Baseline Profile

The topography is generally hilly to mountainous except the Titay Valley. The coastal plains are narrow strips extending regularly from the Southwest, and then spreading into wide flat lands when reaching the coastal plains of the Sibuguey Bay area.

The tallest peak in the province is Mount Silingan in Ipil reaching to about 893 meters above sea level. Other mountains include Mount Lacauwan in R. T. Lim, Sibuguey and Tamaraw Mountains in Payao, Mount Kabasalan, Diplahan Mountain, and Mount Logona and Kalabis in the Municipality of Alicia. The major valleys in the province are Titay Valley and Sibuguey Valley.

The Salipyasin ARC cluster belongs to a Type III climate where there is no pronounced maximum rain period with short dry season. The annual rainfall varies from 1,599 mm to 3,500 mm. Temperature is relatively warm and constant throughout the year ranging from 22° C to 35° C. The province is rarely visited by typhoons being outside the typhoon belt. However, severe monsoon rains can cause its major rivers to overflow and bring floods to the lower areas of the province such as those situated in Sibuguey Valley.

The cluster has about 130,000 people, with 46% male and 54% women. Households are recorded at 26,608 in the total land area of 107,506 has. Population density per ha. Is at 1.2.

The Cluster is defined as primarily agricultural with rubber as the prime crop. Other major crops are palay, corn, coconut, mango and banana. Rubber occupies 45% of the agricultural area in the cluster.

Table 2. Area Distribution of Agricultural Crops in Salipyasin ARC Cluster (Area in Ha.)

Source: 2013 Socio-economic Profile of Zamboanga Sibugay Province

Development Issues

Challenges. The rubber industry in the province is beset by the following problems, needs and constraints:

1. Low quality planting materials. Rubber growers are currently using old, low-yielding and disease-prone rubber varieties. Most farmers sourced seedlings from the wild (wildings), which are cheaper and available but are not good planting materials for plantation development.
2. Inadequate clonal gardens/ nurseries for high yielding variety. The cluster lacks clonal gardens/ nurseries for high yielding but disease–resistant clones, which are needed to be distributed to all ARBEMCOs and independent smallholder-farmers.
3. Rampant pests and diseases in plantation areas. Many rubber plantations are experiencing extensive white root disease, especially in replanted areas. Roughly about 30% of young trees are infected and only 10% of these can recover after treatment.
4. Lack of updated skills and knowledge in rubber production. Most rubber growers, tappers, managers and owners lack adequate and updated skills and know-how to sustainably manage their plantations.
5. Rubber farmers are not usually organized in non-ARC areas. These highly independent farmers, which account for about 90% of the rubber production in the cluster, are not organized and mainstreamed to access outside market and government support.
6. Widespread use of battery solution, instead of formic acid, in latex coagulation. This results in brittle and low quality rubber crumbs. About 50% of cup lumps is estimated to be affected by this practice.
7. Lack of laboratory facilities. The crumbs, as milled by local processing plants, are of doubtful quality, and fetch lower price than similar products that are duly tested and certified.
8. Lack of direct market link to rubber manufacturers. Rubber growers are at the mercy of traders/buyers in ‘bagsakan’ or informal markets. They have no direct link with rubber manufacturers, who can offer better prices and long-term procurement of their produce.
9. Absence of rubber regulation office and formal industry standards. The local rubber industry failed to put up standards and good practices that should be observed in rubber production, and establish institutions for the industry to compete in the world market.

Competitive advantages.  The strength and opportunities or of the local rubber industry are:

1. Available high yielding varieties. There are obtainable high-yielding varieties in the province or in North Cotabato but these needs to be verified and tested. A certified source is preferred.
2. Potential area for expansion. The cluster has identified around 41,000 ha. available for expansion of rubber plantation.
3. Presence of organized farmers, especially in ARCs. The ARCs and ARBs, which are supported by DAR, are better organized as compared to independent smallholders. DAR can tapped and used this experience to help smallholders and make them part of inclusive growth.
4. Presence of large independent tappers/ smallholder-farmers. These are potential beneficiaries of improved rubber production scheme as espoused by this Project.

