Farmer's Economic Welfare on the Emerging Biofuel Market in the Philippines

8/17/2019 Farmer's Economic Welfare on the Emerging Biofuel Market in the Philippines

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"Farmers’ Economic Welfare on the emerging Biofuel Market in the Philippines"

Introduction

In 2007, the Philippines became the first country in Southeast Asia to have

biofuels legislation when the Biofuels Act under epublic of the Philippines Act !o" #$%7

was signed by former President &loria 'acapagal(Arroyo where it aimed at )reducing

dependence on imported fuels, enhancing the *uality of the environment, and creating

opportunities for countryside development+-S.A, 20/$"

1he .epartment of nergy .3 is the central agency in authority for the

Philippine Biofuels Program" Its plan for the country is defined in the Philippine nergy

Plan 20/2(20$0 PP 20/2(20$0 and !ational Biofuels Plan !BP 20/$(20$0" -nited

States .epartment of Agriculture 20/$ stated that the PP 20/2(20$0 reflects the

Philippine government4s &P5 mission to ensure the delivery of secure, sustainable,

sufficient, affordable and environment(friendly energy to all economic sector"

1his study presents the impact of emerging biofuel mar6ets in the Philippines to

the farmerswhat benefits can they get from this act" 'oreover, this study can be used

for further research on case analysis and feasibility studies involving biofuel"


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Nature and Significance of the Study

Bioethanol is a type of renewable energy that can be manufactured from

agricultural feed stoc6s such as sugarcane, potato, cassava and corn" Ingram 20/2

stated that the gasoline is blended with ethanol to lessen the use of irreplaceable fossil

fuels and the importing of fuels and to have a cleaner and sustainable domestic fuel

"1here has been significant arguments about the utility of bioethanol replacing gasoline

in the Philippines" .ue to the massive land re*uirement of crops for the production of

ethanol, along with the energy and pollution balance of the production mainly from corn,

demands for farmers are increasing"

1he social welfare effects of a large(scale conversion to the use of biofuels li6ely

will vary across and within countries oods Institute for the nvironment ,200% " hile

the landless poor 8 net food consumers 8 are li6ely to be hurt by higher food prices,

many poor farmers stand to benefit if trade barriers are reduced"

In Philippines, an agricultural country, our farmers play a very significant role in

the production of crops" It is important to 6now the benefits they can get from the

emerging biofuel mar6et since this Act is planned to be fully implemented in the year

20$0" 1his study will help the farmers in 6nowing how far they can increase their

economic welfare given the current economic status of biofuel" 9urthermore, this

research will help the farmers identify their strengths and wea6nesses in ad:usting to

new and unconventional use of farm lands"


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thanol is both feeding and fueling the world" 3ne stac6 of corn produces

appro;imately /%"< pounds of animal feed and 2"= gallons of ethanol" thanol is made

from field corn, not sweet corn that humans consume"

thanol biorefineries only use the starch in the corn to ma6e ethanol" 1he

protein, fat and fiber in the corn returns to the livestoc6 feed mar6et as distillers4 grains

or other co(products" .istillers4 grains are fed to beef cattle, dairy cattle, swine, poultry,

sheep and fish"

!ecti#e of the Study

The general objective of this study is to:

1) valuate the relationship of bioethanol to the production of corn2) Assess current patterns of corn production in the Philippines, especially

during post production of bioethanol in the country.

$e#ie% of $elated &iterature

Republic Act 9367 Biofuel Act 2006

Biofuels Act of 200% states the direct use of biofuels in the country, establishment

of the purpose of biofuel in the said program, assigning of appropriate funds and other

purposes" Section 2 provides the declaration of the policy"


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)S>" 2" .eclaration of Policy" ( It is hereby declared the policy of the State to

reduce dependence on imported fuels with due regard to the protection of public health,

the environment, and natural ecosystems consistent with the country4s sustainable

economic growth that would e;pand opportunities for livelihood by mandating the use of

biofuels" As a measure to?

a .evelop and utili@e indigenous renewable and sustainably(sourced clean

energy sources to reduce dependence on imported oil

b 'itigate to;ic and greenhouse gas &5& emissions

c Increase rural employment and Income and

d nsure the availability of alternative and renewable clean energy without any

detriment to the natural ecosystem, biodiversity and food reserves of the country"

)

