plant Now Pay Later
PNTC Plant Now Take Car
PPDCI Philippine Palm Oil Development Council
PRDP Philippine Rural Development Project
RSPO Roundtable Sustainable Palm Oil
USDA United State Department of Agriculture

EXECUTIVE SUMMARY
The Philippine Rural Development Project (PRDP), a flagship project of the Department of
Agriculture (DA), is designed to establish the governments platform for a modern, climate-smart
and market-oriented agri-fishery sector. The design of PRDP and its implementation aspects draw
heavily on the experiences of the Mindanao Rural Development Projects (MRDP 1 and2), a program
that has been successfully implemented over the past decade. The program adopts a value chain
development approach as a platform for promoting inclusive, climate resilient, and sustainable
growth in key agricultural subsectors and value chains.
The overall Mindanao palm oil sector is characterized by strong growth although current production
is not yet sufficient to meet domestic requirements. Oil palm cultivation has become an important
livelihood strategy in Mindanao especially among smallholders who aspire for a better life for
themselves and their children. Along with the increasing number of oil mills in Mindanao, the
number of smallholders engaged in the sector has been growing continuously. The crop provides
year-round yields over an economic life span of 25 years and this is one of the characteristics that
make it attractive to smallholders. The oil palm is relatively pest-resistant and tolerates low-quality
soils. Considering the prospect of a steadily rising demand, the oil palm industry holds a large
potential for reducing poverty by providing jobs and other livelihood opportunities to rural
populations. Under the right conditions and by using good agricultural practices, the economic
performance of oil palm cultivation often outperforms alternative cash crops. A major thrust of the
Mindanao palm oil industry is to meet future demand for edible oil by investing in better social and
environmental practices and ensuring efficient and sustainable intensification based upon models
which continuously provide benefits to communities at large.
Oil palms are grown in 44 countries with Asia accounting for 87% of world production in 2013.
World Fresh Fruit Bunches (Fresh Fruit Bunches) production increased from 250,188,288 MT in 2012
to 268,220,532 MT in 2013 or a 7% increase. Indonesia, Malaysia, and Thailand are the top
producers accounting for 87% of the total Fresh Fruit Bunches production.
Mindanao is geographically located in the palm oil belt, with the appropriate climatic and soil
conditions for the production of palm oil. Prime areas for oil palm plantations are those located
within 5 degrees of the equator. Mindanao is closer to the equatorial line than Luzon and Visayas.
Based on the 2013 BAS data, Mindanao accounted for 77% of the 53,849.00 hectares of oil palm
plantations in the Philippines. Caraga and SOCCSKSARGEN accounted for 64% of the hectarage
planted to oil palm. Bohol in Central Visayas had the third largest area devoted to oil palm followed
closely by Palawan. Northern Mindanao ranked fifth in terms of hectarage.
Of the 473,416.21 MT of Fresh Fruit Bunches produced nationwide, 90% of the production came
from Mindanao. The top 3 oil producing regions in 2013 were SOCCSKSARGEN, Caraga, and ARMM.
The three regions collectively produced 82% of total Fresh Fruit Bunches (FFB) production. At the
provincial level, top performers in 2013 both in terms of production volume and high yield were
Maguindanao, Sultan Kudarat, North Cotabato, and Bukidnon. Agusan del Sur had the highest
production volume. Maguindanao had the highest yield at 54.91 MT per hectare and the 2 nd largest
production at 106,527.73 MT.
The Mindanao palm oil industry can be divided into three hubs:

a) Central Mindanao Hub: It covers Sultan Kudarat, Maguindanao, and the two Cotabato provinces.
This hub has three oil mills/lead firms: Kenram (Sultan Kudarat), Univanich (North Cotabato),
and Buluan (Maguindanao).
b) Caraga Hub: It has two oil mills (Agumil and FPPI) and a refinery (Caraga Refinery).
c) Bukidnon Hub: It is now currently dominated by ABERDI from the nursery operations to refinery
(just starting). Bali Oil Palm (Malaysian firm) though is already gradually setting up its supply
base for the planned oil mills and refinery in Bukidnon.
Zamboanga del Norte is also now building its oil palm hub anchored on Zanorte Palm Rubber
Plantation. The palm oil project is located in Sirawai and Sibuco, Zamboanga del Norte, which is
among the 30 poorest provinces in the country.
Seedlings are imported from Papua New Guinea, Costa Rica and, more recently, from Thailand.
Landed cost of each seed is about a dollar. As of June 2013, there are only 11 accredited nurseries
nationwide. Current production capacity is not sufficient to meet the projected five million seedling
requirement per year.
Cost and profit appear to be equitably shared between the farmer and the mill. Per unit profit of
oil mills is low and, as such, volume is a critical factor. Oil mills generally need a supply base of
4,000 to be able to operate at an optimum level.
Industry players estimate that Philippines imports about 85% of its total palm oil requirement from
Malaysia (95%) and Indonesia (5%). The remaining 15% is locally produced. During the last five
years, Philippines imported an average of 238,921 MT of palm oil from Malaysia. On the average,
the country spent about US$ 247,736,600 for palm oil importation.
Prices of palm oil are strongly correlated with the prices of annual vegetable oils especially soybean.
Palm kernel oil prices are correlated with its substitute, the coconut oil. Despite the obvious demand
for the commodity, palm oil futures have been on a downward trend during the last three months.
Based on latest trading report, the price last week was the lowest in five years. Analysts though are
in the opinion that the declining trend is temporary albeit a wakeup call for palm oil producers on
the need to improve productivity so as not to lose its price competitiveness vis-a-vis other vegetable
oils.
The selling price of Fresh Fruit Bunches in the local market is based on the actual extraction rate of
crude palm oil (CPO), selling price of CPO in the international market, and the exchange rate. In
2013 until first quarter of 2014, price of Fresh Fruit Bunches ranged from PhP 5,000 to 6,000 per MT.
During the recent months, price of Fresh Fruit Bunches fluctuated between PhP 4,000 to 4,500.
The oil palm industry represents one of the most effective avenues for poverty alleviation and
improving economic stability in Mindanao. It must, however, also be recognized that while there is a
strong economic rationale for the strengthening of the oil palm subsector in Mindanao, there is also
a pressing need to move towards sustainable oil palm production that does not lead to social and
environmental impacts such the destruction of forests, biodiversity loss, greenhouse gas emissions,
and community issues. The palm oil itself is not the problem but rather the practices and technology
employed to produce the oil. The potential of the oil palm to contribute to poverty reduction seems
high as long as it is developed in a sustainable way, with the consent of host communities. It can also
enhance biodiversity when planted on degraded lands. Likewise, the shift to sustainable production
is fast becoming an imperative rather than just a choice given that the large buyers of palm oil such

as Unilever and Cargill are shifting towards the procurement of oil from certified suppliers. Based on
these premises and the findings of the value chain analysis, Table 1 summarizes the key priority
constraints, opportunities, and interventions as identified by industry stakeholders.
Table 1.- Summary of Constraints, Opportunities, and Proposed Interventions

Constraints/Opportunities Intervention Strategy and Approaches
Input Provision
High cost of planting materials Development of local capacity to commercially
Low cost benefit appreciation among farmers produce and distribute planting materials at a
especially smallholders on the use of good price level at par with other oil palm producing
quality planting materials countries
Lack of accredited nurseries/Inconsistent quality (1) Encourage seed companies like Uniivanich
of planting material to set up branch or distribution arm in the
Philippines especially for ready-to-plant
Lack of supply of good quality affordable seedlings in small plastic bags
planting materials of high yielding variety
(2) Set-up of accredited nurseries in key oil
Opportunities palm production clusters either as micro
franchisees of oil mills or independent
Use of good quality planting materials of high enterprises/ Upgrading and scaling up of
yielding variety can significantly increase yield existing accredited nurseries
and oil content
(3) Development of technical capacity of
Mindanao can learn from the experiences of nursery operators to provide coaching and
Thailand and from Univanich on how to make mentoring to clients
seeds/planting materials more affordable.
(4) Work with MFIs/banks in the development
of financial product for interested investors
in nursery operations
(5) Implementation of voucher program or
similar tool or mechanism such as the Plant
Now Pay Later to stimulate first time
purchase and lower risk aversion of
smallholders
(6) Support the development of locally adopted

high yielding F1 hybrids
High cost of chemical inputs both to farmers and Development of local production and
environment commercialization of organic fertilizer including
facilitating access to extension services on
Lack of access to soil and leaf analysis services as proper fertilizer management and application
basis for fertilizer application
(1) Technical and financial assistance to existing
Limited availability and commercial distribution and potential organic fertilizer producers to:
of organic fertilizer and inputs specific for oil a) develop inputs using oil palm and other
palm agri-waste appropriate for oil palm
smallholders; and b) scale up and align
Opportunities operations to sustainable production
Use of good fertilizer and proper nutrient practices

management can contribute to yield
intensification at reduced financial and (2) Develop capacity of fertilizer producers to
environmental cost provide technical advice to clients
Technology for production of organic fertilizer (3) Implementation of voucher program or Plant
using palm oil waste is available. Now Pay Later schemes targeting
smallholders
(4) Documentation and dissemination of

emerging good practices
(5) Foster linkages with financial services

providers
Farming
Low adoption of good agricultural practices/ Development of local capacity to provide
sustainable farming practices due to: a) limited services that will enable farmers to adopt
outreach of existing services; and b) lack of sustainable production practices
understanding and appreciation of benefits of
GAP/ sustainable farming practices (1) Set-up of community-based providers on
sustainable farming practices
Opportunities
(2) Development of delivery and financial
Oil palm responds rapidly to improvements in viability schemes anchored on outgrowers
agronomic management with short term scheme and traditional learning structures
increases in bunch weight and longer term and other informal mechanisms
increases in bunch number both contributing to
increased yield. (3) Build capacity of government extension
officers to provide training and mentoring on
There are existing guidelines from RSPO on sustainable farming
sustainable production practices
Extension of technical assistance by agricultural (4) Set-up of demo farms and learning networks
extension workers may soon be a regular
program of PCA. (5) Conduct of competitions to stimulate
adoption and facilitate documentation of
emerging good practices
Poor road condition from the farm to the market Upgrading of farm to market roads
limiting access to oil mills
- Cost contribution to road construction/
Opportunities upgrading
Good roads can reduce costs and postharvest

losses
LGUs willing to contribute in the construction

and/or upgrading of farm-to-market roads
including its maintenance
Processing

Lack of capacity to comply with certification Facilitate access to skills, know-how, and
requirements resources that will enable chain wide
achievement of certification including
Opportunities appropriate mechanisms for smallholder
inclusion
Achievement of sustainable certification can
boost competitiveness of Mindanao in the oil (1) Technical assistance in the development and
palm market and reduce risks of market pilot implementation of sustainable
exclusion in the near future production system including traceability
Chainwide implementation of sustainable (2) Technical and financial support to enable

production practices can reduce environmental smallholder dominated supply chains of oil
risks parallel to boosting chain productivity mills to comply with GAP and sustainability
related certification.
Oil palm plantation expansion hampered by Strengthen and improve local government
conflict on land use, social and environmental systems for management of the palm oil sector.
issues
(1) Technical support to local government units
Opportunities in strengthening policy and regulatory
environment for sustainable palm oil
There are interested investors willing to set-up production particularly on site identification
oil mills in Mindanao and selection
Policy framework on oil palm promotion can (2) Identification of oil palm zones in
provide the basis for the crafting of zoning policy consultation with communities parallel to
for oil palm plantation ensuring that communities are well-
informed and able to participate effectively
in negotiations with oil palm companies
from earliest phases of oil palm
development
Lack of capacity among local population to Facilitate access to skills and resources that will
undertake value addition catalyze and enable farmers to process portions
of their harvests into consumer products
Opportunity
(1) Explore viability of village level palm oil
Village level processing technology can processing/Learn from experiences of
potentially provide opportunities for value Malaysia and other countries
addition at farmers level
(2) Set up pilot small scale village level palm oil
processing facility which will also serve as
model for sustainable production system
(3) Development of markets --- either in local

retail markets or as supplier to oil mills

Section 1:
INTRODUCTION
A. BACKGROUND INFORMATION AND OBJECTIVES
The agricultural sector strategy (Agri-Pinoy) embodied in the Philippine Development Plan (PDP) for
2011-2016 advances the principles of inclusive growth, food staple sufficiency, natural resource
management and area-based development. Agri-Pinoy also includes the following new strategies: (i)
institutionalizing regionally-based, spatial planning (ii) developing a systems approach for both
planning and resource allocation; (iii) providing the critical infrastructure needed by priority value
chains; and (iv) building a more resilient production base to accommodate fluctuations in global
markets and effects of climate change. Complementing the Agri-Pinoy strategy is the National
Climate Change Action Plan (NCCAP) which highlights the priority to be given to the rural sector in
pursuing climate adaptation measures.
The Philippine Rural Development Project (PRDP), a flagship project of the Department of
Agriculture (DA), is aligned with the Agri-Pinoy strategy. It is a six-year program (2013-2019)
designed to establish the governments platform for a modern, climate-smart and market-oriented
agri-fishery sector. Externally, it will focus on expanding market access and improving
competitiveness. Internally, it will introduce reforms in operating the DA bureaucracy. Specifically,
it aims to achieve the following development objectives:
At least, 5% increase in annual real household incomes of farmer beneficiaries; 30%

increase in income for targeted beneficiaries of enterprise development
7% increase in value of annual marketed output
20% increase in number of farmers & fishers with improved access to DA services
To facilitate the achievement of above objectives, the program has four main components, namely:
I-PLAN: Investment for AFMP Planning at the Local and National levels
I-BUILD: Intensified Building-Up of Infrastructure and Logistics for Development
I-REAP: Investments for Rural Enterprises and Agricultural and Fisheries Productivity
I-SUPPORT: Implementation Support to PRDP
The design of PRDP and its implementation aspects draw heavily on the experiences of the
Mindanao Rural Development Projects (MRDP 1 and 2), a program that has been successfully
implemented over the past decade. The program adopts a value chain development approach as a
platform for promoting inclusive, climate resilient, and sustainable growth in key agricultural
subsectors and value chains.
The overall Mindanao palm oil sector is characterized by strong growth although current production
is not yet sufficient to meet domestic requirements. Oil palm cultivation has become an important
livelihood strategy in Mindanao especially among smallholders who aspire for a better life for
themselves and their children. Along with the increasing number of oil mills in Mindanao, the
number of smallholders engaged in the sector has been growing continuously. The crop provides
year-round yields over an economic life span of 25 years and this is one of the characteristics that
make it attractive to smallholders. The oil palm is relatively pest-resistant and tolerates low-quality
10

soils. Considering the prospect of a steadily rising demand, the oil palm industry holds a large
potential for reducing poverty by providing jobs and other livelihood opportunities to rural
populations. Under the right conditions and by using good agricultural practices, the economic
performance of oil palm cultivation often outperforms alternative cash crops. A major thrust of the
Mindanao palm oil industry is to meet future demand for edible oil by investing in better social and
environmental practices and ensuring efficient and sustainable intensification based upon models
which continuously provide benefits to communities at large.
B. OBJECTIVES OF THE VCA
The decision to conduct a Mindanao cluster level value chain analysis was in recognition of the fact
that lead firms operate in several regions and the different regions face common challenges and
opportunities. The cluster level approach to value chain analysis also hopes to bring cohesiveness
into the various oil palm development initiatives that would be undertaken on a provincial basis.
This report provides an overview and analysis of the oil palm value chain with the aim of identifying
main leverage points and key strategies to improve competitiveness of Mindanao regions and
promote development in a pro-poor and sustainable manner. It will provide the basis for the
formulation of the Provincial Commodity Investment Plan and will lay the foundation for PRDPs
cooperation with the private sector and other government agencies active in the palm oil industry.
Specifically, the value chain analysis aims to:
a) Provide an in-depth understanding of the range of factors and relationships that affect the
performance of the oil palm industry in Mindanao, including end markets, enabling environment
and coordination/cooperation among firms.
b) Identify in a participatory process the systemic chain level issues that hinder or promote the
gainful participation of rural households, sustainability of the chain, and its competitiveness in
general.
c) Under a participatory process, identify and prioritize interventions needed to overcome

bottlenecks throughout the chain that would foster value chain competitiveness and climate
change resiliency.
d) Identify and explore how to catalyze private and public sector stakeholders in the palm oil
industry to collaborate for improved industry performance
C. METHODOLOGY AND APPROACH
An initial desk study was conducted to collect and summarize information from currently available
reports and studies. It provided guidance to issues that needed to be the focus of field research. The
field work component of the study was conducted using qualitative research techniques particularly
value chain analysis workshops, key informant interviews (KII), and focus group discussions (FGDs).
Key informants and participants to the workshops and FGDs consisted of farmers, traders,
processors, exporters, and representatives from relevant government agencies. Key informant
interviews were used for collecting data on individuals perspectives, experiences, and quantitative
data. FGDs were effective in generating broad overviews of issues of concerns to the groups or
subgroups represented and in the triangulation/vetting of information obtained from the KII.
11