Presence of active informal markets and bidding venues. The existing markets can be improved to better hasten fair trade and market access.

The objectives of the Salipyasin ARC Cluster Rubber Agribusiness Project are to improve rubber production, in terms of quantity and quality, in the ARC cluster and surrounding area, to increase income of farmers and to increase employment opportunities.

The targets and indicators are as follows:

1. Increase area of clonal garden by 200 ha
2. Improve quality of rubber crumbs production by 10%
3. Increase per capita income of individual farmers by 5%
4. Increase jobs by no less than 200

The Project ConVERGE or ‘Convergence on Value Chain Enhancement for Rural Growth and Empowerment: Increasing Participation of ARBs, Indigenous Peoples, and Rural Women in the Agricultural Value Chain’ envisions to support the development of ARC clusters through the implementation of four (4) components, namely:

1. Participatory Analysis and Planning to Link Smallholder Farmers to Existing Value Chain Systems;
2. Integrated Smallholders’ Agricultural and Rural Enterprise Development including rural infrastructure support;
3. Subdivision of Collective Certificate of Landownership Awards (CLOAs) and facilitation of land transfer action; and
4. Project Management, Monitoring and Evaluation, and Knowledge Management.

Strategies

The Value Chain Map

To simplify, the key functions were reduced to three (3), to wit: (i) Production of latex, cup lumps and scarp lumps; (ii) Crumbs processing (SPR 20 and SPR 5 grades); and (iii) Marketing to local/domestic rubber manufactures and for export. The VC map is color-coded, with color maroon referring to production function, color green referring to crumbs processing function and color violet referring to marketing function. Color blue denotes VC criteria.

The primary rubber producers are ARBs/ARBEMCOs (Agrarian Reform Beneficiaries/Agrarian Reform Beneficiaries Multipurpose Cooperatives) and the independent rubber growers (individual smallholder farmers, farmers associations, and companies), which account for 5% and 95% raw rubber production, respectively.

ARBs/ARBEMCOs usually have their coagulated latex- the cup lumps and scrap lumps, milled by the Philippine Pioneer Rubber Products Corporation (PPRPC) for a fix milling fee of Php7.5/kg of rubber crumbs (for SPR 20 and SPR 5 grades), before conducting a weekly cellphone bidding of the milled rubber crumbs to pre-qualified traders/buyers.

Independent rubber growers have three options: First, they can sell directly to wholesaler/processor at the prevailing market price offered by the mill; Second, they can sell to traders/buyers that are coming to their farms at a negotiated price; and Third, they can bring their cup lumps during the weekly ‘bagsakan’ market at their municipality or barangays, and negotiate with various traders/buyers for the best price.

Traders/buyers can sell cup lumps to local rubber manufacturers or international/export market, or to wholesaler/processor, which can either export these in its raw form to international market or mill the cup lumps into crumbs before selling to local rubber manufacturers or exporting these abroad. Local/domestic rubber manufactures account roughly about 20% of raw rubber production, while export accounts for the remaining 80% share of the raw rubber production.

Investment Needs

The Project will invest in the following:

Rubber Farm Operation

1. Provision of Farmers’ Training. To update the skills and knowledge of farmers, the Project will provide the 4 modular training with a total 24 sessions.
2. Mainstreaming independent smallholder-farmers by encouraging them to join existing cooperatives or to form one. This will be accomplished by:
3. Survey of independent smallholders-farmers in 6 municipalities.
4. FGD and Seminar in 6 municipalities.

Latex production

• Provision of formic acid to rubber growers/tappers. To improve the quality of coagulated latex or cup lumps that are produced by rubber growers, the use if formic acid is to be promoted by the project, instead of the cheaper battery solution that affect the quality of the rubber. Bulk purchase of formic acid will be done and this will be distributed to rubber producers/tappers in the 6 municipalities through ARBEMCOs or People’s Organizations.

