Developing and Scaling up of Cacao Production in the Philippines

A Joint Project of the Department of Agrarian Reform and Kennemer Foods, Inc.

CONCEPT NOTE

Cacao is a rainforest, understudy tree that is grown in various parts of the world for its
seeds. Cocoa beans are widely processed for chocolate and cocoa butter, which are not only
consumed as food and medicine, but as major properties in cosmetic and pharmaceutical
industries. Major world producers include Netherlands, United States, and Germany. At
present, the Philippines is one of the huge country importers of cocoa beans due to large
domestic demand and inadequate supply. This, and the rise of demand for cacao in the
global markets, provides the local farmers with the opportunity for venturing into a
profitable source of income. The Philippines can be a major player in the production and
processing of cacao given the right interventions to smallholder farmers.

Challenges

The climatic conditions and soil characteristics of most areas in the country are conducive
for planting cacao. However, factors such as absence of support services, poor management
of pests and diseases, and the challenges of economies of scale affect the production rate of
cacao in the country. These factors further resulted to additional challenges: poor quality of
beans, incapacity of smallholder farmers’ cooperatives to serve as conduits for credit and
support services, and inefficiencies in accessing the market.

Misconception

A study made by the Department of Trade and Industry (DTI) in 2012 on the prospects of
cacao industry in the Philippines pointed the implementation of the Comprehensive
Agrarian Reform Program (CARP) as one of the major reasons for the downtrend in cacao
production. According to the study, the subdivision of lands has resulted to the
fragmentation of production and the breaking down of linkages in large sized farms.

What this study failed to recognize is its misdirected assumption about agrarian reform.
The breaking down of tracts of land per se did not result to the downtrend in cacao
production. What caused this reduction is the absence of market and support services that
would have consolidated the efforts of smallholder farmers in continuing the production of
high-value crops such as cacao. By organizing smallholder farmers into cooperatives and
associations, the barriers of the so-called economies of scale would be overcome, and the
farmers will gain leverage in entering into marketing contracts and negotiations.
As a matter of fact, CARP has paved the way for a more efficient use of agricultural land. If
the land is broken down to small parcels, it would be more efficiently managed; and
wastage brought by massive use of agricultural inputs would have been reduced.

DAR and KFI Partnership

The Department of Agrarian Reform (DAR) aims to bank at the livelihood opportunities in
cacao production by establishing a partnership with Kennemer Foods International, Inc.
(KFI). KFI is a foreign-invested corporation that is focused on doing agri-business contract-
farming in the Philippines. KFI provides agricultural inputs, training and technology to
cacao-producing agricultural cooperatives, and guarantees buy-back of harvest at fair
prices. This partnership is geared towards consolidating 10,000 hectares of cacao
smallholder farms and providing agricultural support and guaranteed income to agrarian
reform beneficiaries nationwide.

Under this partnership, the DAR will be in-charge of the following:

1. Identify ARB lands that are suitable for the project and organize the ARBs into
cocoa block farms;

2. Assist ARBs in accessing credit with financial and microcredit institutions1 in

collaboration with KFI;

3. Provide support services to the ARBs through the ARCESS Project;

4. Conduct project orientation for the beneficiaries;

5. Provide legal and technical assistance to ARBs; and

6. Assign staff to oversee the implementation of the project

On the other hand, KFI will provide the following interventions:

1. Develop ARB block farms into Cocoa Hubs;

2. Provide ARBs with suitable planting materials and inputs at reasonable price;

3. Provide agri-technicians that will perform the following tasks:

3.1. Train farmers and assists them in their land preparation;

3.2. Conduct regular farm visits to ensure sound farm practice; and
3.3. Provide technical support in all agricultural matters.

1It is estimated that the participating ARBs need P375 Million in credit facilities that will enable them to
procure the necessary planting materials and inputs, as well as to cover their expenses for farm preparation.
 4. Invest in nursery and post harvest facilities2;

5. Allow ARBs to have access to the nursery, post harvest facilities and its services; and

6. Enter into an equitable and financially viable agri-business venture arrangement

with ARBs and/or their cooperatives that will guarantee the buy back of the
harvested cacao at a competitive price.

Project Components

The development and scaling up of cacao production in the Philippines will increase the
income of 10,000 farming families and contribute PhP 1.1 billion to the local economy. The
DAR and KFI will endeavor to achieve this by adopting a comprehensive approach that will
assist smallholder farmers in accessing credit, agricultural inputs, and agri-extension and
business development services. The key components of the project will include:

1. Organization of smallholder farmers into farm clusters. This also includes

identification of cooperatives that will serve as conduits of support services.

2. Development of field support office to supervise and provide agricultural support to

farmers and their organizations.

3. Development of credit administration support office that shall facilitate the

provision of loans to cooperatives venturing into cocoa bean production.

4. Assistance to the production and trade of cacao. The project will provide farm
inputs and marketing assistance to cooperative-members.

5. Capacity-building of farmers through agricultural extension and business

development services

6. Information campaign to stakeholders

7. Setting up of project management instruments.

Expected Outcomes3

The following are the expected outcomes of the project:

2 KFI is expected to invest in P165 Million in nurseries and post harvest facilities.
3
Excerpt from MARS KFI DAR Concept Note
1. Increase in cacao production

This project is expected to contribute an additional 15,000 metric tons of cacao to

the total production of the country annually. This is more that 200% growth in the
reported annual production of the country from 2000-2004. The project also targets
to contribute PhP 1.1 billion to the local economy, and livelihood opportunities to
10,000 farming families.

2. Opportunity for intercropping

To further take advantage of the conditions and requirements of planting cacao,

opportunities for intercropping with crops such as coconut, cassava and banana will
be encouraged to spur land use and economic productivity.

3. Reforestation and Soil Preservation

Cacao is an agro-forestry crop that can help in reforestation and soil preservation.