Constraints and interventions were identified and further elaborated based on iterative and
inductive analysis of responses during the KII and FGD/Stakeholders Workshop primarily from the
following perspectives:
Context of key informants and FGD participants
Third party observations (e.g., government agencies, providers, VC facilitators with

experience in oil palm VC development projects, etc.) were important for suggesting
important issues to explore and for substantiating the results of the company interviews
Experiences of other oil palm producing countries such as Indonesia, Malaysia, and Thailand
Past assessment studies of the Philippine oil palm industry
Competitiveness is generally defined as the ability to efficiently produce goods (and services) for
which there is high demand that leads to increased income generation capacities that are
sustainable in the future. Strategy is about choice --- choosing what to do to build competitiveness
from a long list of viable and promising options. Given the competing and varied incentives and
motivations among and between stakeholders and players, the process required iterative ranking
and prioritization and arriving a consensus on what needs to be done within the next 5 years. The
competitiveness strategies proposed in this report reflect the choices made as a result of extensive
analysis of the industrys key constraints and a dialogue with stakeholders and players.
12

Section 2:
OVERVIEW OF THE INDUSTRY
A. PRODUCT DESCRIPTION
Oil Palm (Elaeis guineensis) is said to have originated in the tropical rain forest region of West Africa.
In South East Asia, palm oil was introduced during the 18th Century. The first commercial palm
plantations were founded in early 1900 in Sumatra, Indonesia and later in Malaysia from about 1914
and were expanded in 1955. (Fedepalma, 2006). The extensive development of oil palm industries in
many countries in the tropics has been motivated by its extremely high potential productivity.
Figure 1. Uses of Oil Palm By-products and Biomass in Food and Manufacturing Industries
Food (frying oil, margarine,

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

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

board, fertilizer, energy
Furniture, particle board,

Trunk energy, feedstuff, starch
13

Oil palm trees may grow up to sixty feet. Young and mature tree trunks are wrapped in fronds, which
give them a rough appearance. Older trees have smoother trunks, apart from the scars left by the
fronds, which have withered and fallen off. The oil palm tree matures 2.5 to 3 years from planting.
The economic life is about 20 to 30 years from planting and yields continuously throughout the year.
After the tree reaches an 18 to 20 year threshold, it loses its optimal productivity and gradually
decreases its output.
Figure 2. Cross Section of an Oil Palm Fruitlet
Oil palm trees are perennial monoecious crops, as they bear both male and female flowers on the
same tree to produce fruit bunches every year. Each tree produces compact Fresh Fruit Bunches
(FFB) weighing between 10 and 25 kilograms with 1,000 to 3,000 oval-shaped fruitlets per bunch.
Generally, the fruitlet is dark purple, almost black when unripe, and orange red when ripe. The
individual fruit is made up of an outer skin (the exocarp), a pulp (mesocarp) containing the palm oil
in a fibrous matrix, a central nut consisting of a shell (endocarp), and the kernel. The kernel contains
an oil which resembles the coconut oil and quite different to palm oil.
Oil Palm is the worlds highest yielding oil crop, with an output 510 times greater per hectare than
other leading vegetable oils. Oil palm needs less than half the land required by other oil crops to
produce the same amount of oil. This makes palm oil the least expensive vegetable oil to produce.
Oil palm produces two distinct oils, palm oil and palm kernel oil, both of which are important in
world trade. Fresh Fruit Bunches (FFB) comprise about 18-22% crude palm oil and 3-5% palm kernel.
Palm oil is obtained from the fleshy mesocarp of the fruit which contains maximum 24% oil
depending on the quality and variety of fruit. Palm kernel oil is obtained from the kernel which
contains about 45-50% oil and 40-45% meal. It is lauric oil which is similar to coconut oil.
Palm oil and palm kernel oil are used in a wide range of products, from margarine and chocolate to
ice cream, soaps, cosmetics, and fuel for cars and power plants. The four main traditional uses of
palm oil in food products are for cooking/frying oil, shortenings, and margarine and confectionary
14

fats. Palm oil is popularly used in both solid fat products as well as in the liquid cooking oil sector
especially in industrial frying applications. It offers the following technical characteristics that are
desirable in food applications (RSPO website/Better Palm Oil):
It has great cooking properties. Palm oil maintains its properties even under high
temperatures.
Its smooth and creamy texture and absence of smell make it a perfect ingredient in many
recipes, including many baked goods such as biscuits.
It has a natural preservative effect which extends the shelf life of food products.
As a non-food ingredient, palm oil finds application in the production of cosmetics, toiletries, soaps
and detergents. It is also used in the oleochemical industry, as a base material for the production of
surfactants (washing active substances) for laundry detergents, household cleaners and cosmetics.
According to USDA estimates, 75% of the global palm oil consumption is for food purposes, while
about 22% is for industrial/non-food purposes. The remaining, though currently, of marginal
quantity, is used for biodiesel.
Apart from palm oil, palm kernel and palm kernel oil which are the main products of the oil palm,
the tree and the processing wastes generated during processing have several uses. The sludge can
be used to make soaps and fertilizer. The palm kernel cake is widely used as an input into the feed
industry and for fertilizer. The processing wastes namely: empty bunch refuse, fibre, shell, sludge
and mill effluent constitute about 74% 76% of the total mass of the oil products. In addition, the
other parts of the palm tree (trunk, leaves, fibre) have broad uses, while the bunch refuse, and by-
products from the oil processing (fibre, shell, sludge) can be used as fuel for the mills in the form of
briquettes. The oil palm biomass can be a raw material for many products such as medium density
fiber board (MDF), particle board, pulp and paper, plastic composites, and bio-compost.
Table 2. Food And Non-Food Applications Of Palm Oil

Food Applications Oleochemical Energy/Biomass/Others
Cooking Oil Surfactants Biodiesel
Industrial Frying Fats Personal care products Furniture
Margarine Cosmetics Charcoal
Vegetable Ghee Agrochemical Pulp and Paper
Confectionery Fats Lubricant/grease Animal Feeds
Ice Cream Toilet soap Bio-composite
Non-dairy Creamer Industrial cleaning materials Fertilizer
Salad Dressing Printing Ink Briquettes
Cheese Analog Polyols
Supplements/Vitamins Polyurethane
Source: MPOB website
To date, key products from oil palm produced by Mindanao are Fresh Fruit Bunches, crude Palm Oil
(CPO), Crude Palm Kernel Oil (CPKO) and the Palm Kernel Cake (PKC). Only Caraga produces Refined
Bleached Deodorized (RBD) Palm Oil and related products.
15

Table 3. Key Products Produced and Traded by Mindanao Regions, 2013
PRODUCTS
REGION FRESH CPO CPKO PKC RBD

FRUIT
BUNCHES
Northern Mindanao
Davao Region
SOCCSKSARGEN
Caraga
ARMM
Source: KII/FGD
B. PRODUCTION TRENDS
1. Global Production
Figure 3.- Percentage Breakdown of World Production of FRESH FRUIT BUNCHES by Region, 2013
Oil palms are grown in 44 countries with Asia accounting for 87% of world production in 2013.
World Fresh Fruit Bunches production increased from 250,188,288 MT in 2012 to 268,220,532 MT in
16

2013 or a 7% increase. Indonesia, Malaysia, and Thailand are the top producers accounting for 87%
of the total Fresh Fruit Bunches production. The Philippines is a minor player in the world palm oil
industry. In 2012, the countrys percentage share to world FRESH FRUIT BUNCHES production was at
0.18%. From a ranking of 19th in 2012 in terms of production volume, Philippines slid down to 23rd in
2013. This was due to the increase in production in Venezuela (45%), Benin (40%), Mexico (23%),
and Peru (10%) while Philippine production decreased by 11% due to extensive damages of
plantations in Davao and Caraga Regions caused by Typhoon Pablo.
Table 4. World Production of Fresh Fruit Bunch, 2013

Country Production Volume (in MT) % to World Production
Indonesia 120,000,000 45%
Malaysia 100,000,000 37%
Thailand 12,812,000 5%
Nigeria 5,000,000 2%
Colombia 4,991,241 2%
Cameroon 2,450,000 1%
Ecuador 2,316,838 1%
Ghana 2,100,000 1%
Papua New Guinea 2,100,000 1%
Honduras 2,004,000 1%
Others 14,446,453 5%
World Production 250,188,288.00 100%
Source: FAOSTAT
Most of the expansion of the worlds palm oil production has been achieved by increasing the area
planted with oil palm as opposed to yield improvements. The total global area planted with palm oil
has expanded at an annual average growth rate of 3.0% over the last five decades and by 4.8% over
the last two decades.
In 2013, Guatemala had the highest average yield at 22.77 MT per hectare. Average yield in
Thailand was 20.45 MT per hectare. The yield is far below the optimum yield of 60 MT/hectare. The
average yield in Maguindanao is about double the yield of Guatemala.
Table 5. Countries Delivering the 5 Highest Average Yield in the World, 2013
Country Average Yield (MT/hectare)
Guatemala 22.77
Malaysia 21.98
Thailand 20.45
Nicaragua 20.00
Colombia 19.97
Source: FAOSTAT
Total global production of palm oil reached 56,030,940.00 in 2012. About 51% of the global supply
of palm oil comes from Indonesia, home to the world's third-largest swath of rainforest, after the
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Amazon and the Congo basin. Malaysia accounted for 34% of the world palm oil production
followed by Thailand at 4%. Philippines ranked 19th in world CPO production and accounted for
0.19% of global production.
2. Domestic Production
Although considered an emerging industry in the Philippines and while its size is small compared to
Malaysia and Indonesia, Mindanao has been cultivating and processing palm oil for the past three
decades. The first oil palm plantation was established in Basilan - ARMM by Menzi Agricultural
Corporation sometime in the 1950s. In 1966/67, Kenram Industry converted their ramie plantation
in Sultan Kudarat to oil palm, and then established 1,100 hectares of nucleus farm and 3,000
hectares of out grower farms to support the operations of their 20 MT/h capacity crude palm oil
(CPO) mill. In the 1980s, National Development Corporation and Malaysian-based Guthrie
Corporation developed 8,000 hectares of oil palm in San Francisco and Rosario of Agusan del Sur,
which subsequently became Pilipinas Palm Oil Plantation, Inc. In 2000, Agumil started its operations
in ARMM/Maguindanao with outgrowership as its flagship program. Agumil started palm oil milling
operations in Buluan, Maguindanao in 2007.
Figure 4. Best Oil Palm Growing Regions in the World
Mindanao is geographically located in the palm oil belt, with the appropriate climatic and soil
conditions for the production of palm oil. Prime areas for oil palm plantations are those located
within 5 degrees of the equator. Mindanao is closer to the equatorial line than Luzon and Visayas.
Based on the 2013 BAS data, Mindanao accounted for 77% of the 53,849.00 hectares of oil palm
plantations in the Philippines. Caraga and SOCCSKSARGEN comprised 64% of the hectarage planted
to oil palm. Bohol in Central Visayas had the third largest area devoted to oil palm followed closely
by Palawan. Northern Mindanao ranked fifth in terms of hectarage.
18

Table 6. Area Planted to Oil Palm in The Philippines (in hectares), 2013
Region BAS/PSA Data CY 2013 PPDCI (as of April 2013)
Area Planted % to RP Area Planted % to RP
Luzon (Palawan) 5,840.00 11% 6,250.00 9%
Visayas (Bohol) 6,500.00 12% 6,500.00 9%
Mindanao 41,509.00 77% 60,710.00 83%
Zamboanga Peninsula 3.00 0% 800.00 1%
Northern Mindanao 4,260.00 8% 3,280.00 4%
Davao Region 807.00 1% 3,500.00 5%
SOCCSKSARGEN 17,125.00 32% 26,470.00 36%
CARAGA 17,374.00 32% 20,160.00 27%
ARMM 1,940.00 4% 6,500.00 9%
Philippines 53,849.00 100% 73,460 100%
Notes:
PPDCI: Philippine Palm Oil Development Council, Inc.
Data from PPDCI was taken from presentation made by Dr. Pablito Pamplona in Sarangani last August 2014. Dr. Pamplona
is a Technical Expert on Palm Oil and Secretary of PPDCI
Area planted to oil palm in Mindanao increased from 31,444 hectares in 2009 to 41,509 hectares in
2013. Regions with the highest expansion rate during the last five years were Northern Mindanao
(316%), ARMM (143%), and Soccsksargen (43%). Significant expansion of oil palm plantations in
ARMM and Northern Mindanao occurred sometime between 2010 and 2012. In Soccsksargen,
expansion was more or less evenly spread out during the five year period.
Table 7.- Breakdown of FRESH FRUIT BUNCHES Production (in MT) in the Philippines, 2013
Region/Area Volume (in MT) % to Philippine Production
Luzon 14,283.27 3%
Visayas 34,405.98 7%
Mindanao 424,726.96 90%
Northern Mindanao 35,180.00 7%
Davao Region 2,974.99 1%
SOCCSKSARGEN 143,673.52 30%
Caraga 136,370.72 29%
ARMM 106,527.73 23%
Philippines 473,416.21 100%
Source: BAS/PSA
Of the 473,416.21 MT of Fresh Fruit Bunches produced nationwide, 90% of the production came
from Mindanao. The top 3 oil producing regions in 2013 were SOCCSKSARGEN, Caraga, and ARMM.
The three regions collectively produced 82% of total Fresh Fruit Bunches production.
19

Figure 5. Percentage Breakdown of Fresh Fruit Bunches Production in the Philippines by Region,
2013
At the provincial level, top performers in 2013 both in terms of production volume and high yield
were Maguindanao, Sultan Kudarat, North Cotabato, and Bukidnon. Agusan del Sur had the highest
production volume but ranked 6th in terms of yield. Maguindanao had the highest yield at 54.91 MT
per hectare and the 2nd largest production at 106,527.73 MT. Bukidnon ranked second in terms of
yield and 5th in terms of volume. Sultan Kudarat and North Cotabato had the third and fourth
highest production volume respectively.
Table 8.- Top Five Oil Palm producing Provinces in The Philippines, 2013
Volume in MT Average Yield - MT/ha Area - hectare
Top 5: Production Volume Top 5: Average Yield
Province Volume Ave Yield Province Ave Yield Area
Agusan del Sur 134,303.69 8.19 Maguindanao 54.91 1,940.00
Maguindanao 106,527.73 54.91 Bukidnon 18.76 1,470.00
Sultan Kudarat 84,431.21 8.62 Davao del Norte 8.89 72.00
North Cotabato 51,121.25 8.89 North Cotabato 8.89 5,750.00
Bukidnon 27,580.00 18.76 Sultan Kudarat 8.62 9,800.00
Source: BAS/PSA
According to the Mindanao Development Authority (MinDA), 959,000 hectares of land in Mindanao
have been identified to be suitable for oil palm plantation and of which 177,000 hectares are said to
20

be already under negotiation for palm oil development. Majority of the areas under negotiation are
located in the ARMM and Caraga.
Table 9. Potential Expansions Areas in Mindanao for Oil Palm Cultivation

Location Potential Areas (in hectares)
Zamboanga Peninsula 102,000
Northern Mindanao 154,000
Davao Region 104,000
Soccsksargen 112,000
Caraga 384,000
ARMM 103,000
Total 959,00
Source: MinDA
Northern Mindanao
Table 10. Production Trends in Northern Mindanao, 2009 to 2013

