General Description of the Fertilizer Sector
by:
Gregorio "Jun" Arboleda, Jr.
Legal Assistant II
(Including a brief account on agricultural situation,
fertilizer supply, production, export and consumption) Updated: October
13, 1998
I. The Agriculture Sector
A. The Role of the Agriculture Sector in the Economy The Philippines, like
many other countries in the Asia Pacific Region, considers agriculture
as one of the most important sectors of the economy. Its importance is
reflected by its contribution to national output, employment and export
earnings. The Philippine economy is basically agricultural, majority of
the workforce are involved in this sector and the processing of agricultural
products account for the largest share of the manufacturing sector. In
1997, the Gross Value Added (GVA) of the agriculture sector reached P182
billion. This amounted to almost 21 percent share of the total Gross Domestic
Product of the country. Despite the declining performance of the agricultural
sector in 1997 as compared to last year’s achievement, it still turned
out to be a good year for Philippine agriculture. During the year, the
sector grew by only 2.9% in GVA compared to 3.4% for the same period in
1996.
B. Agricultural Situation About 32% (9.73 million ha) of the country’s
total land area of 30 million hectares distributed in 7,100 islands are
devoted to agriculture and comprised of 3.42 million farms majority of
which are less than 3 ha. in size. Two types of crops are grown in the
country, food crops and commercial crops. The former comprised mainly of
rice, corn, vegetables, legumes, root crops and fruits. Commercial crops,
on the other hand, are composed of sugar cane, coconut, banana, abaca,
pineapple. tobacco and other plantation crops grown not only for domestic
consumption but also for export market. Rice and corn, the major food grain
crops, account for about 51% of the total cropped area. Almost all of the
irrigated areas, estimated at 1.46 million ha are planted with rice. Foodgrain
production in the Philippines is still below full potential and yields
remain low compared to neighboring countries. Future increases in agricultural
production, particularly in foodgrains and commercial crops, will be generated
mainly from increases in yield per unit area through stable irrigation
supply, use of high yielding varieties and efficient production technologies.
Most of the favorable land in the country are already under cultivation.
On the other hand, sizable crop areas are being withdrawn from cultivation
to give way to residential area and industrial development. Thus, extension
of cultivation, if possible, would have to be on marginal lands. Intensive
cultivation without the application of fertilizer to restore soil fertility
would, in effect, lead to lower yield per hectare. Balanced application
of fertilizer is expected to continue as a major approach to sustain production
at high levels. Practice and research have shown that higher yields can
be obtained with proper application of inputs and improved cultural management
technologies.
II. Profile of the Philippine Fertilizer Sector
A. Fertilizer Policies
Historically, fertilizer policies in the Philippines have taken various
forms, largely in response to economic and political factors that shaped
the mode of agricultural and economic development policies. Fertilizer
policies have taken a dual and often conflicting objective of providing
low-priced fertilizers to farmers as well as adequate incentives to local
fertilizer manufacturers.
1. Applicable Laws
In the years prior to February 1973, the fertilizer industry in the Philippines
was marked by a policy of laissez faire, the importation, distribution,
marketing and all other aspects of the industry were free from government
control, regulation or monitoring. This was the period when fertilizer
demand was low given the priority that the government accorded to agriculture.
Although there are certain fertilizer laws which were promulgated, these
statutes mainly concern incentives and subsidy. In 1972, the government
launched a program geared towards attaining self-sufficiency in major staple
crops, namely, rice and corn. One of the major components of this program
continues to be fertilizer. There was a marked increase in the demand for
fertilizer especially the nitrogenous grades which are mostly imported,
in line with the extensive fertilization program aimed at enhancing production.
It was then that the government realized that some form of control is needed
to be exercised over the fertilizer industry. On February 13, 1973, Presidential
Decree No. 135 was promulgated creating the Fertilizer Industry Authority
(FIA). By virtue of this law, the government completely changed its policy
of non intervention to one of rigid and all encompassing control over the
fertilizer industry. FIA power was so broad since its jurisdiction included
control over prices, mark-up, distribution channels, promotion, import,
export and production of fertilizers. The same law likewise empowered FIA
to enter into contracts for purposes of exporting or importing fertilizer.
One of the most significant provisions of the law, however, was the mandate
of outright tax exemption for the importation of all kinds of fertilizers.
