Boston, MA -- (SBWIRE) -- 07/30/2013 -- We hold a positive view on the Philippines agribusiness sector in the long term given the country's potential for new sectors expansion, such as palm oil. We particularly like the outlook for sugar production, and believe the livestock sector will continue to show healthy growth rates. The Philippines' vast consumption market, along with strong government support, will foster domestic and foreign investment and favour output expansion. However, backyard farming and infrastructure problems, especially transport costs, will continue to hamper the sector's growth. This paradox is well illustrated in the island of Mindanao: the government and rebel group's recent peace deal could inspire investors' confidence and develop the region's strong agricultural potential. However, lingering issues regarding business environment and security issues in Mindanao will still be a break to the development of the island.

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Key Forecasts

- Sugar production growth to 2016/17: 29.2% to 2.9mn tonnes. Sugar production expansion will be mainly driven by improvements in yields.
- Poultry production growth to 2016/17: 12.1% to 891,149 tonnes. Domestic output will fail to keep up with demand, as production is hampered by high costs and poor infrastructure. A greater proportion of the country's needs will have to be supplied by imports.
- Fluid milk consumption growth to 2017: 31.9% to 84,400 tonnes. This growth will be driven by rising incomes and increasing awareness of the health benefits of milk, as well as government action designed to increase consumption.
- BMI universe agribusiness market value: 2.1% y-o-y decrease to US$17.3bn in 2013, forecast to grow on average 2.1% annually between 2013 and 2017.
- 2013 real GDP growth: 5.5% (down from 6.6% in 2012; predicted to average 4.7% over 2013-2017).
- 2013 consumer price inflation: 3.7% y-o-y (up from 3.0% y-o-y in 2012; predicted to average 3.9% over 2013-2017).
- 2013 central bank policy rate: 3.5% (same as in 2012; predicted to average 3.9% over 2013-2017).

Industry Developments

In March 2013, the Sugar Regulatory Administration (SRA) has signed a memorandum of agreement with the Department of Agrarian Reform (DAR) for the establishment in 2013 of 29 new sugar block farms. This is the second phase of the block farming scheme initiated by the SRA to make local sugar production more efficient and less costly by grouping small sugar plots into integrated farming blocks. We believe the upgrading of the ongoing scheme is a good step taken in the road to improve efficiency in the sugar sector ahead of the upcoming implementation of the ASEAN Free Trade Agreement in 2015 which will step up competition with other Asian producers. However, the Philippines will remain rather vulnerable to tariff free Thai exports and could increasingly import Thai sugar beyond 2015.

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