Biofuels Act of 200% stated the different advantages including the increase in

rural employment and income" 1his part of the policy affects the farmers because they

are the one addressed to the production of crops that can be used for creating biofuel"

Biofuel Production

1he development of biofuel has been e;panding rapidly because of the

increasing prices of crude oil, desires of countries to be independent to foreign energies

and the alarms about climate change" .ong 2007 e;plained that as developed

countries li6e -nited States e;pands their production of biofuel, developing countries


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li6e Philippines are e;panding their biofuels industry as well in order to power their

growing economies" It has been declared that biofuel is the alternative fuel of the future

that gives new opportunities to small(scale farmers and it emits cleaner energy" ritten

below is the implementation of the Biofuels Act in the Philippines"

Biofuels Act in the Philippines. 3n anuary /2, 2007, former President &loria

'acapagal Arroyo signed the epublic Act #$%7 or the Biofuels Act of 200% which too6

effect on 9ebruary /%, 2007" 1he law is e;pected to bring numbers of benefits to the

country because the country is a very good location for investment along with the strong

government support and the availability of land and technical manpower in distillery

operations 5alos C 1amara, 2007"

Republic Act 9367. An act mandates the government to reduce or decrease the

dependency of Philippines to foreign and imported fuels, to phase out the use of harmful

gasoline additives and to create an incentive scheme" ith the creation of a !ational

Biofuel Board !BB, it shall monitor the Biofuel Program and ensure if the supply of

sugar is enough to meet domestic demands"

Still, developing countries faces bigger problems than developed countries

because developing countries still need to address the food security issue when they

develop biofuels" 1he development of biofuel has affected every aspect of food mar6ets

and prices in both domestic and international mar6ets" )As more food grains will be

used to produce biofuels, food grain carryover stoc6s will remain tight, and average

grain prices will increase" 'oreover, these price increases also increase the feed cost

for livestoc6+.ong, 2007"


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A study conducted by the 3a6 idge !ational Daboratory, a -"S" .epartment of

nergy !ational Daboratory, e;plained that Biofuels short for )biomass fuels+ are li*uid

transportation fuels that substitute for petroleum products such as gasoline or diesel"

1hey include ethanol and biodiesel a vegetable oil product made from agricultural

crops and residues, forest residues, or other 6inds of plant(based )biomass feedstoc6s+"

Bioethanol Production

thanol has become a very important agricultural product" In 200


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Peninsula

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339a#ao $egion %#$ %## 72# 70$ %=$ 7G% 7/% %#0 70G

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334'$';' G07 G00 G/% G/0 $#2 $== $=% $#/ $#$

33'$MM 7G0 =00 7#7 =/G =/2 7## =%/ =G0

ornor6ers

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/$7"20

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/G2"=$

/agayan alley, wage rate for sugarcane started in /#=/"

.isaggregation by se; started in /##G"7ype of Wages$eal Wage $ate>PI?2000J/00&atest update=20/2(0=(2$ /0?00

$inancial A!!i!tance from the %o#ernment

&overnment financial institutions, such as the .evelopment Ban6 of the

Philippines, Dand Ban6 of the, Philippines, Kuedancor and other government institutions

providing financial services shall, in accordance with and to the e;tent allowed by the

enabling provisions of their respective charters or applicable laws, accord high priority to

http://countrystat.psa.gov.ph/selection.asphttp://countrystat.psa.gov.ph/selection.asp


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e;tend financing to 9ilipino citi@ens or 4 entities, at least si;ty percent %0E of the

capital stoc6 of which belongs to citi@ens of the Philippines that shall engage in activities

involving production, storage, handling and transport of biofuel and biofuel feedstoc6,

including the blending of biofuels with petroleum, as certified by the .3"

hile global demand for fossil fuels grows, gasoline prices remain volatile" Add in concerns

about climate change and alternatives to oil(based fuels loo6 increasingly attractive" 5owever,

corn(based ethanol, the most prominent biofuel in the -nited States, will not answer any of

these issues"

1he ability of corn(based ethanol to reduce -"S" dependency on foreign oil is limited even

dedicating the entire -"S" corn crop to ethanol would displace only a small share of gasoline

demand" Plus ethanol does little to nothing to fight climate change" Darge(scale corn production

re*uires farm e*uipment that runs on fossil fuels" >oal(powered ethanol refineries can lead to

higher greenhouse gas emissions than the fossil fuel ethanol is intended to replace"

