Market Assessment

Philippines Processed Banana Value Chain Analysis, SDCAsia 2006

    Description
    Banana is among the most important fruit crops in Mindanao, and in the Philippines, as a whole, in terms of volume of production and export earnings. 75% of the production of banana comes from Mindanao with about 41% grown in Southern Mindanao. Management of banana farms is characterized by dichotomous nature. On one side is a highly managed cavendish banana farm which uses the state of the art technology in growing banana as exemplified by large plantations catering to export markets. These commercial plantations take up about 10% of the total land area planted to banana. The remaining 90% of the banana areas are small family farms where native banana varieties such as the Cardava are cultivated together with other staples and cash crops. Cavendish banana plantation earns an average of about PhP 335,000.00 per hectare per year while the small cardava banana grower generates an average annual income of about PhP 65,000per hectare (monocropping).

    About 35% of the total cardava production in Mindanao is processed into banana chips and during the recent months is being also exported as fresh. The remaining 65% are sold fresh in wet markets. Generally, cardava bananas for local consumption do not meet the specifications of processors and with farm gate prices lower than the process grade bananas. There are about 26 banana chips processor-exporters in Mindanao with individual capacity ranging from 20 to 60 tons per day, but are currently underutilized either because they are not able to secure enough export orders or when they receive orders they do not have the supply of cardava bananas and could not cope up with the volume requirements Only three processors are HACCP certified. Micro processors, mostly household-based and agrarian reform communities operating with make-shift facilities, have an average of 4 tons annual production sold to the local market. Demand for banana chips in the local markets is very weak primarily due to poor product presentation vis-à-vis more established brands of potato chips and other snack food of similar formats.

    There are good market opportunities and long-term potential on which to anchor optimism for the processed cardava/banana chips industry to significantly contribute to promoting growth with equity. In 2005, processed banana or banana chips amounted to $35.5 million. Mindanao produced 90% of the country's banana chips production. Exports have been growing by 8.6% p.a. on volume and 6.9% p.a. on value from 1996-2005. It is forecasted that the banana chips international market can absorb around 10% to 15% more per year growth. The very large population in the Philippines of persons under 18 years of age, coupled with increasing consciousness for healthy snack food and government programs promoting the health benefits of eating banana and its by-products, provides opportunities to develop the local market for banana chips and its variants.

    The document on the right hand side describes how the stakeholder meetings in the value chain analysis were run. The results of the value chain analysis are included in the program design document at the link to the right.

    Methods for info gathering
    interviews, stakeholder meetings, secondary source data

    Summary of results
    For the Mindanao chips industry to take advantage of market opportunities and, consequently, contribute to the improvement of living conditions of its populace, it has to contend with issues critical to improving and sustaining its competitiveness. One major threat to the growth of the industry is its price competitiveness and its ability to maintain quality particularly for large volume orders. Meetings with key EU importers also indicated that the product is fast becoming a commodity with price as an important issue (price fluctuations range from 1% to 5%). Importers generally switch suppliers between Philippines and Thailand from time to time primarily due to price and quality considerations. Feedbacks indicate that Thailand is becoming preferred supplier in terms of price, flexibility in payment terms, reliability, and their ability to offer a wider range of goods in similar categories including strong support and relations between the private sector and government.

    Competition is also intensifying from other suppliers like Vietnam and Thailand in key export markets like China. Markets are increasingly concerned with the specifications of both products and processes further back along the value chain in a number of different ways: a) quality and safety - based upon product and process controls: b) conformance with social and environmental standards; c) traceability and authenticity; d) reliability and guaranteed supply in order to avoid stockouts; e) just-in-time delivery; and f) product differentiation and innovation as a means of adding value and margins. To date, compliance of food safety and other product/process standards in the Mindanao banana chips
    industry is weak along all links in the chain.

    The invigoration of the rural banana communities is conditioned on improving the capabilities of rural communities to increase their productivity, access more lucrative markets, and obtain shares in marketing and processing activities as a means of obtaining larger share of the value in the chain. In this context and on the premise of promoting the development of the banana industry that benefits the poor, the B-ACE program will focus on improving the competitiveness of the processed cardava banana subsector both in the local and export markets.

     
    Associated Activities and Documents
    Programme Design
    »Philippines Banana AgriChain Competitiveness Enhancement (B-ACE) Design, SDCAsia 2007
    Implementation
    »Philippines Banana AgriChain Competitiveness Enhancement (B-ACE), SDCAsia 2007-09