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IJSAID Program. The Sugar Industry in the Philippines ;\LAl" Nr,f, )['I1BS1I I f~} N!J Pd A ,,, i: ,i '2i ,, I ,AF'iL DECEMBER 1986 RONCO CONSULTING CORPORATION, 1611 N. KENT ST., SUITE 200, ARLINGTON, VIRGINIA 22209 CANE/ENERGY ASSESSMENT PROGRAM THE SUGAR INDUSTRY IN THE PHILIPPINES An Analysis of Crop Substitution and Market Diversification Opportunities December 1986 Contributors: James Sullivan, Director, A.I.D. Office of Energy Franklin Tugwell, Program Manager John Kadyszewski, Study Coordinator Donald Hertzmark Curtis Jackson Mead Kirkpatrick William Klausmeier Russell Olson Arnold Paulsen Henry Steingass Report Production: Belindia S. Coles by RONCO Consulting Corporation luis report was prepared as an account of work sponsored by the United States Agency of International Development (USAID). The views and opinions of the authors herein are their own and do not necessarily state expressed or reflect those of the United States Government or of the Agency for International Development. The report is intended only widen the range of technical options under consideration to the Government of the Philippines, the Philippine by sugar industry, and other private sector interests. THE SUGAR INDUSTRY IN THE PHILIPPINES An Analysis of Crop Substitution and Market Diversification Opportunities Table of Content PAGE Chapter One: Summary and Conclusions ......................... I I Actions in Response to the Immediate Crisis ............ 3 I Actions to Promote & Sustain Agricultural Diversification Over the Long Run ................... 6 Chapter Two: Crop & Product Diversification/Sub,,titution Alternatives ................................. 9 2.1 Constraints to Crop Diversification & Substitution .............................. 11 2.2 Crop Substitution Priorities ....................... 12 2.3 Crops Suitable for Diversification ...... ........... 14 2.4 Potential Substitute Crops for Domestic Markets . ................................ 15 2.5 Export Crop/Product Opportunities ............... ... 19 2.6 Public, Policy and Diversificaton .................... 25 Chapter Three: Potential For Energy Products ......................... 29 3.1 Use of Cane "Trash" for Boiler Fuel .............. ... 29 3.2 Use of Cane "Trash" to ;enerate Electricity, .............................. 33 3.3 Production of Fuel Alcohol ......................... 48 Chapter Four: Feed Production Options for the Philippine Sugar Industry .................................. 55 4.1 Animal and Feed Markets .......................... 55 4.2 Feed Production Technologies ...................... 62 4.3 Prospects for Feeds in the Philippines ............. ... 67 4.4 Conclusions ...................................... 74 Table of Content Continued PAGE Appendix A, A Note on Regional Economic Comparative Analysis ......... 87 Appendix B: Infrastructure and Market Factors For New Agro-Industry Ventures ........................... 93 Appendix C: Reconmenditions with IRespect to Creation of a Sugarland Develop- ent Commission arid Secretariat to StiMnulate Investment in New Crop Ventures and to Assist Co'wimunities Faced with Forced Crop Substitution due to \1ill Closures ............................. 97 Appendix D: Outline for Characterization of Beef Cattle Industry. ...................................... 101 ii Chapter One SUMMARY AND CONCLUSIONS This report presents the findings of a team of specialists in late spring 1986 to review crop substitution that visited the Philipptnes and product diversificaton opportunities for the sugar industry.(l) A principal objective of the team's work was to identify areas that appear to merit more intensive analysis as part of USAII?"s effort to assist the Philippine Government in responding to the continuing crisis in the Sugar industry. The team interviewed many reresentatives of public aid private organizations involved in the production, processing and marketing of sugar, molasses, alcohol and associated products. Team members visited nine represer,tative nills on Luzon, Negros End Mindanao, four distilleries, two aquaculture farms, and two experimental livestock operations. They also visited research centers working on the development of commercial by-products and co-producis from the sugar industry. Without exceptiony, those with whoiii the team met were generous with their time and prompt in responding to requests for infornation. The team also benefitted at every stage from help provided by the Philippine Sugar Commission, now transformed into the Sugar Regulatory Administration (SRA). The report contains four parts. The first summarizes 'he team's findings and reviews recoi icendations and options; the second addresses the broad problem of crop substitJtion on sugar lands; the third analyzes electricity production and fuel displacement opportunities; and the last treats the option of producing animal feed from Sugar cane. KEY FINDINGS The stud, team's overall assessment of the sugar agreement with that presented in a recent analysis crisis in the Philippines is in by the World Bank: a variety of causes, including chronically low world prices, reductions in U.S. quotas, corruption, poor policies, and inefficiency, have forced the industry into a devastating depression tronm which it cannot recover without major adjust ments.