Indicators 2009 2010 2011 2012 2013 Annual %
Growth Rate
Bukidnon
Volume (MT) 730.00 21,674.00 24,250.00 25,700.00 27,580.00 736%
Area Planted (ha) 750.00 1,290.00 1,400.00 1,450.00 1,470.00 19%
Average Yield (MT/ha) 0.97 16.80 17.32 17.72 18.76 366%
Misamis Oriental
Volume (MT) 3,252.06 3,563.97 5,718.00 6,255.00 7,600.00 27%
Area (ha) 248.00 285.00 850.00 2,760.00 2,790.00 205%
Average Yield (MT/ha) 13.11 12.51 6.73 2.27 2.72 -16%
Northern Mindanao
Volume (MT) 3,982.06 25,237.97 29,968.00 31,955.00 35,180.00 157%
Area Planted (ha) 1,023.00 1,575.00 2,250.00 4,210.00 4,260.00 63%
Source: BAS/PSA
Fresh Fruit Bunches production in Northern Mindanao increased from 3982.06 MT in 2009 to 35,180
MT in 2013. The 783% increase in production between 2009 and 2013 was a result of both area
expansion at an annual rate of 63% and increase in yield at 22% per year. The expansion in oil palm
plantation was primarily in Misamis Oriental at the rate of 205% per year. Yield correspondingly
declined since many of the trees were still non-bearing. Growth in Bukidnons production volume
can be attributed more to increase in farm productivity which grew at an average of 366% per year.
By next year, Bali Oil Palm Produce Corporation, a Malaysian firm, will establish oil palm plantations
in Bukidnon and in Marilog District. Within the next five to seven years, the company plans to
21

expand operations in three clusters: i) Cabanglasan 5,000 hectares; ii) Maramag 5,000 hectares;
and iii) Kalilangan 3,000 hectares. Kalilangan will be the first to be developed since a partnership
agreement has already been signed between the company and Kalilangan Oil Palm Growers
Association. Bali Oil will be using loan proceeds from the Development Bank of the Philippines. The
Kalilangan oil palm cluster will involve 1,750 farmers in the municipalities of Kalilangan,
Pangantukan, and Talakag.
Bali Oil currently operates a 200-hectare oil palm plantation in Misamis Oriental with 29,600 trees at
148 trees per hectare. The company plans to further expand its operations in Misamis Oriental with
Opol and Villanueva as the target areas. It is said that the company is growing a hybrid variety with
can produce fruits weighing 55 kilograms and with about 20% oil content.
With the merger of its wholly-owned subsidiary, Nakeen Corporation, A Brown Energy and
Resources Development, Inc. (ABERDI) is operating a 1,350-hectare oil palm plantation located in the
areas of Kalabugao, Impasug-ong, Bukidnon and Tingalan, Opol, Misamis Oriental. It imports
germinated oil palm seeds from Thailand, Papua New Guinea and Costa Rica for its nursery. A.
Brown Energy and Resources Development, Inc. (ABERDI) has about 1,600 hectares planted to oil
palms in Kalabugao, Impasug-ong in Bukidnon and in Tingalan, Opol in Misamis Oriental. These oil
palm plantations are usually operated under a lease agreement and development contract scheme.
According to news reports, ABERDI has signed a memorandum of agreement last February 2014 with
the Cagayan de Oro city government for the establishment of an oil palm estate estimated to
measure up to 10,000 hectares with initial development to cover 1,400 hectares. The city, which
owns the property, would be ABERDIs partner for the venture.
Farmers and local communities participate in the ABERDI supply chain through the following
schemes
a) Lease Agreement - areas under the Community Based Forest Management Agreement (CBFMA)
Example
ABERDI entered into a Development Contract (DC) with Kapunungan Sa Mga Mag- Uuma sa
Kaanibungan (KASAMAKA) at the Barangay Kalabugao, Municipality of Impasugong, Bukidnon
concerning the development of Oil Palm Commercial Plantation. It is a Peoples Organization
that has been granted Community Based Forest Management Agreement (CBFMA) No. 55093
over forest lands, by the Department of Environment and Natural Resources (DENR) on
December 22, 2000 covering an area of 2,510.80 hectares. Under the CBFMA, KASAMAKA is
mandated to develop, manage and protect the allocated community forest project area.
Moreover, it is allowed to enter into agreements or contracts with private or government
entities for the development of the whole or portion of the CBFMA area. The projects objectives
are to establish approximately 1200 hectares into a commercial palm plantation within 5 years
(2006-2011) and raise livestock, the harvest and produce of which shall belong to the Company.
The responsibilities of KASAMAKA in regard to the project are: i) to provide the land area of 894
hectares within the CBFMA area; and ii) to provide manpower needs of the Developer in all
developmental activities such as land preparation, planting, weeding, fertilization, harvesting,
maintenance and others. On the other hand, ABERDI will provide the technical and financial
resources to develop the 894 hectares into Palm Oil Plantation for a period of 20 years up to
2026. Priced at PhP 6,000/ha, Nakeen/ABERDI reportedly paid members of the peoples
organization a total of PhP 7.2 million in cash in exchange for the sole authority to develop the
area.
22

The company gives employment priority to KASAMAKA members or their household members.
For every five ha owned by a KASAMAKA member, his/her family is entitled to nominate one
worker to work in the plantation on a regular basis. A worker earns PhP 200 to 250 per day.
KASAMAKA also doubles as a labor contractor during harvest and planting seasons, charging a
15% service fee to seasonal labourers hired by the company.
b) Outgrowership
Farmers earn from PhP 6,000 to 10,000/month during the 6th to 25th year. From 30th month
after planting to 5th year, average income ranges from PhP 2,000 to 3,000/month. During this
stage, farmers usually engage in livestock raising and planting of other crops.
The municipal government of Impasug-ong entered into partnership agreements with farmers
and government financing institutions such as QUEDANCOR to act as a conduit for loans for
small farmers who wish to engage in palm oil production. The Municipal Enterprise and
Economic Development Office (MEEDO) of Impasugong also provides technical assistance to
farmer-growers and takes charge of promotional activities to encourage local farmers to engage
in oil palm cultivation. Aside from technical assistance, the municipal government also
committed to providing financing and the payment of the initial four years loan interest by the
farmers. The agreed net profit sharing between the farmers and the LGU is 60:40 in favor of the
farmers from the start of harvest up until the projects termination period.
Davao Region
Table 11. Production Trends in Davao Region, 2009 to 2013

Growth Rate
Davao del Norte
Volume (MT) .. .. .. .. 640.37
Area Planted (ha) - - - - 72.00
Average Yield (MT/ha) 8.89
Compostela Valley
Volume (MT) 5,815.00 6,093.73 6,126.73 5,894.25 2,334.62 -12%
Area (ha) 1,050.00 1,060.00 1,060.00 1,060.00 735.00 -6%
Davao Region
Volume (MT) 5,815.00 6,093.73 6,126.73 5,894.25 2,974.99 -10%
Area Planted (ha) 1,050.00 1,060.00 1,060.00 1,060.00 807.00 -5%
Source: BAS/PSA
Oil palm plantations in Davao Region are generally concentrated in Compostela Valley. Based on
BAS data, production declined from 5,815 MT in 2009 to 2,334.62 MT in 2013. The decline in
production volume was more pronounced between 2012 and 2013. Many of the oil palm plantations
were damaged when Typhoon Pablo hit the region in 2012. Davao Oriental is set to start the
establishment of oil palm plantations in the towns of Cateel, Boston and Baganga. 4,000 hectares of
areas from the three towns will be covered during the start of the development of oil palm
23

production. Agumil is said to be willing to establish an oil mill if the province can commit to have at
least 4,000 hectares of oil palm plantations. About 2,000 farmers and indigenous people (IP) who
are holders of Certificates of Ancestral Domain Title (CADTs) have expressed their desire to venture
into oil palm production. They will be participating in the chain as outgrowers.
SOCCSKSARGEN
Table 12. Production Trends in SOCCSKSARGEN, 2009 to 2013

Growth
Rate
North Cotabato
Volume (MT) 27,196.92 27,379.70 37,107.24 42,904.18 51,121.25 18%
Area Planted (ha) 3,675.00 3,710.00 4,595.00 5,005.00 5,750.00 11%
Ave Yield (MT/ha) 7.40 7.38 8.08 8.57 8.89 4%
Sarangani
Volume (MT) 29.77 30.10 27.20 26.00 25.30 -3%
Area (ha) 3.00 3.00 2.75 2.75 50.00 313%
Ave Yield (MT/ha) 9.92 10.03 9.89 9.45 0.51 -19%
South Cotabato
Volume (MT) 4,055.42 6,006.21 7,099.19 7,489.07 8,095.76 20%
Area Planted (ha) 1,073.00 1,141.00 1,235.00 1,450.00 1,525.00 8%
Ave Yield (MT/ha) 3.78 5.26 5.75 5.16 5.31 8%
Sultan Kudarat
Volume (MT) 70,955.17 73,518.17 76,596.26 80,694.71 84,431.21 4%
Area Planted (ha) 7,255.00 9,755.00 9,755.00 9,800.00 9,800.00 7%
Ave Yield (MT/ha) 9.78 7.54 7.85 8.23 8.62 -2%
Soccsksargen
Volume (MT) 102,237.28 106,934.18 120,829.89 131,113.96 143,673.52 8%
Area Planted (ha) 12,006.00 14,609.00 15,587.75 16,257.75 17,125.00 9%
Ave Yield (MT/ha) 8.52 7.32 7.75 8.06 8.39 -0.3%
Source: BAS/PSA
In SOCCSKSARGEN, 94% of the Fresh Fruit Bunches production in 2013 came from North Cotabato
and Sultan Kudarat. Within the region, Sultan Kudarat can be considered as the pioneer in oil palm
cultivation as this is where the first oil mill in the region was located. The set-up of oil mills in these
two provinces have been instrumental in encouraging farmers to go into oil palm plantation.
Concentration of oil palm plantations is generally within the proximity of the oil mills. In Carmen, for
example, before the establishment of Univanich Carmen Palm Oil Mill, only a few farmers planted
the industrial crop because of the anticipated difficulties and high expense to bring their harvests to
distant factories.
Expansion in North Cotabato is triggered by both set-up of oil mills and planting material support
from provincial and local government units. To support farmers interested to go into oil palm
24

cultivation, the local government unit (LGU) of Carmen came up with a Plant Now Pay Later (PNPL)
scheme. Budget for Carmens oil palm program is dependent on its savings and available
development funds. The provincial government of North Cotabato also has its own PNPL and Plant
Now Take Care (PNTC) programs. The LGU has allocated an annual budget of PhP 20 million for
their oil palm development project. This budget can more or less finance the planting of 700
hectares. The PLPN and PNTC programs facilitated the planting of over 4,000 hectares involving
2,000 farmers. From 2012 to 2013, the provincial government distributed 158,243 planting
materials covering about 1,122.29 hectares. For 2014, the target is to distribute planting materials
good for 1,072 hectares. Several municipalities in North Cotabato have also initiated their own PNPL
programs with a total of 300,000 seedlings distributed per year. Farmers who enrolled in the PLPN
and PNTC programs enter into a marketing or outgrowership agreement with the oil mills.
Caraga
Table 13.- Production Trends in Caraga, 2009 to 2013

Growth
Rate
Agusan del Norte
Volume (MT) 1,380.88 1,547.24 1,585.09 1,569.73 1,315.53 -1%
Area Planted (ha) 270.00 300.00 300.00 321.00 371.00 7%
Ave Yield (MT/ha) 5.11 5.16 5.28 4.89 3.55 -6%
Agusan del Sur
Volume (MT) 348,377.99 370,342.20 313,775.43 250,830.95 134,303.69 -12%
Area (ha) 16,265.00 16,365.00 16,385.00 16,395.00 16,395.00 0%
Ave Yield (MT/ha) 21.42 22.63 19.15 15.30 8.19 -12%
Surigao del Sur
Volume (MT) 435.70 474.17 436.92 716.28 751.50 14%
Area Planted (ha) 30.00 30.00 40.00 605.00 605.00 383%
Ave Yield (MT/ha) 14.52 15.81 10.92 1.18 1.24 -18%
Caraga
Volume (MT) 350,194.56 372,363.61 315,797.44 253,116.96 136,370.72 -12%
Area Planted (ha) 16,565.00 16,695.00 16,725.00 17,324.00 17,374.00 1%
Ave Yield (MT/ha) 21.14 22.30 18.88 14.61 7.85 -13%
Source: BAS
Caragas production increased between the period 2009 and 2010. The declining trend started in
2011 with the most pronounced decrease in production between 2012 and 2013. Average yield
decrease at the percentage rate of 13% per year due to growing number of senile/aging trees.
Caraga was also among the regions that were hit by Typhoon Pablo in 2012.
Oil palm plantations are concentrated in San Franciso, Trento, and Bunawan. The Filipinas Palm Oil
Plantation, Inc. (FPPI), a Filipino-Singaporean firm, was established after consolidating the former
NDC-Guthrie Plantations, Inc. (NGPI) and NDC-Guthrie Estates, Inc. (NGEI). It operates an 8,000
hectare plantation in San Francisco and Rosario. In 1988, under the CARP, the 8,000 ha were
redistributed to its workers. Organized into local cooperatives, the NGEI and NGPI leased their lands
25

to FPPI, thus allowing the latter to continue its cultivation and operation of the oil palm plantation.
While FPPI maintains a nucleus estate of around 8,000 ha of oil palm plantation, it actively promotes
oil palm cultivation among individual growers and corporate planters elsewhere in the Caraga region
and other adjacent provinces under an outgrowership agreement. The Agusan Plantations, Inc.
(API), also a Filipino Singaporean firm, operates a 1,815 ha plantation and runs a palm oil mill in
Trento, Agusan del Sur. In consolidating their nucleus plantation, they also leased land from another
Agrarian Reform Beneficiary (ARB) located in Brgy. Manat, Trento. Expansion of oil palm plantations
during the recent years has been primarily in Santa Josefa and Trento. There are also a few oil palm
plantations in Loreto, Talacogon, and La Paz. About 300 hectares of oil palm plantations have been
established in Florida, Dulag, and Aupagan Butuan City. These plantations have marketing
agreements with oil mills.
Table 14. Major Plantations in Agusan del Sur

Firm/Cooperative Location Date Plantation Area
Established (ha)
Filipinas Palmoil Plantation, Inc. San Francisco/Rosario 1979/1983 8,429.68
Agusan Plantation Inc. Trento 1993 1,815.00
Evergrow Development Agricultural Trento 1998 350
Farm, Inc.
Kabingwangan Upland Farmers Bunawan 1999 440
Tribal, MPC
Uraya Farms Bunawan 666
Agusan del Sur State College of Bunawan 2002/2005 70
Agriculture and Technology
Source: Varela, et.al, Agricultural Development and Habitat Change in the Agusan River Basin, 2013
ARMM
Within a span of five years, Maguindanao s oil palm fruit production increased from 288 MT in 2009
to 106,527.73 MT in 2013. The significant increase in production was brought about by aggressive
expansion and steep growth in farm productivity. The average yield of Maguindanao is at par with
progressive and well managed plantations in Malaysia and Indonesia.
Table 15. Production Trends in ARMM, 2009 to 2013

Growth Rate
Maguindanao
Volume (MT) 288.00 664.00 18,795.20 60,426.75 106,527.73 7378%
Area Planted (ha) 800.00 805.00 1,480.00 1,935.00 1,940.00 29%
Source: BAS
Significant expansion of oil palm plantations took place in 2011 and 2012. Data from the PCA
indicated that as of December 2012, areas planted to oil palm has reached 2,786.45 hectares.
District II accounted for 96% of the hectarage planted to oil palm. Expansion and participation of
26

smallholders in the industry were facilitated by the planting material support provided by the
provincial government.
Table 16.Breakdown of Area Planted to Oil Palm by District in Maguindanao as of

December 2012
District No. of Hectares % Share
District 1 119.60 4%
District 2 2,666.84 96%
Total - Maguindanao 2,786.45
Source: Philippine Coconut Authority
Philippine Palm Oil Production
Philippine palm oil production increased from 90,000 MT in 2009 to 106,000 MT in 2013 or an 18%
increase. The highest percentage increase in production volume was between 2011 and 2012.
Table 17. Palm Oil Production in The Philippines (in MT), 2009 to 2013
2009 2010 2011 2012 2013
Production Volume (MT) 90,000 92,000 87,000 98,000 106,000
Source: FAOSTAT
27

Section 3:
NATURE AND STRUCTURE OF THE INDUSTRY
A. VALUE CHAIN MAPPING

Figure 6. Palm Oil Value Chain Map in Mindanao
Palm oil processing can be broken down into four stages. First, Fresh Fruit Bunches are produced in
the farms. Second, crude palm oil and palm kernel oil are extracted from the Fresh Fruit Bunches
fruitlets. Third, the crude palm oil and palm kernel oil are further processed using a refining,
bleaching, and deodorising (RBD) technique. Last, the RBD products are manufactured into high-
value products such as speciality fats, oleochemicals, and biodiesel.
The industry is comprised of nursery growers, input suppliers, smallholders, plantation owners, oil
mills, and refineries. The palm oil industry has a relatively short supply chain compared to other
agricultural commodities. Unlike in other commodities where products pass through layers of
intermediaries, transactions in the oil palm industry are directly between farmers/cooperatives and
the oil mills. In Maguindanao though, there are two to three buying stations and intermediaries who
deal primarily with smallholders. These buying stations have made it possible for small farmers to
overcome issues on economies of scale especially in relation to transportation costs.
Oil mills often source from their own plantations and from both independent and company
supported farmers/outgrowers. The mills are usually located in close proximity to the oil palm
plantations as the Fresh Fruit Bunches must be milled within 24 hours after harvest. Farmers though
28

especially those who are not bound by contract growing agreement tend to sell to different mills in
Mindanao depending on the price offer.
Figure 7. Delivery of fresh Fruit Bunches at Kenram Mill in Isulan Sultan Kudarat
The crude palm oil undergoes a further stage of processing before it can be consumed. This second
stage involves refining the crude palm oil, a process that extracts fatty acids, colour and other
impurities. The refining process transforms the crude palm oil into Refined Bleached Deodorised
Palm Oil, which can already be used in food products. The final stage in processing involves
fractionation of the refined palm oil to produce liquid palm oleic and a solid product called palm
stearin.
The refining of crude oil is done within and outside of the Philippines (Malaysia, China, India, etc.).
Refineries also source from a range of suppliers, which makes traceability extremely difficult. Even
large integrated companies like Unilever source from their own plantations, from other producers
and from spot markets in Europe.
An important development in the last decade has been investments by Malaysian palm oil
companies in refining facilities in the European Union, India and China. These investments are
allowing Malaysian based companies to manage the entire value chain, from production through to
final processing. Investments by palm oil companies are not restricted to refining and further
processing. Malaysian, Thailand, and Indonesian companies are investing in other parts of the world
such as in the Philippines in order to boost their primary production. Production, milling, and
refining of oil palm are becoming more concentrated and that large players are increasingly involved
in various stages of the chain and in different and producing countries.
29