In May 1977, presidential Decree No. 1144 was promulgated abolishing the
FIA and creating in its stead the Fertilizer and Pesticide Authority (FPA)
which is currently the implementing agency for fertilizer laws. PD 1144
merged the fertilizer and pesticide industries and placed them under the
jurisdiction of a single government agency.. The law also adopted and retained
the broad power provided for under PD 135 on fertilizer regulation and
control.
2. Liberalization Policy of the Government
In line with the liberalization policy of the government in 1986, FPA relegated
considerable administrative control on the industry and replaced this with
developmental support through mutual cooperation and implementation of
policies and guidelines for the interest of the agricultural sector, the
industry and for the betterment of the farmers. While there is lesser government
intervention, quality assurance and strict monitoring system are being
institutionalized. Fertilizer trade was deregulated through the following
measures: Removal of procurement control (i.e. determination of import
requirements, conduct of bidding and allocation of import volume) Scrapping
of the price-setting function of the government Discontinuance of the issuance
of FPA Import Permit for fertilizer importations.
3. Tariff Exemption and other Incentives
While the subsidy on fertilizer imports, covering the amount of customs
duties (3%), was discontinued effective Jan 1, 1998 the 10 % value-added
tax exemption on fertilizer is still in effect. Starting on the last quarter
of 1999, fertilizer imports by direct users (i.e. cooperatives, farmers
associations, partnership and other entities directly involved in agriculture/fishery)
will be granted total exemption. The incentive is in line with the implementation
of R.A. 8435 otherwise known as the Agriculture and Fisheries Modernization
Act.
4. Balanced Fertilization Strategy
Agricultural developments in the Philippines require a thorough review
of current policies in terms of soil and plant nutrition for a sustainable
agricultural productivity. The record of fertilizer sales showed that it
almost doubled in ten years while the rate of fertilizer use grew by about
2% annually and the improvement in crop yield is minimal. The major reason
for the low response of crops, particularly grains, to increase in fertilizer
consumption is the imbalance in the use of nitrogen (N) and phosphorous
(P). This was coupled with the continuous use of urea which induced deficiency
in sulfur. The current fertilizer use imbalance causes the removal of P
from the soil and the corresponding loss of applied N and P to the ground
water and the atmosphere. The key therefore is the term "balance". In response,
a time series and cross sectional study of soil types and characteristics
on all provinces of the country was conducted to determine location specificity,
approximate mixture of chemical and organic fertilizer, consideration for
micronutrients and other essential plant food and others. Having identified
these areas with the corresponding soil characteristics, a recommendation
on fertilizer grade development and distribution was made. The recommendation
is divided into two groups, namely: (a) Soil fertility maintenance and
(b) Soil fertility rehabilitation
B. Fertilizer Situation
Currently, several fertilizer grades available in the world market are
also obtainable in the Philippines. Of the straight N fertilizers, urea
and ammonium sulphate dominated the market, potash was derived mainly from
muriate of potash. For phosphates, 16-20-0 and DAP are the predominant
grades and for complete formulations, 14-14-14. In addition, there are
other specialty formulations, mostly imported, used mainly in the cut-flower,
ornamental and nursery business.
1. Fertilizer Production
a. Local Producers Presently there are four (4) manufacturers/blenders
of phosphatic fertilizers in the country, namely, Philippine Phosphate
Fertilizer Corporation, AFC Fertilizers and Chemicals, Farmix Fertilizers
Corporation and Soiltech Agricultural Products, Inc. The International
Chemical Industries which started operations in 1986 produce sulphate of
potash. Aside from these companies, there are also others which produce
liquid foliar fertilizers and commercial organic fertilizers.
b. Manufacturing Facilities Physical facilities and capacities of the
local fertilizer manufacturers are presented in Table 1. Domestic production
depends mainly on imported raw materials such as rock phosphate, anhydrous
ammonia, sulfuric acid and other finished fertilizer grades which are needed
in the blending process of fertilizer production.
c. Production Figures 1990-1998 For the covered period, the sector experienced
lean production levels in 1990 and 1992 at 934.0 and 930.0 thousand MT,
respectively. production levels for the other years ranged from 1.0 million
MT to 1.6 million MT with peak activity registered in 1996. A 26% increase
in domestic production was realized in 1995 followed by a 16% increase
in 1996 until a negative growth in 1997 registered at 18%. Overall, production
grew by an average rate of 6%.
2. Fertilizer Importation 1990-1998
The trend in importation during the eight (8) year period varies, but generally
increased with its lowest in 1993 at 1.1 million MT and highest in 1997
at 1.2 million MT. For the same period, imports increased by 1.7%. Highest
growth was registered in 1994 at 6.3%.