(2) Production of sugar must contract to the point where it satisfies only the 1.2-1.3 million tons required by the domestic market plus exports to fill the U.S. quota. Sugar that is produced rnust be grown, trilled and refined efficiently. and factories m-ust be closed and new uses found This means that some mills for the land and labor employed until recently in the production of sugar. As rioted, the work of the tearm focused on two key problems: I) identification of crops to be substituted on lands withdrawn from sugar production; and 2) identijication of co-products and new technologies to supplement the income of cane producers and millers or allow them to maintain a stable income by continuing to grow cane but producing products other than sugar. SUMMARY AND CONCLUSIONS The conclusions of the study, detailed in the chapters that follow, are summarized here. There is one broad recommendation that cuts across the report: the need for urgent action to assist communities different themes of this Negros, where the crisis has caused the most concentrated on the '!sugar island" of were impressed with the commitment of many damage. Team members private and public leaders of that island to search for ways to rehabilitate their economy and create employment opportunities for the hundreds of thousands who have been affected in the last two years. There is strong interest in crop substitution and product diversification, but time is short--and actions must be taken within six months to a year. Failure of the government to provide tangible evidence of improvement and the prospect of productive work for workers of thc island, whether in private sector or governnent-sponsoredi activities, could lead to a situation in which constructive reform will no longer be possible. The principal finding of the team is that crop substitution and market diversification are both difficult and expensive, and are likely action to stimulate and support the efforts of to proceed slowly absent vigorous private growers, large and small, to find new crops for their land and new products from their cane. It is true that sugar production has decreased dramatically in the last two years, but this appears to have occurred primarily because farmers have decided to leave large acreages unplanted and unharvested, not because they have turned to new and productive uses for their soil. Low world prices, misrianagement of sugar markets, and the lack of financial credits have all contributed to this outcome. Displaced workers have been largely unable to find other livelihood. Crcp substitution aiid market diversification face obstacles that are often poorly understood by policymakers unfaniliar with the sugar industry and with the incentives that motivate farmers, especially in hard times. In a nutshell, cane growers are reluctant to switch to other crops because sugar remains the best crop when all the variables are taken into account. These include long-term profitability, technical and financial risk, security of land tenure, and the allocation of scarce expertise, managerial resources and capital. The same disincentives retard experimentation with new products that can be derived from cane itself. Further, there is no single crop or set of crops that form the "ideal" alternative to sugar. The major food and feed crops hold sone promise--rice and corn, in particular--but the growth of each is likely to be constrained by agronomic or market factors. There is, in fact, no single "solution" to the problem; a successful process of diversification and stabilization will involve different combinations of crops and co-products, arid will take many years. It is therefore unlikely that the areas heavily engaged in sugar production can make needed adjustments without significant commitment of feasibility studies, the evaluation and development of resources to the preparation of markets, and the funding of new agricultural and agro-industrial ventures. Although these ventures must be undertaken by large and small private businesses, the government can assist by 2 SUMMARY AND CONCLUSIONS mounting a comrnercialization progran carefully targeted to sugarland diversifica tion. Public infrastructure investments will also be needed in many areas of the country. Fortunately, as the succeeding chapters illustrate, Philippine research centers. experiment stations and agribusiness concerns have accumulated a great deal of information on alternative crop systems and their performance in different ecological zones. This can prove an invaluable resource if properly utilized. Reliance on foreign specialists may be appropriate to help introduce some specialized crops, and to advise on marketing opportunities the most part the Philippine government and private and strategies, but for growers can rely on the country's own information resources and research inventory for decisions. CONCLUSIONS The study tean makes the following recommendations for action in response to the ongoing crisi!