Figure 8. Geographic Flow of FRESH FRUIT BUNCHES and Palm Oil from Mindanao
The Mindanao palm oil industry can be divided into three hubs:
a) Central Mindanao Hub which covers Sultan Kudarat, Maguindanao, and the two Cotabato
provinces. This hub has three oil mills/lead firms: Kenram (Sultan Kudarat), Univanich (North
Cotabato), and Buluan (Maguindanao). Prior to the establishment of the Buluan Mill, oil palm
growers in Maguindanao delivered their produce either to Kenram or Pilipinas Palm Oil
(Agusan). Agumils operations in ARMM began in 2000. Since company cannot own and operate
its own plantation due to the Comprehensive Agrarian Reform Program, it pursued the
expansion of its outgrowership program into Central Mindanao, particularly Tacurong and
Buluan. To date, the company has growers all over Central Mindanao covering Cotabato, North
Cotabato, South Cotabato, Maguindanao, Sultan Kudarat, and parts of Davao del Sur. Kenram
also works with farmers in generally the same areas. With the operationalization of Univanich
last July 2014, farmers not bound by contract agreements have an additional option. Prior to
the establishment of Univanich, North Cotabato farmers reach as far as Bukidnon to sell their
Fresh Fruit Bunches. Davao growers sell their Fresh Fruit Bunches to oil mills in Central
Mindanao.
All of the nurseries in this hub are located in Soccsksargen. Buluan used to operate a nursery
but have decided to transfer the know-how to nurseries in Soccsksargen. The University of
Southern Mindanao in Kabacan - North Cotabato via a Memorandum of Agreement with Agumil
is the lead in the conduct of research and development activities for oil palm in the Philippines.
b) The Caraga Hub has two oil mills (Agumil and FPPI) and a refinery (Caraga Refinery). Of the the
three nurseries in the area, two are operated by the oil mills. Bali Oil Palm, which is based in
30

Misamis Oriental, supplies Fresh Fruit Bunches to FPPI. Some of the crude palm and palm
kernel oil from Bukidnon and the Central Mindanao mills are sold to Caraga Refinery.
c) The Bukidnon Hub is now currently dominated by ABERDI from the nursery operations to
refinery (just starting). Bali Oil Palm (Malaysian firm) though is already gradually setting up its
supply base for the planned oil mills and refinery in Bukidnon.
Zamboanga del Norte is also now building its oil palm hub anchored on Zanorte Palm Rubber
Plantation. The palm oil project is located in Sirawai and Sibuco, Zamboanga del Norte, which is
among the 30 poorest provinces in the country.
KEY PLAYERS AND FUNCTIONS
1. Input Provision
The varieties under production are a critical function of the long term productivity and
competitiveness of the Mindanao oil palm industry. The most preferred variety by oil mills is the
tenera. The fruit of the Tenera variety contains 25% oil, by weight. Other varieties such as the Dura
contain only 18% oil. As such, the same amount of Tenera can yield 30% more oil than the
equivalent fruit of the Dura. There are still farmers in Mindanao who plant seedlings from unreliable
sources or use the F2 hybrid which gives very low Fresh Fruit Bunches and oil yields. Oil mills
generally do not want to buy Fresh Fruit Bunches of the F2 hybrid.
According to Dr. Pablito Pamplona, Director and Secretary of the Philippine Palm Oil Development
Council, the current and incoming F1 hybrids or tenera in the Philippines are as follows:
a) Deli x AVROS: Seeds are sourced out from Dami in PNG and is recommended at a population
density of 128 plants/ha. It gives high and stable yield when provided with good cultural
management. It is found suitable to the elevation of 600 MASL or less. The maximum
productivity is attained in seven years and remains productive for 25 or more years.
b) Deli x Yangambi. Seeds are sourced out from Univanich in Thailand and recommended at a
population density of 140 plants/ha. It has been grown in Caraga Region for the last ten years
giving high yield under normal weather condition and with good agronomic practices. It
provides added yield of ten tons/ha per year under irrigated condition. It tolerates short-term
low rainfall of 2 to 3 months. Maximum productivity is attained in five years and remains
productive for 30 years.
c) Deli x Ghana. Seeds are sourced out from ASD Costa Rica and recommended at 140 plants/ha. It
can be planted from sea level and up to 900 MASL due to its good tolerance to low temperature.
It is recently introduced in the country and shows great promise for early and high productivity.
d) Deli x La Me. The seeds are being sourced out from CIRAD partner in Thailand. It is among the
most popular hybrids in Malaysia, Indonesia and Africa due to its high yield, tolerance to short-
term dry period of 2 to 3 months, responsive to irrigation and suitable from sea level to 900
MASL. Planting is at 140 plants/ha
Seedlings are imported from Papua New Guinea, Costa Rica and, more recently, from Thailand.
Landed cost of each seed is about a dollar. Depending on agronomic practices, 80% of the seedlings
are usually marketable while the rest are culled after six to eight months. The price ranges from
31

P175 to P250 per seedling. Nursery establishment has become a profitable business in itself as the
demand for oil palm planting material has grown over the past years. With the growing demand,
growers have to place their orders in advance. Oftentimes, demand exceeds supply.
For one hectare with 136 plants, the cost of planting materials ranges from PhP 27,200 to PhP
38,000, which many smallholders cannot afford to pay upfront. In many cases, smallholders access
planting materials via outgrowership agreement with mills. Mills provide the planting materials and
deduct the payment (in instalment) from Fresh Fruit Bunches deliveries. Farmers may also avail of a
loan from Land Bank or the Development Bank of the Philippines with the marketing/outgrowership
agreement. Oil mills though are becoming more selective in granting or guaranteeing loans due to
prevalence of pole vaulting. Mills usually have their own nurseries which are accredited with the
Bureau of Plant Industry (BPI).
Figure 9. Some of the Oil Palm Nurseries in Mindanao
In provinces like Maguindanao, North Cotabato, and Sultan Kudarat, farmers access seedlings via the
seed distribution program of the local government units. Initially, the LGUs implemented the Plant
Now Pay Later scheme. After some time, some LGUs changed the scheme to Plant Now Take Care
and Plant Now Pay Never under the condition that farmers should meet the expected yield.
Parallel to the seed distribution program, both local government units teamed up with oil mills in the
delivery of extension services with a focus on Good Agricultural Practices (GAP). .
In the oil palm roadmap prepared by the Philippine Coconut Authority (PCA) in close collaboration
with industry players and stakeholders, the target is to plant 300,000 hectares of oil palm by 2023.
This translates to planting of 30,000 hectares per year starting in 2014. About four million seedlings
per year would be needed to plant 305,000 hectares annually. As of June 2013, there are only 11
32

accredited nurseries nationwide. Current production capacity is not sufficient to meet the projected
five million seedling requirement per year.
Table 18. List of PCA Accredited Nurseries in Mindanao as of June 2013

Company Location/Province
Zamboanga Peninsula
Zanorte Palm Rubber Corporation Zamboanga del Norte
Northern Mindanao
ABERDI Bukidnon/Misamis Oriental
Soccsksargen
Triple P Farms North Cotabato
North Cotabato Palm Oil Corporation North Cotabato
Two nurseries Makilala and Mlang
Kilambay Farms North Cotabato
Alda Agro Industrial Ventures North Cotabato
EYG Oil Palm Seedlings Sultan Kudarat
Kilapasawit Ventures Sultan Kudarat
Caraga
Filipinas Palm Oil Plantation Inc Agusan del Sur
Uraya Farms Agusan del Sur
Agumil Agusan del Sur
Source: Philippine Palm Oil Development Council
Oil palm trees have fewer pest and disease problems compared to crops such as rice, corn,
vegetables, and other tree crops. As such, pesticide requirements are generally low but,
nevertheless, many of the smallholders have difficulty in following the recommended practices due
to financial constraints.
The importance of proper fertilization of oil palm to maximize yield cannot be overemphasized.
However, oftentimes, decisions regarding fertilizer are influenced more by availability of financial
resources and price trends rather than what is needed based on soil and leaf analysis. Fertilizer cost
will continue to make up a significant proportion of the total cost of production of palm oil, and,
therefore, oil palm growers have to choose a fertilizer type and program using materials that are the
most cost effective and, at the same time, can contribute towards optimizing the labour
requirements of the whole plantation. Many of the farmers depend on chemical fertilizer and have
not fully explored the use of organic fertilizer made from biomass and palm oil processing waste.
Agumil has started the production of fertilizer using palm oil waste.
2. Farming
Farmers generally shift or engage in oil palm cultivation when there are oil mills within their
proximity and support for planting materials from the local government units. As such, due diligence
among LGU officials in site selection and identification for oil palm cluster establishment is crucial.
The focus on establishing oil palm plantations in unproductive and idle cogonal lands and in second
33

growth forest lands or left over timber farms yielding low income appears to be beneficial to
farmers, the province, and Mother Earth.
Common not-so-good practices observed by Dr. Pamplona and oil mill technicians among oil palm
growers are:
- Inadequate care of immature plants including the planting of F2 seeds

- Planting of F2 seeds which have low Fresh Fruit Bunches and oil recovery yield potential
- Inadequate to no fertilization; fertilizer application not based on soil and leaf analysis
- Inadequate drainage systems in plains and waterlogged fields
- Inadequate control of weeds
- Premature cutting of leaves
- Harvesting of immature fruits
- None collection of loose fruits
Figure 10. Innovations to Facilitate Intercropping in Oil Palm Plantation
While monoculture is prevalent among large plantations, smallholders generally practice

intercropping (food crops/cash crops) during the first two years. On the 3rd year and onwards,
farmers raise livestocks (goat, carabao, goat, and pig). Below are examples of innovations applied by
farmers that enabled that enabled them to practice intercropping especially during the first two
years when trees are still immature.
In many cases, the technicians and consultants of oil mills provide farmers the blueprint for farm
establishment and operations. Bali Oil, in its technical plan presented to potential oil palm farmers
and cooperatives, has already explicitly specified intercropping. Their approach appears to be based
34

on the technologies developed and popularized by the Federal Land Development Authority (FELDA)
in Malaysia for crop and livestock integration in oil palm farming.
Figure 11 Intercropping Plan Proposed by Bali Oil Palm to Bukidnon Farmers
The field factors that affect the composition and final quality of palm oil are genetic, age of the tree,
agronomic, environmental, harvesting technique, handling and transport. The quality of oil produced
and the standard of tree hygiene achieve depends to a great extent on the correct timing of
harvesting. The correct time to harvest bunches is when the fruits become loose and can be
dislodged. According to the more progressive farmers, if there are about 2 3 loose fruits at the
base of palm, then bunch are sufficiently ripe to harvest. If harvested earlier than this, the fruits will
be under ripe and will not have reached full oil content before fruit processing and extraction. If
harvested too late, the free fatty acid (FFA) content of the oil which affects the quality will increase;
in addition, bunch rot problem may occur. Many farmers still tend to harvest immature fruits.
Harvesting involves the cutting of the bunch from the tree and allowing it to fall to the ground by
gravity. Fruits may be damaged in the process of pruning palm fronds to expose the bunch base to
facilitate bunch cutting. As the bunch (weighing about 25 kg) falls to the ground the impact bruises
the fruit. During loading and unloading of bunches into and out of transport containers there are
further opportunities for the fruit to be bruised. Research has shown that if the fruit is bruised, the
free fatty acid (FFA) in the damaged part of the fruit increases rapidly to 60% in an hour. There is,
therefore, great variation in the composition and quality within the bunch, depending on how much
the bunch has been bruised.
Various types of vehicles (from trucks to pick-ups to kuliglig) are used to convey the Fresh Fruit
Bunches to the processing plant. One forward truck can carry 12 to 14 tons of Fresh Fruit Bunches
35

(equivalent to harvest from 4 to 5 hectares). A kuliglig can carry 1 to 1.5 tons of FRESH FRUIT
BUNCHES. For farmers without their own trucks, they usually rent at PhP 7 to 8/MT per kilometer.
Farmers with less than 5 hectares usually consolidate their deliveries. In Maguindanao, farmers can
sell to buying stations.
During the peak season, farmers are able to harvest 3 to 4 tons per month. During the lean month, a
farmer is only able to harvest 1 to 1.5 tons per month. Farmers observed that patterns of lean and
peak seasons are no longer as predictable as before.
Given the fluctuation of palm oil in the international market, it is important for farmers to target the
optimum yield at the least financial and environmental costs. Good management consistent with the
guidelines of the Roundtable on Sustainable Palm Oil (RSPO) could substantially increase yields of oil
palm plantations in Mindanao as well as boost market competitiveness.
3. Traders/Buying Stations
The emergence of oil palm buying stations is a very recent development in Maguindanao. Many of
those interviewed attributed this development to the increasing number of farmers with less than 5
hectares of oil palm plantation and, consequently, the need for consolidation in the delivery of Fresh
Fruit Bunches to mills to reduce transportation and hauling costs. To cover transport and hauling
costs for the delivery of the Fresh Fruit Bunches, the intermediaries pay PhP 0.50/kilo less than the
oil mill.
Given the need to deliver the Fresh Fruit Bunches within 24 hours after harvest, the greatest
challenge faced by the buying stations is the need to accumulate 12 to 14 tons of Fresh Fruit
Bunches within 24 hours.
4. Milling
Fresh fruit arrives in the mill as bunches or loose fruit. The fresh fruit is sterilized, steamed and
pressurized, purified, and then extracted for crude palm oil (CPO). Extraction of oil from the palm
kernels is generally separate from palm oil extraction. The stages in this process comprise grinding
the kernels into small particles, heating (cooking), and extracting the oil using an oilseed expeller or
petroleum-derived solvent. The quality standard achieved is initially dependent on the quality of
bunches arriving at the mill. The mill cannot improve upon this quality but can only prevent or
minimise further deterioration during the milling/processing.
Solid waste is often used as fuel in the crushing mill processes and, lately, for generating energy to
feed into the electricity grid (ongoing establishment)., The waste water from the crushing process is
used as well by setting-up biogas facilities which capture the methane gas from waste water and
generate electricity. These practices are major contribution towards reducing greenhouse gas (GHG)
emissions in the production process of palm oil.
There are 6 oil mills operating in Mindanao and 1 oil mill in Zamboanga del Norte that is currently
under construction. Projected capacity of the oil mill in Zamboanga del Norte is 9,900 MT of palm oil
and 2,338 MT of dried palm kernel. Davao Oriental is also set to have an oil mill in their province.
Bali Oil is also planning to set-up an oil mill in each of the three identified clusters in Bukidnon and a
refinery plant in Maramag. Agumil has committed to set up an oil mill if province reaches at least
4,000 hectares of oil palm plantation. Among the plants owned by Agumil in the Philippines, the
Maguindanao mill has the highest production output.
36