3. Fertilizer Sales 1990-1998
The domestic market expanded in terms of production tonnage for nearly
1.5 million MT in 1990 to 2.0 million MT in 1997. Except for downtrends
in 1991 and 1995, domestic sales continuously went up exhibiting an average
increase of 6% during the eight (8) year period.
4. Fertilizer Exports 1990-1998
Except for an increase in 1991, 1994 and 1995, export levels remained relatively
low compared to period covering 1986-1989. From a range of 449.0 thousand
MT to 549.0 thousand MT (1990-1997) to a range of 527.0 thousand MT to
724.0 thousand MT (1986-1989). from the 1990 levels, exports increased
significantly by 77% in 1991 followed by a decline of 35% in 1992. The
average growth rate for the period 1990-1997 was 5.6%.
5. Fertilizer Supply 1990-1998
Except for a slight decline in 1992, the total fertilizer supply steadily
increased from 1990 to 1996 before sloping down in 1997. For the year 1997,
total supply aggregated to 2.6 million MT. Gross supply of fertilizer for
the eight (8) year period grew by 3.5%. Highest increase was recorded in
1995 at 16% while the lowest was in 1997 at 8%.
C. The Government factor and the Prospect of the Fertilizer Sector
1. The Role of the Government
The Philippine government continuously promotes agricultural programs to
improve the country’s crop production particularly, rice and corn. The
government launched the Grains Production Enhancement Program (GPEP) under
the Philippine Agricultural Development Plan (1991-1995). Under GPEP, the
government set self-sufficiency in rice and corn as key targets. The first
three (3) phases of GPEP were aimed at improving farm productivity. During
these phases, subsidized certified seeds and organic fertilizer were distributed,
shallow tube wells were installed and various types of postharvest facilities
and equipment were established. In 1996, the government implemented GPEP
Phase IV, a revitalized and refocused national program to sustain and increase
domestic grain production known as the Gintong Ani (Golden Harvest) which
is currently the national rice and corn production program aimed at improving
rice and corn productivity through balanced fertilization and adoption
of improved farm technology. The government is likewise expanding the irrigation
infrastructure with the construction of new systems and rehabilitation
of existing units that will eventually service a total of 928,000 hectares.
As a supplement to the larger system, a total of 5,000 shallow tube wells
are targeted for installation that will irrigate some 15,000 hectares.
Farm to market roads will be constructed and rehabilitated in the program
areas. Aside from this program and support services, the government is
currently initiating a campaign on the utilization of a balanced fertilizer
nutrition for optimum crop yields while preserving and enhancing the condition
of the soil.
2. Outlook of the Philippine Fertilizer Sector
Agricultural growth will require active support for increase in the use
of fertilizers. The average actual usage of fertilizer by farmers is still
way below the recommended rate of four (4) bags of NP/NPK and two (2) bags
of urea per hectare for rice and six (6) bags NP/NPK and two (2) bags of
urea per hectare for corn to maximize productivity. For the next fifteen
(15) years, it is projected that increases in fertilizer demand in the
Philippines would come from the following:
-
Increased irrigated areas
-
Increased areas devoted to high yielding varieties corn
-
High usage in all crops
-
The adoption of improved technologies and developments in the fruit sub-sector
-
Renewed interest and new opportunities in the coconut industry
-
Development in the horticultural crops
The demand for all types of fertilizers is expected to continue growing
for the next fifteen (15) years. Urea consumption is expected to grow at
a moderate rate of 4% a year considering that actual usage for rice and
corn is close to the recommended rate. NP/NPK fertilizer consumption is
expected to grow at 8% rate before slowing down to 6% and 4% in intervals
of five (5) years. Potash consumption would grow at a rate of about 2%
per annum, coming mainly from the increase in usage in the sugarcane and
fruit bearing trees. The projected increase in fertilizer demand is expected
to be accompanied by changes in NPK usage ratios. Local farmers currently
use about 4-7 kgs. of N to every one kilogram of phosphorous fertilizer
applied to more than one ton of palay (rough rice) per hectare. This application
is higher than the desired ratio of 3-4 N for every one kilogram of P.
The promotion of the balanced use of fertilizer through optimum amount
and proper ratio of applied nutrients will lead to the gradual change in
N:P:K ratios. With growing population and improving economy, the fertilizer
sector of the Philippines will continue to play a vital role in sustaining
agricultural productivity and stable food supply until the next millennium.