20/% &A> >ommunications 9oundation

>orn growers and ethanol producers tal6 enthusiastically about replacing the oil fields of the

'iddle ast with the corn fields of the 'idwest" But the true potential for biofuels to replace oil is

not as spar6ling as the rhetoric"

1he most favorable estimates, which include still(developing cellulosic feedstoc6s, point out that

fuel made from biomass can replace only a fourth to a third of transport(related oil

consumption" 1he >ongressional esearch Service has estimated that even if /00 percent of

the -"S" corn harvest were dedicated to ethanol, it would displace less than /< percent

of national gasoline use"

http://fpc.state.gov/documents/organization/68294.pdfhttp://fpc.state.gov/documents/organization/68294.pdf


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hen blended with gasoline, ethanol helps to burn the fuel more effectively and produce less

pollution" thanol4s role as an o;ygenate & became prominent in the mid(2000s when many

states began banning the more widely used o;ygenate '1B" '1B was found to be a drin6ing

water contaminant re*uiring e;pensive cleanup efforts" thanol became touted as a safe

alternative resulting in a big push to blend it with gasoline" 1his does seem li6e a redeeming

*uality, but is not enough of a reason to e;pand corn(ethanol use"

&hite

corn"rain

&hole!ale

Retail 'ello(

)orn"rain

&hole!ale

Retail

2006 *0.2+ *,.23 *0.62 *,.2*

2007 **.9+ *,.+0 *0.++ *-.07

200+ **.73 *-.22 *2.70 *7.72 2009 *-.,6 22.-0 *-.2- 20.2,

20*0 *6.++ 22.67 *3.29 *+.7,

20** *-.3+ *+.99 *-.37 *9.+,

20*2 *6 *9.,- *6.06 2*.*,

20*3 *6.0- *9.+3 *-.96 2*.+0

20*, *-.-6 *9.73 *6.33 2*.67

20*- *,.-+ 20.02 *7.06 22.6*

20*6 *-.3+ 22.22 *7 22.,,

)orn a! $uel

2umans do not eat the corn used to make ethanol

thanol production is not ta6ing away from human food consumption" 1here are two

types of corn grown in the -nited States" $ield )orn, a grain that humans cannot digest

in its raw form, is used in the production of thanol" (eet )orn, a vegetable that

humans can digest, is not used in the production of ethanol"

In the Philippines, there are two type of corn white and yellow corn"

http://www.gracelinks.org/library/view.php?gl=4404http://en.wikipedia.org/wiki/Methyl_tert-butyl_etherhttp://www.gracelinks.org/library/view.php?gl=4404http://en.wikipedia.org/wiki/Methyl_tert-butyl_ether


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/and !a"e

http:unctad.or"endoc!ditcted2006,1en.pdf

3ne concern involves land increasingly being devoted to fuel crops, with diversion from other

purposes, such as food and feed production, forestry, animal gra@ing or conservation" In the

mind of some observers, this is a threat to the availability of suitable land for all purposes" In

some regions, the availability of water, rather than land, may become a constraint to growing

energy crops" Scientific evidence shows, for e;ample, that some biofuel crops consume very

large amounts of fertili@ers and water"%7 According to some, engaging in large scale energy(

crop plantations may re*uire a trade off between lower food security for higher energy security

Soil resources are very important for the Philippine economy" 5alf of the

country4s soil resources is classified as Inceptisols, best suited for cultivated crops"

1hose classified as ntisols, ertisols, and 'ollisols are economically important for rice

and other crop production" 1he -ltisols are considered problem soils because of their

high erodability and low nutrient content" 1his type of soil is found in steep areas and is

best suited to woodland, recreation, or wildlife" !evertheless, -ltisols still have

potentials for agricultural production see appendi; table B"7, page ==" .espite its

structural transformation, the country remains to be primarily agricultural and rural" 1he

/##< data from the !ational Statistical >oordination Board !S>B showed that

agriculture contributed about 20 percent to the &ross .omestic Product and employed

G$ percent of the labor force" 1he /##0 >ensus of Population and 5ousing >P5 of the

!ational Statistics 3ffice !S3 showed an increase in the country4s population,

indicating a growing population largely dependent on land for its food and livelihood"

3ther countries have also made similar calls for increased food production in the wa6e