Table 19.- Existing Oil Mills in Mindanao as of August 2014
Company Location Capacity (MT FRESH FRUIT
BUNCHES/Hour)
Northern Mindanao
ABERDI Bukidnon 10
Soccsksargen
Kenram Sultan Kudarat 30
Univanich North Cotabato 30
Caraga
Agumil Agusan del Sur 20
Filipinas Palm Oil Plantations Agusan del Sur 40
ARMM
Buluan Oil Mill Maguindanao 45
Source: KII
5. Refinery
Conversion of crude palm oil to refined oil involves removal of the products of hydrolysis and
oxidation, colour and flavour. After refining, the oil may be separated (fractionated) into liquid and
solid phases by thermo-mechanical means (controlled cooling, crystallization, and filtering). The
liquid fraction (olein) is used extensively as liquid cooking oil.
Main products include: Refined Bleached Deodorized (RBD) Palm Oil, RBD palm olein, RBD palm
stearin, RBD Palm Kernel (PK) olein, RBD PK stearin, palm fatty acid, and cocoa butter equivalent.
There are two refineries in Mindanao, namely: a) Caraga Refinery Inc. Agusan del Sur; and b)
ABERDI Bukidnon. Some of the refineries in the Philippines are: a) Asian Plantation Philippines,
Inc.; b) Mina Oil Mill Corporation; c) Oleo Fats, Inc.; d) Pacific Oil Products; e) RFM Corporation;
and f) Universal Robina Corporation.
B. NATURE OF INTERFIRM RELATIONSHIPS
1. Horizontal Relationships
Cooperatives participate in the palm oil industry through the following modalities:
a) Contract growing: Oil mills encourage farmers to organize their cooperatives, in order to enter
into contract growing with them. Farmers tend their farms individually. Cooperative
consolidates the weekly harvest from members and delivers to the mill. Aside from the income
from the sale of the Fresh Fruit Bunches, each member farmer receives the dividends of the
capital shares and the patronage fund. Many of the cooperatives depend on extension staff of
oil mills to train their member farmers.
b) Lease arrangement with the collective Certificate of Land Ownership Award (CLOA) and the
Community Based Forest Management Agreement (CBFMA): This involves leasing the land
collectively owned by the group or cooperative to an oil mill. In many cases, members also work
37

in the plantation. This modality is preferred by cooperatives and farmer members who do not
want to take risks and prefer stable income from rental of land and regular monthly income as
workers. In many cases, they earn less than those involved in contract growing.
Cooperatives and similar collective groups need to be encouraged and incentivized to exercise their
entrepreneurship. As per interviews with key informants, many of the existing cooperative in
Mindanao would need further organizational development support to facilitate the development of
the internal and external infrastructure and organizational elements needed to achieve the
economic performance objectives that underlie the viability of collective enterprises. Formation of
groups and ensuring that these groups are facilitated and sustained are crucial steps in bringing
fragmented lands together and promoting economies of scale. The formation of cooperatives is also
important to construct the system of rotation in order to ensure stable volumes of Fresh Fruit
Bunches throughout the year.
Strategic directions of the palm oil industry and, to some extent, governance are provided by the e
Philippine Palm Oil Development Council, Incorporated (PPDCI) Membership to PPDCI is open to
individuals and institutions that are stakeholders of the palm oil industry. The following are the
strategic goals of the Council.
Institutionalize the Council for a Philippine-wide industry development body Appropriate

representation in planning & policy making bodies Continuing institutional capacity-
building program for the Council.
Formulation of the Palm Oil Master Plan & Oversee implementation Required financing
packages and investment incentives.
Crop and product promotion facilitate forging realistic marketing contracts between and
among millers & growers or investor or landowners.
Development of idle, unproductive, & under-unproductive lands to include over-logged

lands for oil palm plantation development prioritizing areas according to peace and order
conditions Pursue infrastructure support on oil palm plantation/production sites Oil Palm
as reforestation specie.
Establishment of centralized R & D Center and continuing work on oil palm crop production,
processing, and production of high quality planting materials.
2. Vertical Relationship and Supply Chain Governance
Vertical linkages between farmers and the oil mills are carried out via outgrowership, leasing, and
suki relationships. Through the outgrowership program, smallholders are able to access good
quality planting materials, fertilizer and other production inputs as well as technical advice from the
mill. The contract between the mill and the outgrower farmer stipulates that the mill provides
inputs on credit to the farmer (at cost), and the farmer in return supplies all his/her production
output to the company. A percentage of the value of the delivered Fresh Fruit Bunches (contract
stipulates 30% but open to negotiation depending on yield and trust) is used for loan servicing. In
The contract is usually on a share-financing basis: farmers put up a portion of the investment cost
(usually labor costs; if financing is tied up with Land Bank of the Philippines, farmer has to provide
an equity of PhP 20,000/hectare) at planting time and the remaining part of the investment is a loan.
Contract is usually for 20 to 25 years.
38

Farmers enjoy a grace period on their loans, and start repayment when the trees are in full
production. Agumil growers keep the entire farm earnings between the third and fifth year, thereby
getting a two-year grace period before having to repay their loan. Agumil assigns a staff for each
coop that company works with. The technical Staff provides advice on plantation care and
management and some assistance on financial management and organizational development.
Despite the close monitoring though, there are still cases of pole-vaulting.
Table 20. Sample Contractual Arrangement between Farmers and Oil Mills in Mindanao
Company Description of Contractual Arrangement
Buluan Oil Mill/Agumil Outgrowership
Facilitation of financing loan from Land Bank of the Philippines:
seedling and plant establishment + Inputs and labor for 2nd and 3rd
year maximum of PhP 30,000
Technical services
Contract period for 25 years
Pricing based on data of actual extraction rate of CPO and selling

price of CPO in international market and the exchange rate
Entire output committed to Buluan

Lease Arrangement: minimum of 1200 hectares
Yearly rental of land over a period of twenty five years
Kenram Industrial and Outgrowership
Development , Inc. (KIDI) Mill owner supplies hybrid seedlings and technology
Farmer spends for plantation development
All production delivered to the mill at current mill prices
Cost of seedlings or inputs deducted over a specified period, with or

without interest
Options
1. Production and Purchase Agreement (PAPA)
Growers sell the Fresh Fruit Bunches exclusively to the company

valid for 20 years and renewable upon mutual agreement of
both parties
Fresh Fruit Bunches should conform with the standards of

quality set in the agreement
Free technical services
Growers repay the costs of seedlings and fertilisers without

interest by deducting 30% on the Fresh Fruit Bunches deliveries
39

Table 20. Sample Contractual Arrangement between Farmers and Oil Mills in Mindanao
Company Description of Contractual Arrangement
starting from the first Fresh Fruit Bunches delivery until full
payment
After four years of development support and upon agreement
between the grower and KIDI, the company supplies the
growers with farm inputs without interest and payable within
30 days. Any unpaid amount after 30 days earns interest at
12% per year until fully paid.
2. 100% self-financing by growers

Growers pay seedlings in cash and spend on labor and materials
KIDI provides free technical assistance during the first 4 years of
crop development
Source: Oil Palm Expansion in the Philippines
The lease arrangement is, in a way, a resource providing contract to access huge tracts of land for
production in a way that does not violate the Comprehensive Agrarian Reform Law and provide
management specifications to ensure quality produce (growers follow recommended production
methods, input regimes, and cultivation and harvesting practices).
The Fresh Fruit Bunches pricing system is generally transparent. However, unlike in forward
contracting where outgrowers enjoy guaranteed price, oil palm farmers are vulnerable to price and
exchange rate fluctuations.
C. PRICE AND COST STRUCTURE
1. Income and Profit
Oil palm is relatively easy to establish and maintain even in fields with adverse environment such as
upland grasslands, logged over forest areas, wetlands, and frequently flooded areas. Establishment
and maintenance cost of a one-hectare farm during the first three years is about PhP 110,000. The
biggest cost component at 46% is for fertilizer. Planting materials account for 30% of the cost. Labor
cost accounts for 22% of the total costs.
Table 21. Farm Establishment and Maintenance Costs in Mindanao (Year 1 to Year 3)
Line Items Cost (PhP) %
Establishment 49,500 45%
Planting Materials 32,500 30%
Fertilizer 5,000 5%
Labor 12,000 11%
Maintenance (Years 2 and 3) 60,500 55%
Fertilizer 45,000 41%
Other Supplies 3,500 3%
Labor 12,000 11%
40

Table 21. Farm Establishment and Maintenance Costs in Mindanao (Year 1 to Year 3)
Line Items Cost (PhP) %
Total 110,000 100%
Source: Philippine Palm Development Council
Oil palms generally begin to be productive 26 months after being planted and commercial harvesting
commences 6 months later. The yield of an oil palm is relatively low at this stage, but increases as
the oil palm continues to mature, and peaks between the 6th and 25th year. Yields gradually
decrease thereafter.
Table 22. Average Income of Famers in Mindanao during the 3rd to 5th year
Year after Planting Production Volume (MT/hectare) based on Area Suitability Level
High Medium Low
3 Years 10 4 3
4 Years 16 13 10
5 Years 24 20 16
Total 50 37 29
Price per Ton (PhP) 5,000 5,000 5,000
Gross Income for three 250,000 175,000 145,000
years (PhP)
Based on monitoring data from the Philippine Palm Development Council, farmers are generally able
to recover their investment after five years as can be gleaned from Table 22. During the 3rd to 5th
year, majority of the farmers derive a greater percentage of their income from livestock raising and
intercropped crops. Oil palm trees have long duration of productivity of 30 years or longer, meaning
farmers plant once and harvests every ten to fifteen days in 30 years. This makes oil palm attractive
for investment and is highly bankable.
Table 23. Average Income of Farmers in Mindanao during the 6th to 25th Year
Line Items Area Suitability Level
High Medium Low
Yield (MT/ha/yr) 30 25 20
Price per Ton (PhP) 5,000 5,000 5,000
Gross Income 150,000 125,000 100,000
Expenses (Labor and 34,000 25,000 18,000
Fertilizer)
Annual Net Income 116,000 100,000 69,000
Monthly Net Income 9,667 8,333 6,833
Fully mature oil palms produce 20 to 30 metric tons of Fresh Fruit Bunches per hectare, depending
on a variety of factors, including age, seed quality, soil and climatic conditions, quality of plantation
41

management, and timely harvesting and processing. The ripeness of harvested Fresh Fruit Bunches is
critical in maximising the quality and volume of extracted palm oil. Consequently, buying price
depends on percentage of oil and kernel extracted. Buying price of Fresh Fruit Bunches ranges from
PhP 3,500 to PhP 5,000/metric ton depending on the palm oil price at the international market.
Major cost centers in oil palm farming are the planting materials and fertilizer. Quality high yielding
F1 hybrid ready to plant seedlings of palm oil are available to farmers in Thailand at a cost of 1/3 to
1/2 of those sold in the Philippines. A reduction in the cost of seedlings would make oil palm
farming a more accessible livelihood option for smallholders in Mindanao.
Fertilizer is a major input in oil palm plantation. Different types of fertilizers are required at different
stages of growth for palm trees. Productivity declines without the appropriate application of
fertilizers to the palm tree. According to documents on oil palm farming materials from PPDC, use of
inorganic fertilizer can be reduced by 50% by planting cover crops like Mucuma Bracteata and use of
organic fertilizer made from oil palm processing waste. The promotion of planting of these cover
crops and the use of organic fertilizer will reduce production cost parallel to increase in productivity
which would translate to increase in income.
Price fluctuation in palm oil is inevitable. The best ways for farmers to cushion the effect of
fluctuation are to adopt Sustainable Farming/Good Agricultural Practices to ensure optimum yield
and to practice intercropping. According to experts, positive outcomes such as increased yields
derived from adoption of good agronomic practices especially proper fertilizer management are
usually felt and experienced after 8 months to a year. This means that helping existing farmers
upgrade their practices can result to improved income generation potentials.
2. Relative Financial Position of Players
Figure 12. Relative Financial Position of Players in the Palm Oil Value Chain
42

Cost and profit appear to be equitably shared between the farmer and the mill. Per unit profit of
oil mills is low and, as such, volume is a critical factor. It can be seen, however, that a peso spent in
processing has higher returns compared to farming. Oil mills though have high investment cost and
their investment can span from ensuring seed availability to milling and waste management.
Table 24. Relative Financial Position of VC Players of the Oil Palm in Mindanao
Assumptions:
5 MT of FRESH FRUIT BUNCHES: 1 MT of CPO
FRESH FRUIT BUNCHES Price: PhP 5,000/MT;
CPO Price: US$ 850 / US$ 1:PhP 45
Player Product Costs Profit Margins
Total Added % Unit Unit % Profit Unit % to
Unit Cost Unit Added Price Profit Margin Price
Cost Unit
Cost
Farmer FRESH 6,800 6,800 69% 25,000 18,200 65% 25,000 66%
FRUIT
BUNCHES
Oil Mill CPO 28,000 3,000 31% 37,825 9,825 35% 12,825 34%
Total 9,800 100% 28,025 100% 37,825 100%
Source: KII
43

Section 4:
MARKETS AND MARKET OPPORTUNITIES
A. MARKETS AND MARKET TRENDS
1. Export Market
Philippine Export of Crude Palm Oil (CPO)
Table 25. Philippines CPO Export, 2009 - 2013

Importing Country Volume (MT) 2013
2010 2011 2012 Volume (MT) Value (US$)
World 3,513 1,300 34,760 73,294 49,733,000
India - - - 28,298 22,054,000
Germany - - - 16,700 11,446,000
Malaysia - 1,300 31,740 11,135 5,462,000
Switzerland - - 3,000 5,000 3,479,000
Korea, Republic of - - - 3,450 2,005,000
Iran (Islamic Republic of) - - - 2,610 1,951,000
Thailand - - - 2,550 1,535,000
Singapore - - - 1,999 1,092,000
Australia - - - 1,550 706,000
Denmark - - - 2 2,000
China 3,513 - - - -
Pakistan - - 20 - -
Source: Intracen/International Trade Center
In 2009, no export of CPO was made. From of a low of 3,513 MT in 2010, Philippine exports of CPO
climbed up to 73,294 MT in 2013 with a total value of US$ 49,733,000. Average export price per MT
was at US$ 678.54.
From 2011 to 2012, Malaysia was the main destination of the countrys CPO exports. In 2013, the
country had a wider market with India as the top market accounting for 39%. During the same year,
23% and 15% of the CPO exports were shipped to Germany and Malaysia, respectively.
Trends in the World Market
Global edible oil consumption has increased from 123 million metric tons in 2007 to 164 million
metric tons in. In the edible oil production mix, palm oil, at 56 million metric tons, is the single
largest consumed vegetable oil in the world. The demand for palm oil is increasing and the share to
world vegetable oil consumption is projected to reach 70% by 2015. The growth is fuelled by
increased population, incomes, and per capita consumption especially in developing countries.
44

Figure 13. Global Consumption of Vegetable Oils in Million Metric Tons, 1995/1996 to 2013/2014
Consumption of palm oil has been increasing by about 6.1% over the last five years. In 2010/11, the
average person consumed 6.8 kilograms of palm oil per year and this figure is forecasted to rise to
8.65 kg/yr in 2025/26 (FAPRI 2011).
As can be seen in Figure 13, the most significant global use of palm oil continues to be as food
(73.37%). But the percentage needed by industry is markedly rising; in 2013/14 it was around 27 per
cent. With its growing application as a biofuel, however, shifts in its use are looming. In 2012, the
global proportion of palm oil being used for energy, heating, and fuel was 5 per cent (FNR 2013a).
45

Figure 14. World Consumption of Palm Oil, 2013/2014
Two countries, Malaysia and Indonesia, dominate trade in the global market. They supply around 90
percent of the palm oil that is internationally traded. A large share of these exports goes to
developing countries, with India (21.1 %) and China (15.5 %) as the two largest purchasing countries.
The European Union (13.6 %) ranks third. The highest increase in imports in the past ten years has
been in India, followed by China, the EU, and Pakistan. Europe was the main palm oil importer in the
1960s and until mid-1970s. Since then, the main importers have been Asian countries.
The palm oil sector is considered a high performing industry that enjoys a strong market position. It
is the vegetable oil with the highest level of market penetration covering about 150 countries. Many
of these countries are depending heavily on palm oil imports.
46

Figure 15. Major Trade Flows of Global Supply and Demand of Palm Oil
Palm oil is one of the few vegetable oils in the market with a crop-specific sustainable certification
standard, the Roundtable on Sustainable Palm Oil (RSPO). In response to the growing concerns
about the environmental and social sustainability of the palm oil sector, key palm oil end buyers and
retailers (Unilever, Migros, and Sainsburys) teamed up with major producers (the Malaysian Palm
Oil Association, Golden Hope) and the WWF to set up the RSPO in 2004. The goal of the RSPO is to
promote the production and use of sustainable palm oil through certification and traceability.
As of 2013, 15% of the worlds palm oil is certified as sustainable by the RSPO, up from 10% in 2011.
This is equivalent to about 8 million tonnes, covering 2.4 million hectares of plantations. Unilever,
one of the largest palm oil buyers in the world and a founding member of RSPO, buys all its palm oil
from certified providers. Procter & Gamble and McDonald's buy about 13% of their palm oil from
certified sources. About 17% of the palm oil used by PepsiCo is from certified producers. In 2009,
the Indonesian Government launched the Indonesian Sustainable Palm Oil (ISPO) standard. It is
projected that sustainability certification would become a norm rather than an exception in the very
near future
47

Figure 16. RSPO Sustainable Certification Seal
2. Domestic Market
Industry players estimate that Philippines imports about 85% of its total palm oil requirement from
Malaysia (95%) and Indonesia (5%). The remaining 15% is locally produced. During the last five
years, Philippines imported an average of 238,921 MT of palm oil from Malaysia. On the average,
the country spent about US$ 247,736,600 for palm oil importation.
Table 26. Philippine Palm Oil Imports from Malaysia, 2009 to 2013
Trade Indicators 2009 2010 2011 2012 2013
Volume (MT) 97,448 205,771 502,646 277,063 111,676
Value (US $) 62,077,000 175,953,000 566,391,000 288,189,000 146,073,000
Unit Price (US$/MT) 637 855 1,127 1,040 1,308
Source: Intracen/International Trade Center
48

Quality Standards
Figure 17. Quality Standard on Ripeness Imposed by Oil Mills
Oil mills in Mindanao are willing to increase their milling capacity if there would be a significant
increase in Fresh Fruit Bunches production. To date, mills accommodate all deliveries provided they
meet standards of ripeness and freshness. To the extent possible, oil mills would want Fresh Fruit
Bunches to be delivered to the mill on the same day as it was harvested. Fresh Fruit Bunches
harvested more than 2 days old are almost always rejected or penalized with price discounts.
Table 27. Quality Standards of Fresh Fruit Bunch in The Philippines