Cup lump/Crumbs Production

1. Strengthening the local rubber industry by advocating the formation of a rubber regulatory board or authority and rubber industry standards. These activities will be accomplished by coordination and staff work of DAR Region IX officers, with consultant technical support.
2. Providing support to rubber producers by directly linking them to rubber manufacturers. The support will be provided by DAR Zamboanga Sibugay Office, particularly the Beneficiaries Development Coordination Division (BDCD) as part of their regular function. Additional operating expenses will be provided by the project for this task. Yokohama Tire Philippines Inc. was initially identified during the value chain analysis and validation as one of the major rubber manufacturers that can be tapped by the project as its market outlet for rubber crumbs. Preliminary discussion with Yokohama reveals that their demand for quality rubber crumbs is large, which may not be even filled by the produciton in Zamboanga Sibugay. However, there is a need for a rubber processor to prequalify with Yokohama, and this can be done by the PPRPC as a stock corporation owned by most ARBEMCOs, and some private individuals. At this stage, it must be noted that PPRPC is on the process of upgrading its plant facility with support from the DOST (Department of Science and Technology). Once completed, it can comply with the prequalification requirement of Yokohama and arrange a sustainable supply contract with them, as well as with ARBEMCOs and other rubber farmers.

By linking directly with Yokohama, the income of farmers will increase as the traders and middlemen (and their share) are excluded from the transactions, to the benefit of the farmers. These arrangements with Yokohama will also ensure a steady market and price for the rubber farmers and producers at a certain time.

Project Management

This component includes general project management and operation; and establishment of Project Steering and Management Committee.

Market and Opportunities

The Philippines is the 7^th largest producer of natural rubber in the world, with 264,000 metric tons (MT) of rubber produced in 2005. Other leading producers are Thailand (3.02 million MT), Indonesia (2.128 million MT), Malaysia (1.175 million MT), India (0.78 million MT), China (0.625 million MT) and Vietnam (0.45 million MT). It is estimated that no less than 85% of world natural rubber production comes from Asia. The world rubber production is expected to grow at the rate of annual growth rate is 1.3% annually. Expansion is expected to be less rapid in most rubber producing countries, except in Vietnam and the Philippines, which are likely to see their production grow annually by 8.4 and 5.9 percent respectively. Malaysia’s production, which used to be the leading world rubber producer, will continue to decline as farmers shift away from rubber to other crops, in particular palm oil.

Zamboanga Sibugay is the leading rubber producing province in the Philippines, with an average annual production volume of about 77,812 MT of dry rubber in 2004 and 80,416 MT in 2005. It surpassed North Cotabato (ranked 1^st in the past), which produced a volume of 76,607 MT in 2004 and 77,459MT in 2005.

Rubber Demand

Demand for natural rubber is part of the total elastomer demand for tyres and other rubber products. More than 60 percent of natural rubber is used for tyres, which is the major driving force behind changes in rubber demand. The share of natural rubber in the tyre sector was about 50 percent in 2000 and is likely remain around this level in the next decades.

World demand for natural rubber in the year 2010 is estimated at 7.9 million tons, a 1.3 percent annual increase in the current decade, considerably lower than in the 1990s. Demand is projected to grow fastest in the developing countries, at about 2.5 percent annually. Above average economic growth in developing countries as well as the increase in demand for domestic processing of rubber products would contribute to the higher growth in natural rubber demand.

In Zamboanga Sibugay, the major buyers of raw rubber (cup lumps) are the five (5) processing plants which have a combined daily output of 80 MT or 160 MT input milling capacity.

The annual demand of these millers is 46,080 MT of cup lumps or raw rubber to produce 24,040 MT of rubber crumbs or dry rubber. At most, the local millers can only absorb 30% of the raw rubber production. No less than 70% (110,000 MT of raw rubber/cup lumps) would be sold to local domestic or international traders/processors. It was estimated that 80% finds its way to international buyers, either as cup lumps or rubber crumbs, as only 20% could be absorbed by domestic rubber manufacturers.

Price

Natural rubber prices declined steadily after 1996 and reached a historical low in 2000. While prices have recovered somewhat since then, they are still significantly lower than in 1996. Demand is likely to grow steadily in the current decade, leading to some tendency towards higher prices. However, price increases tend to be dampened because they promote increased production on the one hand, and increased use of synthetic rubber on the other. In addition, existing excess stocks may take a few years to be cleared.