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of rising population, shrin6ing food plots, and changing climatic conditions, among

others" 3f the multitude of factors affecting food security, the physical and biological

characteristics of soil as a natural habitat for the production of food and raw materials

dictate the capacity to produce food" 1he productivity problem is further aggravated by

the fact that not all of the country4s agricultural lands are arable" Some areas do not

provide good ground for the cultivation of crops because of various soil and terrain

constraints" 1hese areas cover about 2/"< million hectares of land" Aside from the soil

constraints e"g", acidity, te;ture, soil is also sub:ect to the phenomenon 6nown as soil

erosion" 1his has become a ma:or agricultural and environmental problem because it

decreases crop productivity, reduces nvironmental and !atural esource Accounting

Philippine Dand and Soil esources .evoted to Agricultural -ses 1. .D3P.

A!. .D3PI!& >3-!1IS 1he Philippines 1he Philippine government is actively promoting the integration of biofuels

into its energy portfolio as a means of increasing its energy self(sufficiency,

environmental stewardship, and economic development" 1he demand for


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gasoline in the Philippines is predicted to increase over %0 per cent in the ne;t

decade and the country is highly dependent on imported energy? In 200G, it

imported G# per cent of its energy supply, up from G% per cent in 200$"

'eanwhile, environmental concerns, including air *uality and global climate

change, have assumed prominence in recent years, increasing the attractiveness

of cleaner fuels" 1he 200< nergy Plan aims at increasing energy self(sufficiency

to %0 per cent by 20/0" Additionally, the Philippines is actively promoting itself as

a host to pro:ects financed under the >lean .evelopment 'echanisms >.' of

the Hyoto Protocol" 1hree biofuels constitute the primary focus for the country" >oco(methyl

ester >' is produced from indigenously(abundant coconut oil" Its *ualities as

a diesel fuel substitute are noteworthy both for stationary and automotive

engines" 1he oil industry is, however, still reluctant to promote >' blends, citing

lac6 of testing on rust implications and pipeline capabilities as rationales for their

reticence" atropha(methyl ester ' is made from the vegetable oil of seeds

from the :atropha curcus plant" In 200' for diesel

fuel in the island province of omblon to demonstrate its potential benefits"

1hroughout the pilot pro:ect, environmental impact assessments will be

conducted and operating data will be carefully trac6ed for use in future

underta6ings" In !ovember 200


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re*uires all gasoline sold to be blended with < per cent ethanol within two years"

1he government is also offering economic incentives for the promotion of

renewable energy including duty(free input imports, ta; credits for domestic

capital e*uipment, and ta; e;emptions for real estate" 9urthermore, the

government set up a profit sharing scheme for the proceeds from renewable

energy development pro:ects" 1hese government(led initiatives are successfully

spurring private(sector investment as evidenced by PetronMs commitment this

year to sell coco(diesel products in its fuel stations" Additionally, apan(based

'arubeni >orp" plans to invest in five new ethanol distilleries and cogeneration

plants in the Philippines, and 5ong Hong(based Asiagen has shown interest in

building an ethanol plant there as well" 1he Hyoto ProtocolMs allowance for biofuel

pro:ects under the >.' brings further opportunities for the deployment of

biofuels" Barriers to further diffusion of >' include lac6 of standards,

processing costs, weather volatility, and immature technologies" 5owever, the

government can help >' overcome these obstacles by offering ta; e;emptions,

tariff reductions, and research funding" 1he Philippine government has

implemented the following five strategies to encourage the e;pansion of biofuel

mar6ets? i build capacity for national authorities to develop and implement a

new regulatory framewor6 ii e;pand e;ternal assistance and support through

the coordination of regional and international initiatives iii establish national

databases for bioenergy sources to facilitate more efficient mar6ets iv develop

programmes to more effectively utili@e the supply and demand sides of biofuels


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v launch pilot pro:ects to verify the technological feasibility and provide lessons

for subse*uent activities"

9armers benefits

9or e;ample, farmers in 'e;ico, currently unable to compete with the -"S" in

mai@e production, li6ely will be able to produce corn profitably given higher corn prices"

In >hina, where many of the poor are landowners, much of the country li6ely will benefit

from higher commodity prices" oods Institute for the nvironment

tudy form

he price of corn #arie! to the !upply and demand cur#e of the corn

Documents

Farmer's Economic Welfare on the Emerging Biofuel Market in the Philippines