Ripeness Under ripe: any bunch with less than 10 detached fruitlet
Over ripeany bunch with more than 50% detached fruitle
Each delivery should not contain more than 10% under ripe and/or 30% over
ripe bunches.
Freshness Fresh Fruit Bunches should be delivered to the Mill on the same day as it is
harvested
Fresh Fruit Bunches which is more than 2 days old will be rejected or subject
for quality control
Contamination Crops should be not be contaminated with any extraneous matter
Badly contaminated crop will be rejected
Stalk Maximum stalk length should be 5 centimeters from the base of bunch
Source: Production, Technical, and Marketing Agreement (Agumil)
B. PRICE TRENDS
1. Export Market
Prices of palm oil are strongly correlated with the prices of annual vegetable oils especially soybean.
Palm kernel oil prices are correlated with its substitute, the coconut oil. Despite the obvious demand
for the commodity, palm oil futures have been on a downward trend during the last three months.
49

Based on latest trading report, the price last week was the lowest in five years. Analysts though are
in the opinion that the declining trend is temporary albeit a wakeup call for palm oil producers on
the need to improve productivity so as not to lose its price competitiveness vis-a-vis other vegetable
oils.
Figure 18. Price Trend of Crude Palm Oil in the International Market, 2009 to 2014
Factors that have contributed to the downward trend in price are the following:
- Increased supplies of competing oils (soybean, sunflower) in the market and palm oils price
advantage over other edible oils is narrowing. Ukraine and Russia had a good harvest of
sunflower oil and were aggressively selling the crop due to the political uncertainties in their
countries. The United States also had a better than expected soybean harvest.
- Slowdown in demand from India and China during the past months. Analysts, however, are
optimistic that demand in India will pick up as soon as the festival season starts. It is also
expected that China will soon need to replenish their inventory in preparation for the Lunar
Festival 2015.
- The likelihood of the weather phenomenon, El Nio, hitting has cooled. The Australian Bureau of
Meteorology puts the chances of this happening at about 50% down from its 90% March
prediction. When the 90% March prediction was put forward, price of palm oil went up. When
the probability was lowered to 50%, demand went down ---- mainly, the urgency to fill up
inventories before price goes up due to El Nino. Although chances for El Nio (at 50%) are
slimmer than previously thought, the National Oceanic and Atmospheric Administration (NOAA)
reports a 70% chance of an El Nio in summer and 80% during the fall and early winter.
50

Traditionally, a key influence on the palm oil price has been the use of vegetable oils in India, which
can swing dramatically between palm and soybean oil due to the Indian import tariff policy (Carter
et al., 2007; Thoenes, 2007). As one of the three largest vegetable oil importers, Indias role in the oil
markets is sufficient to make its consumption a major determinant of the relative prices of soybean
oil and palm oil. However, as a consequence of the increasing import by EU and USA over the last
five years, the influence of India has weakened (Carter et al., 2007).
Food and Agricultural Policy Research Institute (FAPRI) predicts that palm oil consumption will
increase over the next 14 years and forecasts that palm oil prices (the Rotterdam CIF import price)
will reach US$ 1,162 per MT by 2025. The FAPRI projections only partly and tentatively take into
account rising demand for biodiesel, as modelling domestic and global demand for biofuel is a very
multifaceted task. Furthermore, possible future changes in national policies - e.g. in the area of
biofuel production and consumption - have not been considered in these projections.
The projected increase in palm oil in the coming years is based on the following reasons: a) increase
in demand for palm oil in China, India, and other countries of emerging economies; b) slowing down
in the production of other major vegetable oil crops such as soybean and rapeseeds due to lack of
land and climate change; c) increase in the price of petroleum oil to which the price of palm oil is
now tied-up: and d) increasing use of soybean and rapeseed oil as biofuel in USA and Europe,
respectively.
The projected increase in the price of palm oil is good for farmers but may not bode well for the
economy of the country if it chooses to import rather than produce palm oil. As demand for palm oil
in the Philippines increases, there will be an increase in the cost of importation of palm oil.
2. Domestic Market
The selling price of Fresh Fruit Bunches is based on the actual extraction rate of crude palm oil (CPO),
selling price of CPO in the international market, and the exchange rate. In 2013 until first quarter of
2014, price of Fresh Fruit Bunches ranged from PhP 5,000 to 6,000 per MT. During the recent
months, price of Fresh Fruit Bunches fluctuated between PhP 4,000 to 4,500.
Table 28. Fresh Fruit Bunch Price Formula (Buluan-Mindanao)

Price of FRESH FRUIT [A x B x CD x Emills processing cost ] 85
BUNCHES/metric ton
A Mill's Actual Oil Extraction Ratio OER of the crop delivered
B Mill's Recent Palm Oil CPO Selling Price in US Dollars
C Prevailing Exchange Rate Pesos/US Dollar
D Mill's Actual Kernel Extraction Ratio KER
E Mill's Recent Palm Kernel Price in pesos
Source: Buluan Oil Mill Contract Growers Agreement
Leading producers of palm oil such as Malaysia, Thailand, and Indonesia follow the same pricing
formula. Fresh Fruit Bunches price in the Philippines is at par with other palm oil producing
countries. Oil mills in Mindanao are able to offer crude palm oil and other by-products to domestic
refineries and other users at competitive prices. Since most of the mills in Mindanao are operated
by companies who are also major players in Malaysia and Thailand, the same technology is being
applied.
51

Section 5:
SUPPORT SERVICES
A. FINANCIAL SERVICES
Land Bank of the Philippines (LBP) and Quedan and Rural Credit Guarantee Corporation
(QUEDANCOR) provide financial services to the oil palm sector. LBP financing is more accessible to
cooperatives and has the following features:
a) A maximum loan of PhP 110,000 per hectare covering the costs of inputs and labor for the first
three years of plantation establishment. The PhP 110,000 is considered a long-term loan
whereby the payment of principal and interest shall start on the 5th year after planting.
b) The landowner/cooperative shall provide equity of about PhP 20,000 per hectare.
c) The input and labor requirements up to the fourth year (around PHP30, 000) shall be released by
LBP as a short term loan and shall be paid within the year from the sales of the harvest of that
year.
d) Cooperative/Landowner that applies for the loan should have a marketing agreement for their
Fresh Fruit Bunches with a palm oil mill.
For farmers under the Kenram growership agreement, loans are provided in kind (fertilizer and
seedlings). Growers repay the costs of seedlings and fertilisers without interest via 30% deduction
from FRESH FRUIT BUNCHES deliveries starting from the first delivery until full payment.
One Network Bank (ONB) in Mindanao has the One Oil Palm Program, a farmer-centric agri-lending
scheme which is one of the banks concrete means of reinvesting resources gained in Mindanao back
to the countryside communities. Aside from farm establishment loans, ONB also deploys Agri-
Production Technicians (APTs) to assist farmers in improving farm productivity and meeting
production standards. The bank also assist farmers connect to buyers.
B. NON-FINANCIAL SERVICES
Main providers of services are the following:
a) Oil Mills: technical assistance/coaching and transportation services embedded in marketing

agreement; organizational development support
b) Nurseries; PCA accredited nurseries conduct training and extension services to their farmer-
clients
c) Philippine Palm Development Council in collaboration with the local government units: training
and technical assistance
d) Department of Agriculture/Philippine Coconut Authority: technical assistance and

organizational development
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e) Local government units (e.g., North Cotabato and Maguindanao) focus on Good Agricultural
Practices and priority given to beneficiaries of the planting material distribution program. The
technical assistance to farmers is usually provided in tandem with the extension staff from the
oil mills and technical experts from PPDCI
53

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

The following are the policies that have significant impact to the oil palm sector in Maguindanao:
1. Infrastructure (farm to market roads and arterial roads, etc.) is a serious constraint in existing
and potential areas for oil palm plantations. Due to the time sensitive nature of oil palm
harvesting, this is a particularly critical challenge for this crop. Smallholder farmers often located
in remote rural areas suffer from being able to transport their Fresh Fruit Bunches in time to the
mill. Moreover, the transport of Fresh Fruit Bunches to the mill requires trailers and heavy
trucks. Rough roads add to transportation costs and accelerate the deterioration of vehicles.
These infrastructure investment requirements are public goods and should be funded by the
government.
2. The promotion of the oil palm industry has its basis in Presidential Decree 1468 which calls for
the the development of a globally competitive coconut and other palm oil industry that would
contribute to food security, improved income and enhanced participation of stakeholders. A
draft document entitled the Policy Framework for the Development of Palm Oil Industry
further elaborates on the mandate of the Governing Board of the Philippine Coconut Authority
and, with reference to palm oil; it states that this industry shall complement the coconut
industry and that priority in oil palm cultivation shall be given to idle, unproductive and
underdeveloped areas. This policy framework though seems to have remained as a set of
recommendations since the PCA Governing Board has not yet passed a resolution to approve it.
Similarly, the PCA mandate with reference to the oil palm sector appears to be not yet well
articulated.
During the recent months, the Philippine Coconut Authority has conceptualized the provision of
inputs assistance, such as oil palm seedlings and fertilizers to prospective smallholders located in
strategically-preferred areas for oil palm growing, which will hopefully be implemented this year
or in 2015.
To ensure the environmental and ecological sustainability of Mindanao and, consequently, its
agricultural productivity as well as not to compromise food security, the provision on the
establishment of oil palm plantation in idle and unproductive land should be incorporated in
local rules and regulations dealing with land use and property rights. In addition, conversion of
farms cultivated to staple food and other industrial crops to oil palm should also be well-
regulated by local government units and the appropriate national agencies.
3. Given the growing concern for sustainability and the move towards sustainability certification,
government at all levels should facilitate the accessibility of certification systems, including
appropriate mechanisms for incorporating smallholder involvement in certification. There is a
need to strengthen policy and regulatory environment for sustainable palm oil production and
land use. Likewise, there is a need to build capacity for environmental and social impact
assessment and regulation.
54

B. INFORMAL RULES AND SOCIO-CULTURAL NORMS
1. The major sources of social capital among farmers are kin networks, home neighborhood, farm
neighborhood, and membership in a farmers association. The farmers give premium to
interpersonal relations. Harnessing the kinship/interpersonal relations factor can reduce
transaction cost in the sharing and diffusion of sustainable production practices. The farm is the
community space where sharing and learning of technologies like Good Agricultural Practices
can occur. Familial tie is the radius of spontaneous sharing, whereas the farm can be the radius
of spontaneous diffusion, where both sharing and learning can happen.
2. Buying in tingi or piecemeal is the norm rather than an exception in the Philippines. Long before
multinationals and large local companies began producing product sachets, sari-sari stores
(neighbourhood stores) would buy household items such as sugar, vinegar, shampoo, cooking
oil, cigarettes, etc. in bulk and sell these to the customers in piecemeal: by the stick, by the
piece, by the tablespoon or cup. The tingi system has spread into various industries such as
telecommunications where it became possible for users to buy phone credit or load for as low as
PhP 5.00.
The tingi or piecemeal mentality influences much of what the Filipinos do. The tingi mentality is
also reinforced with Filipinos relatively low propensity to save, and preference for immediate
gratification. This is manifested even in little things, such as their preference for instant prize
promotions rather than loyalty programs which might require them to accumulate points toward
a larger prize (De Veyra 2004). Spending more to purchase sachets today instead of saving up to
buy in bulk would be consistent with this tendency. Likewise, the dominance of the tingi
mentality can also be correlated to general aversion of Filipinos to risks.
As such, in the conduct of training and capacity building activities as well as introduction of new
technology and innovations, the program can build the design around this tingi mentality to
have higher chances of success and adoption.
3. Bahala na" (letting go) that may be positively viewed as being available to God, being resilient,
and having a sense of hope. It can also be viewed negatively as being fatalistic, resigned,
tolerant, and over dependent on authority. This can have implications on the way that farm
enterprises are managed and operated.
4. Although scarcity mentality can push individuals to concentrate on pressing needs and give
people a keener sense of the value of a peso, it can also shortens a persons horizons and
narrows his/her perspective. Scarcity or poverty can create a mindset that perpetuates scarcity
which are exhibited in various ways such as poor farm maintenance, non-application of fertilizer,
etc. There is a fundamental need to increasingly integrate behavior change interventions in
upgrading initiatives and to be sensitive about the role deep poverty can sometimes play in
reinforcing behaviors that will negatively impact an individuals ability to transition upwards out
of poverty.
55

Section 7:
CONSTRAINTS AND OPPORTUNITIES
Table 29. Constraints and Opportunities

Opportunities Constraints Province
INPUT PROVISION
Use of good quality planting High cost of planting materials NORTHERN MINDANAO
materials of high yielding Low cost benefit appreciation Bukidnon
Misamis Oriental
variety can significantly among farmers especially
increase yield and oil content smallholders on the use of DAVAO REGION
good quality planting materials Davao del Norte
Compostela Valley
Mindanao can learn from the Lack of accredited SOCCSKSARGEN
experiences of Thailand and nurseries/Inconsistent quality North Cotabato
from Univanich on how to of planting material Sarangani
make seeds/planting materials South Cotabato
more affordable. Lack of supply of good quality Sultan Kudarat
affordable planting materials of CARAGA
high yielding variety Agusan del Norte
Agusan del Sur
Surigao del Sur
ARMM
Maguindanao
Planting materials in the Philippines are twice to three times higher than in Thailand. Likewise,
planting materials of high yielding varieties are not readily accessible especially by smallholders due
to affordability, supply, and transport/distance issues. In Thailand, oil palm seedlings can be bought
in small plastic bags (10 x 10 or 10 x 120). One of the seed companies in Thailand producing the
ready to plant seedlings in small plastic bags is Univanich, who has recently set-up an oil mill in North
Cotabato. The entry of Univanich in the palm oil industry in Mindanao may pave the way for the
domestic production of seeds or access to cheaper supply of seeds of high yielding varieties. .
Many of the newly or soon to- be established oil palm plantation areas are far from existing PCA
accredited nurseries. Proximity to source of planting materials can reduce cost.
There are still farmers planting the F2 seed. Likewise, given that oil palm is relatively a new crop,
many farmers are unable to neither differentiate between good and bad seedlings nor fully
understand the benefits of using certified seeds. Farmers also lack guidance on varietal selection
most suited to their plantation sites. These practices result to low yield.
Use of good fertilizer and High cost of chemical inputs NORTHERN MINDANAO
proper nutrient management both to farmers and Bukidnon
Misamis Oriental
can contribute to yield environment
intensification at reduced DAVAO REGION
financial and environmental Lack of access to soil and leaf Davao del Norte
cost analysis services as basis for Compostela Valley
Davao Oriental
fertilizer application
Technology for production of SOCCSKSARGEN
organic fertilizer using palm oil Limited availability and North Cotabato
waste is available. commercial distribution of Sarangani
56

Use of organic fertilizer and organic fertilizer and inputs South Cotabato
Mucuna bracteata for cover specific for oil palm Sultan Kudarat
crop in oil palm plantations can CARAGA
reduce the use of inorganic Agusan del Norte
fertilizer by about 50%. Agusan del Sur
Surigao del Sur
ARMM
Maguindanao
Farmers generally do not have access to services such as leaf diagnosis and soil analysis and, as such,
fertilizer use tend to be unbalanced resulting to low yield and high cost both financially and
environmentally. A leaf diagnosis can help farmers determine the nutritional status of oil palm and
estimate the appropriate fertilizer rates. High yields are sustained in soils with high and balanced
nutrient status.
Many of the small farmers also seem to have difficulty in accessing sufficient fertilizer during the
plantation establishment phase and early years of production. Good fertilization practices during the
early years of the plantation are crucial for obtaining good yields.
The practice of recycling pruned fronds and empty fruit bunches (EFB) and other organic inputs are
not widely and regularly adopted as a measure to reduce dependence on chemical fertilizer. EFBs
also have additional benefits in returning organic matter and conserving moisture. Fertilizer cost will
continue to make up a significant proportion of the total cost of production of palm oil, and therefore
oil palm growers have to choose a fertilizer type and program using materials that are the most cost
effective and, at the same time, can contribute towards optimizing the labour requirements of the
whole plantation.
FARMING
Oil palm responds rapidly to Low adoption of good NORTHERN MINDANAO
improvements in agronomic agricultural practices/ Bukidnon
Misamis Oriental
management with short term sustainable farming practices Davao Oriental
increases in bunch weight and due to: a) limited outreach of
longer term increases in bunch existing services; and b) lack of DAVAO REGION
number both contributing to understanding and Davao del Norte
Compostela Valley
increase yield. appreciation of benefits of
GAP/ sustainable farming SOCCSKSARGEN
There are existing guidelines practices North Cotabato
from RSPO on sustainable Sarangani
production practices South Cotabato
Sultan Kudarat
Extension of technical
assistance by agricultural CARAGA
extension workers may soon be Agusan del Norte
a regular program of PCA. Agusan del Sur
Surigao del Sur
ARMM
Maguindanao
The single, most essential activity to increase smallholder productivity in the long term is technical
assistance to build their capacity and capability to adopt and implement good agronomic and
sustainable farming practices. Interviews indicate that farmers especially those in remote areas have
57