- in the Philippine sugar industry. The recommendations are divided into two broad groups: 1) concrete, immediate responses that can be expected to show results in the near term (0-5 years), and 2) programs of investment in research, institution-buldi..g nd infrastructure development, as well as broad changes in macro-economic po~icy that will be needed in the long run if agricultural programs to displace sugar are to succeed. I. ACTIONS IN RESPONSE TO THE IMMEDIATE CRISIS A. The promotion and support of private crop substitution and market diversification ventures. As noted, onily a wide-ranging process of investment in new agricultural ventures by cane farmers will lead to the adjustments that are needed. To achieve this goal, the teach recommends the creation of an independent, high-level comnmission or task force charged with promoting and supporting new ventures in crop substitution and product diversifications. The team recognizes the complex array of institutions which already exist. Several existing agencies are appropriate candidates to house the commission. The job, however, might be best handled by an organization that 1) brings together the heads of the key agencies (i.e. SRA, NEDA, Ministry of Agriculture, and so forth): 2) is temporary, i.e., with a lifetime of five years: 3) reports to the President; and 4) is presented to the nation as a response to the crisis in the sugar sector. A special secretariat, attached to the President's Office, could serve this purpose well. This commission would be empowered to: a) support feasibility studies to identify options that are viable on a commercial basis; b) assist growers and millers in developing bankable? business plans; c) provide "seed guarantees or equity participation where commercial money" loans and/or partial financing is unavailable; d) counsel the government on policies and programs that would assist the diversification effort. 3 SUMMARY AND CONCLUSIONS In providing these services, the commission should pay special attention to the needs of the many small and medium-sized growers engaged in cane production since these are likely to be both the most seriously hurt, and the least likely to have resources for experimentation. The commission should also make a special effort to solicit requests for support from cooperatives, community groups and other not-for-profit organizations most concerned about the problems of small and medium-sized growers. The mixture of large and small growers in sugar areas and the need for infrastructure and processing support for many new crop and product-line diversification ventures suggest the suitability of the Nuclear Estate Smallholding (NES) model in many instances. In this arrangement, a central estate/processing facility receives financial and technical assistance contingent on its ability to assist smallholders in naking the transition to the new activity, providing extension services, educati(_1 concerning manage ment methods and grading standards, and even loans. Although widespread and successful experimentation with new crops is unlikely to occur without the vigorous leadership of estate owners and agribusiness firms, ventures of this kind must be promoted with a view to the larger development problems of the Philippines, including: 1) the need to avoid displacing smdJl and medium-sized farmers and further worsening the country's highly skewed distribution of wealth snd property: and 2) the need to avoid enlarging the already large pool of itinerant, semi-employed rural workers. Where product lines (e.g. rice and corn production) do not lend themselves to NES-type arrangements, special governmenit programs to help smallholders should be a high priority. This study surveys the various crops and products that have been suggested as substitutes for sugar cane, and recommends several of these as candidates for the first commercialization efforts of the commission. In addition, the commission should examine possible alternative uses of closed sugar mills (e.g. conversion to feed production). Finally, the team recommends that the commission undertake further study of the sugarland diversification problem by commissioning more general studies covering, among others, the following topics: a) the incentives leading large and small sugar producers to continue in production; b) the role of pricing policies, especially as they affect rice and corn (see below); c) infrastructure and irrigation needs, especially in more marginal lands: d) and the development of domestic and export marketing systems for substitute crops, includig the setting of quality standards and grading systems and the estimation of market saturation levels. B. Assistance to communities faced with forced adjustment due to government decisions to close sugar mills.