Rubber Market in Zamboanga Sibugay

During the stakeholder planning workshop, the rubber market for SPR 20 and SPR5 in the province is characterized in the table below.

In 2012, GARBEMCOs accounted for 5% (460.75 MT) of the market share while the independent smallholders have 95% (9,215 MT) of the SPR 20 market. For SPR 5, ARBEMCOs acquired 100% (1,382 MT) of the market. The average prices of SPR 20 and SPR 5 were Php123.35/kg, and Php114.42/kg, respectively, on the same year.

Gender, Youth and Indigenous Peoples

The Project will provide resources to equip the women and build their skills for a more dynamic participation in project implementation. The gender strategy includes: a) the conduct of gender-responsive value chain analysis to ensure that gender needs and issues will be identified during the preparation of the ARC-VIPs; b) preparation of local gender action plans in collaboration with the government agencies supporting CONVERGE and the local government units; c) advocate for the incorporation of the gender action plans into the existing Gender and Development budgets of the agencies; d) specific targets that 30% of the project beneficiaries and the members of the management committees (POs etc.) will be women; e) promotion of equal opportunities for men and women; and f. M&E data and analysis shall be disaggregated to show the participation of men and women and to show the roles of men and women in particular activities.

The Project will ensure that 15% of the beneficiaries will be indigenous peoples (IPs) when applicable. The project shall cover IPs within the ARC Clusters.

Expected Outcomes

Estimated Project Benefits and Revenues

Cup Lump Production Chain

At farmer’s level, the detailed estimate of the cost and return on a per-hectare basis is presented in Annex A and this is summarized in the table below, including the calculation of the financial profitability analysis. The calculated FIRR (Financial Internal Rate of Return is 29.25%, making this venture very profitable for rubber farmers.

Cost and Return of Cup Lump Production at Farmer’s level on a per hectare basis

From which, farmers or rubber growers can earn 56% share of the sales revenue.

Rubber Crumbs Production Chain

The rubber crumbs production is usually at the enterprise/company level. The detailed cost and return estimate is presented in Annex B. This is summarized in the table below, including the results of the financial analysis computations. The FIRR is estimated at 31.99%, which is a little bit higher than cup lump production. The profit is 56% of the total revenue, indicating a high profitability of this agribusiness venture.

If a processing plant or business entity is engage in trading (that is, buying cup lumps, crumb processing and selling), the estimated profit is Php12.1/kg, while the cost of trading is Php111.26/kg.

In summary, the rubber plantation can give a farmer an income of Php2.0 to 2.1 million in 26 years, or an average of Php80,386 to 106,170 per hectare annually, which will increase his per capita income by more than 5%.

The first aspect of sustainability is to ensure that the activities of the Project are implemented and the desired benefits are received by the target beneficiaries as scheduled. This requires deliberate planning and prompt execution, as well as commitment of resources and personnel by different stakeholders.

The second aspect of sustainability is to ensure that the benefits streams will continue, even beyond the life of this Project or beyond the Project area. Hence, for instance, the clonal gardens is expected to serve not only the 10% targeted by the Project, but it is also hoped that the rubber producers will be capacitated enough, through the training provided by the Project,  to continue the propagation of desired clonal seedlings in other available areas, on their own initiatives.

The third aspect is on the sustainability of approach, which can be achieved by the institutionalization of the rubber regulatory board/office and the establishment of industry standards.

The Project is attended by the following assumptions and risks:

1. Complexity of the project and different institutional involvement. To reduce this risk, a provision for consultancy service is provided by the project to provide needed technical support to the Project. As the Project also needs the cooperation of different national and local government agencies operating in the area, a project steering and management committee was formed to coordinate their respective activities and prevent duplication and conflict, among others.
2. Peace and order. The Project has nothing much to do except to request the assistance of the law enforcement agencies to maintain peace and order and not disrupt the operation of the Project.
3. Commitment to support. Consultation and continuous dialogue will be undertaken to iron out any difficulty or problems that the Project may encounter.
4. Staff turnover and changing priorities. As DAR and other government agencies is undergoing a Rationalization Plan, there might be a change in the officers that will be assigned to this Project. A continuity of plan and operation should be ensured to ensure uninterrupted implementation of project activities.