limited access to technical assistance. With the increasing number of farmers expanding and/or
shifting to oil palm cultivation, the number of extension officers (government and from oil mills) is
not sufficient. Likewise, a one-time training on GAP is almost always not enough to promote proper
adoption of practices and technologies. To improve farm management, technical assistance is
needed at the farm, household and group levels.
Given the fluctuation of palm oil in the international market, it is important for farmers and millers to
target the optimum yield at the least financial and environmental costs. Good management
consistent with the RSPO guidelines could substantially increase yields of oil palm plantations in
Mindanao as well as boost market competitiveness. Non-sustainable farming practices will in the
medium term hurt the productivity of the oil palm industry and the whole agricultural sector in
Mindanao. Likewise, GAP and sustainable farming practices are more important than ever to
increase yield and improve ecosystem performance in degraded areas where most oil palm
plantations are or will be located.
Good roads can reduce costs Poor road condition from the NORTHERN MINDANAO
and postharvest losses farm to the market limiting Bukidnon
Misamis Oriental
access to oil mills
LGUs willing to contribute in DAVAO REGION
the construction and/or Davao del Norte
upgrading of farm-to-market Compostela Valley
Davao Oriental
roads including its maintenance
SOCCSKSARGEN
North Cotabato
Sarangani
South Cotabato
Sultan Kudarat
CARAGA
Agusan del Norte
Agusan del Sur
Surigao del Sur
ARMM
Maguindanao
Due to the time sensitive nature of oil palm harvesting, this is a particularly critical challenge for this
crop. Smallholder farmers often located in remote rural areas suffer from not being able to transport
their Fresh Fruit Bunches in time to the mill. Moreover, the transport of Fresh Fruit Bunches to the
mill requires trailers and heavy trucks. Rough roads add to transportation costs and accelerate the
deterioration of vehicles.
PROCESSING
Achievement of sustainable Lack of capacity to comply with NORTHERN MINDANAO
certification can boost certification requirements Bukidnon
competitiveness of Mindanao SOCCSKSARGEN
in the oil palm market and North Cotabato
reduce risks of market Sultan Kudarat
exclusion in the near future
CARAGA
Agusan del Sur
Chainwide implementation of
sustainable production ARMM
58

practices can reduce Maguindanao
environmental risks parallel to
boosting chain productivity
Certification is an expensive process whether it is for GAP and other sustainability certification. It is
beyond the means of most smallholders due to a lack of capital and technical expertise; and lack of
economies of scale. These emerging market requirements for certification of sustainable palm oil
could lead to exclusion of smallholders and the poor from the supply chain. Certification, however,
can pay an important role in catalysing upgrading with the end achieving the triple bottomline ---
people, planet, and profit. Certification can potentially help the industry to regulate itself effectively.
There are interested investors Oil palm plantation expansion NORTHERN MINDANAO
willing to set-up oil mills in hampered by conflict on land Bukidnon
Misamis Oriental
Mindanao use, social and environmental
issues DAVAO REGION
Policy framework on oil palm Davao del Norte
promotion can provide the Compostela Valley
basis for the crafting of zoning SOCCSKSARGEN
policy for oil palm plantation North Cotabato
Sarangani
South Cotabato
Sultan Kudarat
CARAGA
Agusan del Norte
Agusan del Sur
Surigao del Sur
ARMM
Maguindanao
Oil palm farming is profitable and can potentially be an engine of growth particularly in marginalized
areas. But, it can also threaten traditional livelihoods. It offers a route out of poverty but it can also
make rural communities vulnerable to exploitation and market instabilities. It threatens biological
diversity but it can also serve as a platform for the rehabilitation and economic transformation of
lands classified as unproductive. Many of the social and environmental issues stem from site
identification and selection which in turn has its root causes on the lack of and/or weak
implementation of policies on land use, tenure, ancestral domains, forest governance, environmental
assessment and regulations, and related topics.
Village level processing Lack of capacity among local DAVAO REGION
technology can potentially population to undertake value Compostela Valley
provide opportunities for value addition ARMM
addition at farmers level Maguindanao
Unlike in other countries where farmers are also engaged in home based and village level palm oil
processing, Mindanao has no tradition of oil palm processing. The locals are generally not aware of
the possibility and for those who are aware; the lack of access to skills, technology, and facility
prevents them from exploring processing options.
59

Section 8:
COMPETITIVENESS DIRECTIONS
A. COMPETITIVENESS VISION
Figure 19. Synthesis of Competitiveness Vision of the Oil Palm Industry in Mindanao, 2015-2020
Philippines is a net importer of palm oil. Large palm oil companies are investing in Mindanao with
smallholders playing an important role in production. There is great potential for expanding
employment and income and for Mindanao to contribute to the reduction of palm oil importation.
At a conservative 30% annual increase in production, Mindanao can supply about 52% of the
Philippine palm oil requirement of about 1.03 million MT (10% annual increase with 2012
consumption 476,700 MT as base) by 2020. The Philippine palm oil industry is targeting a
production volume of 1.5 million MT of crude palm oil by 2023.
To fully realize the economic potential of the industry, oil palm development must benefit broader
communities, and cannot come at the expense of biodiversity. Likewise, price competitiveness
especially vis--vis other vegetable oil is important in sustaining the growth of the industry.
Development directions, as identified by industry players and stakeholders, during the next five
years will focus on the following:
a) Adoption of sustainable production practices and land use and the achievement of sustainable
certification
60

b) Efficient farming and production technologies including sourcing of planting materials and inputs
to ensure that cost of production will meet market expectations, allow the industry to be
competitive in world markets, and improve industry profitability
c) The need to address infrastructure and resource deficiencies that are impeding the efficiency of
industry
d) Promotion of value addition at farmers level
B. PRIORITY CONSTRAINTS/OPPORTUNITIES AND INTERVENTIONS
Input Provision
1. Development of local capacity to commercially produce and distribute planting materials at a

price level at par with other oil palm producing countries
The main objectives of the intervention are: i) to reduce the cost of good quality planting materials
at a price at par with other oil palm producing countries to boost competitiveness both in the
domestic and world market; and ii) facilitate wider use of improved varieties among smallholders.
This intervention will contribute to reducing production cost parallel to improving yield particularly
among smallholders. Use of high yielding certified seeds will also result to higher oil extraction rates
which would be beneficial to farmer and mill as well as the environment.
Under this strategy, the following intervention approaches are recommended:
a) Encourage seed companies to set-up a branch or distribution arm in the Philippines.
With the growing number of oil palm growers, seed companies may already find it viable to set-
up a distribution network in the Philippines. Univanich, one of the biggest seed companies in
the oil palm sector, has recently established a mill in North Cotabato. PRDP may want to explore
with the company on how seedlings in small affordable packs can also be made available in
Mindanao.
b) Set-up of accredited nurseries in key oil palm production clusters either as micro franchisees of
oil mills or independent enterprises /Upgrading and scaling up of existing accredited nurseries.
Given the remoteness of many of the oil palm plantations, proximity of nurseries will reduce
handling and transportation costs and make it easier for farmers to check on the planting stock
quality. This will involve promoting among smallholder groups to set up collective nurseries with
high quality germinated seed as input. It may be possible for project to negotiate directly with
seed companies for the supply of certified seeds. Another option is for the nurseries to be micro
franchisees of existing nurseries (especially those owned by oil mills).
c) Support the development of locally adopted high yielding hybrids.
This may be done in collaboration with PCA, BPI, PPDCI, and state universities and colleges as well
as international seed companies.
61

d) Work with MFIs/banks in the development of financial products to encourage more investors to
engage in nursery operations.
This is aimed at promoting the replication of successful business models that the project has
developed especially those geared for smallholders cooperatives.
e) Implementation of voucher program or similar mechanisms such as the Plant Now Pay Later to
stimulate first time purchase of certified high yielding planting materials and lower risk aversion
of smallholders
Rather than distributing free planting materials to smallholders which oftentimes undermine the
development of effective demand and supply, PRDP can implement a voucher based program or
similar demand creation mechanisms. In a voucher program, farmers pay for a portion of the
cost of planting materials and redeem the voucher to a program accredited supplier of their
choice. A voucher program helps increase effective demand by making farmers aware of the
improved varieties available within the locality and allowing them the opportunity to acquire
small quantities of these varieties at low risk and investment to test on their farms, which they
might then purchase for themselves in subsequent seasons. The use of vouchers can also help in
strengthening cash flow of nurseries as well as encourage operators to provide good quality to
generate repeat clients.
f) Development of technical capacity of nursery operators to provide coaching and mentoring to

clients
This will complement the extension services offered by mills, LGUs, PCA, and other government
agencies. This will also help ensure that farmers will be able to maximize the benefit of their
investment. By helping their clients to succeed, the nursery operators will also be laying the
groundwork for their own sustainability.
2. Development of local production and commercialization of organic fertilizer including facilitating

access to extension services on proper fertilizer management and application
This intervention aims to: i) facilitate access of farmers to site appropriate fertilizer based on leaf
analysis, soil analysis, nutrient balance approach, plant nutrient demand principles to ensure healthy
vegetative growth and optimum economic Fresh Fruit Bunches yields; ii) To build capacity of
farmers to apply the fertilizers in a manner that is likely to result in the most efficient uptake of
nutrients; iii) To integrate the use of organic fertilizer using palm residues, empty fruit bunch, and
other agriwaste materials to reduce financial and environmental costs; and iv) To minimize negative
environmental impacts related to over-fertilization, land degradation, and pollution from heavy
metals such as cobalt and euthrophism.
It is recommended that project support to existing and new fertilizer enterprises be geared towards
helping them produce fertilizer that match agro-ecological zones parallel to increasing their
productivity, production capacity, and product quality. This will enable fertilizer enterprises to offer
consistent and reliable supply of alternative fertilizer products of better quality and improved
effectiveness at lesser cost, which will result to lower production costs. Training and coaching on
business management and marketing will also be needed to assist fertilizer enterprises to improve
their internal infrastructure to better serve the clients while ensuring its financial viability. The
project should also train fertilizer enterprises to deliver technical assistance to the clients in proper
fertilizer use and management and assist in the set-up of model plots which will be used as a
62

showcase and training venue. It may also be possible to develop the capacity of fertilizer enterprises
to provide basic leaf and soil analysis services. Another option is to assist fertilizer enterprises to
forge win-win linkages with providers of these services. .
Fertilizer is often considered too risky to buy especially among resource poor farmers. Program may
implement the voucher program or similar market-based mechanism to stimulate farmers to use
organic fertilizer and to minimize risk aversion. On the supply side, the voucher program can provide
the platform for organic fertilizer manufacturers to launch their products to a wider market which
will help them buffer upgrading investments.
Farming
3. Development of local capacity to provide services that will enable farmers to adopt GAP and
To increase productivity and ensure sustainability of operations, oil palm growers and mill operators
need to carefully manage the environmental and social impacts of their operations via
implementation of sustainable production practices. This also includes the promotion of
intercropping as one of the sustainability measures. Monoculture can negatively impact the
ecological balance of the soil and greater area as well as affect the traditional way of planting of
rural communities. There is also a reputational risk with not being sustainable.
Follow-up support to the smallholders is generally required during the first one or two years before
any new practices are adopted. Likewise, participation of smallholders in upgrading initiatives is also
dependent on proximity of extension services. It is, therefore, recommended that the project
facilitates the development of a pool of community-based providers (e.g. progressive farmers) in
each of the key oil palm plantation clusters. The cooperatives can be the organizational base for the
learning clusters or farmer field schools. These providers can also serve as the base for development
and deployment of skilled laborers. Project also needs to facilitate the development of delivery and
financial viability schemes (embedded, % of harvest of each farmer allocated for training, etc.) to
ensure that services are accessible and affordable to the farmers. To gain field experience in aligning
local practices to GAP/sustainable farming practices, providers together with their pool of laborers
for hire should be supported to set-up model farms which will also be the venue of training in the
communities. Competitions may also be conducted to stimulate adoption, assess field
implementation, and facilitate documentation of emerging good practices.
4. Upgrading of farm-to-market roads
This will involve upgrading and/or construction of farm-to-market roads. Good roads are crucial for
prompt delivery of Fresh Fruit Bunches and for reduced transaction costs.
Processing
5. Facilitate access to skills, know-how, and resources that will enable chain wide achievement of
certification including appropriate mechanisms for smallholder inclusion
Large brands and retailers such as Walmart, Marks & Spencer, Unilever, Nestle, and many others,
have made commitments to source only Certified Sustainable Palm Oil by 2020. Unless smallholders
are supported in their efforts to meet the sustainability principles and criteria and in achieving
certification, they could be excluded from markets. The Mindanao palm oil industry would also
63

require support in establishing a traceability system, which is central to establishing a sustainable
palm oil industry.
One way to enhance the developmental relevance of global standards is to develop more localized
monitoring and certification practices. Likewise, group certification through producer organizations
can be much cheaper and thus provide opportunities to avoid exclusion of smaller and financially
weaker farmers. The contract growing arrangement can also provide the platform for certification
where the mills will be made responsible for quality control and implicit certification of their farmer-
suppliers. This, however, implies that farmers have to adhere to their contractual commitments.
Likewise, it may be necessary for the program to provide technical support to oil mills to achieve
certification not only for themselves but for their supply chains.
6. Strengthen and improve local government systems for management/regulation of the palm oil
industry
Local government units have broad knowledge of local conditions that are central in the formulation
of development plans. They are, however, constrained by inadequate technical capacity (especially
in relatively new sectors) and conflicting mandates to develop and protect their provinces and
municipalities.
There are primarily three decision making processes that determine environmental and social
benefits and impacts of a palm oil venture, namely:
- Where plantations are located;

- How plantations and mills are established and managed:
- How local communities are engaged by companies.
These decision making processes are to a significant extent shaped by legal, regulatory, and policy
frameworks (e.g., land use, etc.). By strengthening the implementation and/or updating existing
frameworks to promote outcomes more consistent with green growth and sustainability goals, it will
be possible to achieve the vision for oil palm as a high-benefit, low impact sector of the economy.
This should also be supported with the development of land suitability criteria for oil palm
development including social, physical, biodiversity, and GHG emissions considerations. To facilitate
the identification of zones suitable for oil palm cultivation, it is important to provide LGUs with
refresher courses on how to conduct social and environmental impact studies, improved spatial
data, and decision support tools for spatial planning and palm oil development planning.
7. Facilitate access to skills and resources that will catalyze and enable farmers to process portions
of their harvests into consumer products
The project may want to explore the feasibility of a village level processing mill. In many oil palm
producing countries, farmers and households process a portion of their harvests into palm oil for
own consumption and for commercial domestic trade. Project support, in the short term, can
consist of the following: a) exposure visit to Malaysia and Indonesia village level processing mills; b)
preparation of feasibility study ; and c) business plan. If a village level processing is found to be
viable, project support can be scaled up to include establishment of a pilot plant and the
development of business models as well as market development.
64

Table 30.- Summary of Priority Constraints/Opportunities and Interventions
Constraints/Opportunities Province Intervention Strategy and Approach Who Can Do It?
Public Private
INPUT PROVISION
High cost of planting materials NORTHERN MINDANAO Development of local capacity to DA/PRDP Cooperatives
Low cost benefit appreciation Bukidnon (2 to 6) commercially produce and distribute Technical and Equity
Misamis Oriental (2 to 6)
among farmers especially planting materials at a price level at par financial support Operators of
smallholders on the use of good DAVAO REGION with other oil palm producing countries nurseries
quality planting materials Davao del Norte (2 to 6) PCA Service providers
Compostela Valley (2 to 6) (1) Encourage seed companies like Technical assistance
Davao Oriental (2 to 6)
Lack of accredited Uniivanich to set up branch or Seed companies
nurseries/Inconsistent quality of SOCCSKSARGEN distribution arm in the Philippines PLGU/MLGU Provider of seeds
planting material North Cotabato (1 to 6) especially for ready-to-plant seedlings Equity Technical support
Sarangani (5) in small plastic bags Technical support Set up of branch
Lack of supply of good quality South Cotabato (5) and monitoring
Sultan Kudarat (1 to 6)
affordable planting materials of (2) Set-up of accredited nurseries in key Organizational PPDCI
high yielding variety CARAGA oil palm production clusters either as development Technical support
Agusan del Norte (5) micro franchisees of oil mills or support Advocacy campaign
Opportunities Agusan del Sur (1 to 6) independent enterprises/ Upgrading Implementation of Promotion
Surigao del Sur (1 to 6)
and scaling up of existing accredited voucher program or
Use of good quality planting ARMM nurseries similar mechanisms
materials of high yielding variety Maguindanao (1 to 6) Promotion
can significantly increase yield (3) Development of technical capacity of
and oil content nursery operators to provide coaching DTI
and mentoring to clients Investment
Mindanao can learn from the promotion seed
experiences of Thailand and from (4) Work with MFIs/banks in the companies
Univanich on how to make development of financial product for
seeds/planting materials more interested investors in nursery BPI
affordable. operations Technical support
(5) Implementation of voucher program
65
Public Private
or similar tool or mechanism such as SUCs
the Plant Now Pay Later to stimulate Technical support
first time purchase and lower risk
aversion of smallholders DENR
Promotion
(6) Support the development of locally
adopted high yielding F1 hybrids
High cost of chemical inputs both NORTHERN MINDANAO Development of local production and DA/PRDP Cooperatives
to farmers and environment Bukidnon (1 to 5) commercialization of organic fertilizer Technical and Equity
including facilitating access to extension financial support Service and input
Lack of access to soil and leaf DAVAO REGION services on proper fertilizer management providers
analysis services as basis for Davao del Norte ((1 to 5) and application PCA
fertilizer application Compostela Valley (1 to 5) Technical assistance Fertilizer Enterprises
SOCCSKSARGEN
(1) Technical and financial assistance to Service and input
Limited availability and North Cotabato (1 to 6) existing and potential organic PLGU/MLGU providers
commercial distribution of Sarangani (1 to 5) fertilizer producers to: a) develop Equity Distribution
organic fertilizer and inputs South Cotabato (1 to 5) inputs using oil palm and other agri- Technical support assistance
specific for oil palm Sultan Kudarat (1 to 5) waste appropriate for oil palm and monitoring
CARAGA smallholders; and b) scale up and Organizational Seed companies
Opportunities Agusan del Norte (1 to 5) align operations to sustainable development Technical support
Use of good fertilizer and proper Agusan del Sur (1 to 5) production practices support
nutrient management can Surigao del Sur (1 to 5) Implementation of PPDCI
contribute to yield intensification (2) Develop capacity of fertilizer voucher program or Technical support
ARMM
at reduced financial and Maguindanao (1 to 5) producers to provide technical advice similar mechanisms Advocacy campaign
environmental cost to clients Promotion Promotion
Technology for production of (3) Implementation of voucher program DENR

organic fertilizer using palm oil or Plant Now Pay Later schemes Promotion
66

Public Private
waste is available. targeting smallholders
Use of organic fertilizer and (4) Documentation and dissemination of

Mucuna bracteata for cover crop emerging good practices
in oil palm plantations can
reduce the use of inorganic (5) Foster linkages with financial services
fertilizer by about 50%. providers
FARMING
Low adoption of good NORTHERN MINDANAO Development of local capacity to provide DA/PRDP Cooperatives
agricultural practices/ sustainable Bukidnon (1 to 5) services that will enable farmers to adopt Technical and Base for learning
farming practices due to: a) sustainable production practices financial support clusters
limited outreach of existing DAVAO REGION
services; and b) lack of Davao del Norte ((1 to 5) (1) Set-up of community-based providers PLGU/MLGU Lead Farmers
understanding and appreciation Compostela Valley (1 to 5) on sustainable farming practices Organization of Demo farms
Davao Oriental(1 to 5)
of benefits of GAP/ sustainable training Trainors
farming practices SOCCSKSARGEN (2) Development of delivery and financial Technical support
North Cotabato (1 to 6) viability schemes anchored on Monitoring PPDCI
Opportunities Sarangani (1 to 5) outgrowers scheme and traditional Technical support
South Cotabato (1 to 5)
learning structures and other informal PCA
Oil palm responds rapidly to mechanisms Technical support
improvements in agronomic CARAGA
management with short term Agusan del Norte (1 to 5) (3) Build capacity of government BAFPS
increases in bunch weight and Agusan del Sur (1 to 5) extension officers to provide training Technical support
Surigao del Sur (1 to 5)
longer term increases in bunch and mentoring on sustainable farming
number both contributing to ARMM
increase yield. Maguindanao (1 to 5) (4) Set-up of demo farms and learning
networks
There are existing guidelines
67

Public Private
from RSPO on sustainable (5) Conduct of competitions to stimulate
production practices adoption and facilitate documentation
Extension of technical assistance of emerging good practices
by agricultural extension workers
may soon be a regular program
of PCA.
Poor road condition from the NORTHERN MINDANAO Upgrading of farm to market roads DA/PRDP
farm to the market limiting Bukidnon Technical and
Misamis Oriental
access to oil mills - Cost contribution to road financial support
DAVAO REGION construction/ upgrading
Opportunities Davao del Norte PLGU/MLGU
Compostela Valley Supervision
Davao Oriental
Good roads can reduce costs and Monitoring
postharvest losses SOCCSKSARGEN Technical support
North Cotabato Equity
LGUs willing to contribute in the Sarangani
construction and/or upgrading of South Cotabato DPWH
Sultan Kudarat
farm-to-market roads including Implementation
its maintenance CARAGA
Agusan del Norte
Agusan del Sur
Surigao del Sur
ARMM
Maguindanao
PROCESSING
Lack of capacity to comply with NORTHERN MINDANAO Facilitate access to skills, know-how, and DA/PRDP PPDCI
certification requirements Bukidnon (1 to 2) resources that will enable chain wide Technical and Technical support
achievement of certification including financial support Advocacy
68

Public Private
DAVAO REGION appropriate mechanisms for smallholder
Opportunities Davao Oriental (1 to 2) inclusion PLGU/MLGU Cooperatives
Compostela Valley (1 to 2)
SOCCSKSARGEN (1) Technical assistance in the Technical support Base for facilitating
Achievement of sustainable North Cotabato (1 to 2) development and pilot Monitoring compliance among
certification can boost Sultan Kudarat (1 to 2) implementation of sustainable Organization and smallholders +
competitiveness of Mindanao in production system including coordination training
CARAGA
the oil palm market and reduce Agusan del Sur (1 to 2)
traceability
risks of market exclusion in the PCA
near future ARMM (2) Technical and financial support to Technical support
Maguindanao (1 to 2) enable smallholder dominated supply
Chainwide implementation of chains of oil mills to comply with GAP
sustainable production practices and sustainability related certification.
can reduce environmental risks
parallel to boosting chain
productivity
Oil palm plantation expansion NORTHERN MINDANAO Strengthen and improve local government DA/PRDP PPDCI
hampered by conflict on land Bukidnon (1 to 2) systems for management of the palm oil Technical and Technical support
use, social and environmental sector. financial support
issues DAVAO REGION Cooperatives/Farmers
Davao del Norte ((1 to 2) (1) Technical support to local government PCA Groups
Opportunities Compostela Valley (1 to 2) units in strengthening policy and Technical and Advocacy
SOCCSKSARGEN
regulatory environment for financial support Monitoring
There are interested investors North Cotabato (1 to 2) sustainable palm oil production
willing to set-up oil mills in Sarangani (1 to 2) particularly on site identification and DENR/DTI
Mindanao South Cotabato (1 to 2) selection Technical support
Policy framework on oil palm CARAGA (2) Identification of oil palm zones in PLGU/MLGU
promotion can provide the basis Agusan del Norte (1 to 2) consultation with communities Updating of policies
69

Public Private
for the crafting of zoning policy Agusan del Sur (1 to 2) parallel to ensuring that communities Implementation
for oil palm plantation Surigao del Sur (1 to 2) are well-informed and able to
ARMM participate effectively in negotiations DILG
Maguindanao (1 to 2) with oil palm companies from earliest Technical support
phases of oil palm development
Lack of capacity among local NORTHERN MINDANAO Facilitate access to skills and resources DA/PRDP Cooperatives
population to undertake value Bukidnon (1 to 3) that will catalyze and enable farmers to Technical and Scoping
addition process portions of their harvests into financial support Feasibility study
DAVAO REGION consumer products
Opportunity Compostela Valley (1 to 3) PLGU/MLGU
(1) Explore viability of village level palm Scoping
ARMM
Village level processing Maguindanao (?) (1 to 3)
oil processing/Learn from experiences Feasibility study
technology can potentially of Malaysia and other countries
provide opportunities for value PhilMech
addition at farmers level (2) Set up pilot small scale village level Technical support
palm oil processing facility which will Prototype
also serve as model for sustainable development
production system
DOST
(3) Development of markets --- either in Technical support
local retail markets or as supplier to
oil mills DTI
Technical support
Product and market
development
70

Section 9:
CONCLUSIONS AND RECOMMENDATIONS
The oil palm industry represents one of the most effective avenues for poverty alleviation and
improving economic stability in Mindanao. As soon as the oil palm starts bearing fruits, it provides
the farmer a regular monthly income higher than other crops. This connotes that an efficient and
strong palm oil sector in Mindanao will enable the poor to be part of the solution to poverty
challenge through provision of gainful employment and livelihoods.
It must, however, also be recognized that while there is a strong economic rationale for the
strengthening of the oil palm subsector in Mindanao, there is also a pressing need to move towards
sustainable oil palm production that does not lead to social and environmental impacts such the
destruction of forests, biodiversity loss, greenhouse gas emissions, and community issues. The palm
oil itself is not the problem but rather the practices and technology employed to produce the oil.
The potential of the oil palm to contribute to poverty reduction seems high as long as it is developed
in a sustainable way, with the consent of host communities. It can also enhance biodiversity when
planted on degraded lands. Likewise, the shift to sustainable production is fast becoming an
imperative rather than just a choice given that the large buyers of palm oil such as Unilever and
Cargill are shifting towards the procurement of oil from certified suppliers.
Based on the above overarching premise, the following are the key conclusions and
recommendations:
1. Mindanao can significantly increase its palm oil production through sustainable yield
intensification of existing oil palm plantation. The industrys average yield of 10.23 MT/hectare
is far from the optimum yield of 50 MT to 60 MT/hectare. Maguindanao has shown that it is
possible to attain yield of 54.91 MT/hectare.
Yield improvement efforts in existing plantations must focus on identifying and rectifying
fertilizer and farm management practices that contribute to the emergence of a gap between
the maximum economic yield and actual yield. Widespread promotion and adoption of GAP can
pave the way for increased productivity. Oil palm generally responds rapidly to improvements in
agronomic management with short term increases in bunch weight and longer term increases in
bunch number both contributing to increased yield. For existing oil palm growers, the financial
returns from investments in yield intensification in existing plantations are clearly more rapid
and larger than returns on the development of new areas.
In addition to deepening the economic returns of oil palm farming particularly among
smallholders, yield intensification via productivity improvement will contribute to land-use
efficiency which in turn could contribute to reducing agricultural emissions from land-use
change as higher amounts of oil can be produced on the same land. Likewise, productivity
improvement is vital to sustaining price competitiveness of palm oil vis--vis other vegetable oils
in the market.
The promotion of GAP will also constitute the first step towards certification. GAP is consistent
with Principle 4 (Best Practices) and Principle 8 (Continuous Improvement) of the Principles and
Criteria for Sustainable Palm Oil Production of RSPO.
2. With the growing number of provinces and municipalities looking into the development of a
palm oil industry in their areas, there is an urgent need to strengthen policy frameworks and
71
regulations that govern land use and establishment of oil palm plantations and mills including its
implementation measures to ensure positive economic, environmental, and social benefits and
impact. Parallel to this is the need to further develop the capacity of LGUs to conduct
environmental and social impact assessments.
3. Access to competitively priced good quality planting materials of high yielding varieties is crucial
to the sustainable development of the industry and to promote inclusion of smallholders.
4. To support productivity and quality improvement, upgrading of farm-to-market roads is vital.

Investments in an all-weather road will enable farmers to reach and tend their farms all year
round at reduced costs (time and money and physical efforts walking). It will also ensure
timely harvesting and delivery of Fresh Fruit Bunches thus reducing postharvest losses.
72

ANNEXES
Ranking and Prioritization
73

Annex 1: Northern Mindanao
Ranking and Prioritization of intervention Strategy per Province
Specific interventions per province are indicated in Table ___.
Ranking and Prioritization: Northern Mindanao

Intervention Strategy Mis Or Bukidnon
Development of local capacity to 1 1
commercially produce and distribute
planting materials at a price level at par
with other oil palm producing countries
Development of local production and 2 2
commercialization of organic fertilizer
including facilitating access to extension
services on proper fertilizer management
and application
Development of local capacity to provide 5 5
services that will enable farmers to adopt
Upgrading of farm to market roads 4 4
Facilitate access to skills, know-how, and 7 7
resources that will enable chainwide
appropriate mechanisms for
incorporating smallholder involvement in
certification
Strengthen and improve local government 6 6
systems for management of the palm oil
sector.
Facilitate access to skills and resources 3 3
that will catalyze and enable farmers to
process portions of their harvests into
consumer products
74

Annex 2: Davao Region
Specific interventions per province are indicated in Table ___.
Ranking and Prioritization: Davao Region

Intervention Strategy Davao del Compostela Davao
Norte Oriental
Development of local capacity to 1 1 1
Development of local production and 2 2 2
and application
Development of local capacity to provide 3 3 3
Upgrading of farm to market roads 4 4 4
Facilitate access to skills, know-how, and 7 7 7
appropriate mechanisms for
incorporating smallholder involvement in
certification
Strengthen and improve local 6 6 6
government systems for management of
the palm oil sector.
Facilitate access to skills and resources 5 5 5
that will catalyze and enable farmers to
process portions of their harvests into
consumer products
75

Annex 3: Soccsksargen
Specific interventions per province are indicated in Table ___
Ranking and Prioritization: SOCCSKSARGEN

Intervention Strategy South North Sarangani Sultan
Cotabato Cotabato Kudarat
Development of local capacity to 1 1 1 1
Development of local production and 2 2 2 2
and application
Development of local capacity to provide 4 4 4 4
Upgrading of farm to market roads 3 3 3 3
Facilitate access to skills, know-how, and 6 6 6 6
appropriate mechanisms for incorporating
smallholder involvement in certification
Strengthen and improve local government 5 5 5 5
sector.
Facilitate access to skills and resources that 7 7 7 7
will catalyze and enable farmers to process
portions of their harvests into consumer
products
76

Annex 4: Caraga
Ranking and Prioritization: Caraga

Intervention Strategy Agusan del Agusan del Surigao del
Norte Sur Sur
Development of local capacity to 1 1 1
Development of local production and 4 4 4
and application
Development of local capacity to provide 2 2 2
Upgrading of farm to market roads 3 3 3
Facilitate access to skills, know-how, and 6 6 6
Strengthen and improve local government 5 5 5
sector.
Facilitate access to skills and resources that 7 7 7
products
77

Annex 5: ARMM
Ranking and Prioritization: ARMM

Intervention Strategy Maguindanao
Development of local capacity to 1
Development of local production and 2
and application
Development of local capacity to provide 4
Upgrading of farm to market roads 3
Facilitate access to skills, know-how, and 6
Strengthen and improve local government 5
sector.
Facilitate access to skills and resources that 7
products
78

Oil Palm Industry in Mindanao: Value Chain Analysis and Competitiveness Strategy

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PHILIPPINE RURAL

VALUE CHAIN ANALYSIS AND

MB/II: Final Report_September 2014

MB/II: Final Report_September 2014

No. Title Page

MB/II: Final Report_September 2014

ABERDI A. Brown Energy Resource Development Inc.

MB/II: Final Report_September 2014

MB/II: Final Report_September 2014

MB/II: Final Report_September 2014

Table 1.- Summary of Constraints, Opportunities, and Proposed Interventions

(6) Support the development of locally adopted

MB/II: Final Report_September 2014

(4) Documentation and dissemination of

(5) Foster linkages with financial services

Good roads can reduce costs and postharvest

LGUs willing to contribute in the construction

MB/II: Final Report_September 2014

Chainwide implementation of sustainable (2) Technical and financial support to enable

(3) Development of markets --- either in local

MB/II: Final Report_September 2014

A. BACKGROUND INFORMATION AND OBJECTIVES

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

MB/II: Final Report_September 2014

B. OBJECTIVES OF THE VCA

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

C. METHODOLOGY AND APPROACH

MB/II: Final Report_September 2014

Context of key informants and FGD participants

Third party observations (e.g., government agencies, providers, VC facilitators with

Past assessment studies of the Philippine oil palm industry

MB/II: Final Report_September 2014

Food (frying oil, margarine,

Particle board, pulp,

Empty Bunch Pulp, paper, particle

Furniture, particle board,

MB/II: Final Report_September 2014

Figure 2. Cross Section of an Oil Palm Fruitlet

MB/II: Final Report_September 2014

Table 2. Food And Non-Food Applications Of Palm Oil

MB/II: Final Report_September 2014

REGION FRESH CPO CPKO PKC RBD

MB/II: Final Report_September 2014

Table 4. World Production of Fresh Fruit Bunch, 2013

MB/II: Final Report_September 2014

Figure 4. Best Oil Palm Growing Regions in the World

MB/II: Final Report_September 2014

MB/II: Final Report_September 2014

MB/II: Final Report_September 2014

Table 9. Potential Expansions Areas in Mindanao for Oil Palm Cultivation

Table 10. Production Trends in Northern Mindanao, 2009 to 2013

MB/II: Final Report_September 2014

MB/II: Final Report_September 2014

Table 11. Production Trends in Davao Region, 2009 to 2013

MB/II: Final Report_September 2014

Table 12. Production Trends in SOCCSKSARGEN, 2009 to 2013

MB/II: Final Report_September 2014

Table 13.- Production Trends in Caraga, 2009 to 2013

MB/II: Final Report_September 2014

Table 14. Major Plantations in Agusan del Sur

Table 15. Production Trends in ARMM, 2009 to 2013

MB/II: Final Report_September 2014

Table 16.Breakdown of Area Planted to Oil Palm by District in Maguindanao as of