(3) The slow and difficult process of crop substitution and product diversification, involving as it will dozens of crops and hundreds of separate commercial studies and investment decisions, will occur too slowly to provide relief in areas where isolated 4 SUMMARY AND CONCLUSIONS sugar mills are closed _, the government.(4) For these areas the team recommends that the government sponsor the creation of community task forces, providing teams of technical specialists and financial support for a more rapid evaluation of, and investment in, alternative crops. These teams could be composed of specialists on sugarland diversification, perhaps formed by the commi-sion suggested above and staffed by a combination of specialists. Their job would be to work with community groups to find immediately available commercial alternatives for those faced with loss of their sugar processing facility, and to search for possible investment funds for new would also assist in the critically important identification ventures. The teams of markets for the resulting products. Tile crops and products, of course, would differ for each region and community affected. As with the broad promotion of new ventures, the co n uurity -ask forctes should pay special attention to the problems of the small and medium-sized growers and to opportunities to create NES arrangements that might provide continLuing support for nedium and small farmers. C. Analysis of the feasibility of generation of electricity by sugar mills for the Luzon grid. The teani feels there are several specific opportunities for product diversification significant enough to warrant preparation of pre-feas;bility term. These oplxrtunities are attractive partly studies in the short because they involve the transfer and/or testing and adaptation of new technical options and partly because, if proven feasible, they promise to have a significant impact on the prosperity of those engaged in cane production. The first of these is the production of electricity for the grid at sugar mills located on Luzon using bagasse and field residues burned in more efficient turbo-generator svster s. Electricity has been generated at sugar mills as a co-product for sale to the grid in Hawaii for several years. A model can be found for Luzon in Jamaica where a final feasibilitv study has just been completed.(5) The goal of a pre-feasibility study, would be to establish the technical arid economic feasibility of power sales to the grid by the sugar industry, leading to more detailed analysis and possible private investnent in one or more facilities. D. Analysis of the feasibility of commercial fuelwood displacement by the use of cane residues on Negros and elsewhere. Site visits by team members to Negros suggest an immediate opportunity on that island to displace large quantities of cornmercial fuelkood--and some imported oil--by the collection and combustion of cane field residues. This would help alleviate a severe deforestation problem, increase employment in a sustainable fuel production industry while reducing the cost of steam production for the operatio;i of distilleries, sugar refineries and other commercial operations.(6) Studies sponsored by USAID in 3anaica and Thailand, supported by an ongoing trash-collection demonstration program scheduled in Louisiana, Texas, and 3amaica, suggest that this fuel can be harvested, stored and used at a price significantly 5 SUMMARY AND CONCLUSIONS below that of competing fuels.(7) A pre-feasibility study would indicate whether this option makes economic sense on Negros and would suggest which of several technical alternatives are the most attractive. E. Analysis of the feasibility of the use of cane fiber and juice for the production of feed for an invigorated livestock industry. The displacement of imported animal feeds and feed ingredients by domestically produced sources of protein and fodder appears to be an attractive set of product diversification opportunities for the Philippine sugar industry. Proven technolcgies are available for converting molasses and cane juice to yeast protein which is widely acceptable as a substitute for soybean meal. New yeast strains have also been developed that use distillery slops as a feedstock, thus producing valuable feed while helping nanage a serious waste-disposal problem. trash can substitite for high quality forage for Hydrolized bagasse and field ruminants, suggesting the possibility that confined feedlot operations for cattle can be developed in association with, or in place of, sugar processing facilities. Detailed costs, benefits and requirements of a venture producing protein feeds could be established quickly with a feasibility study. Potential profits from a successful feeds venture should be large enough to attract private investment. II. ACTIONS TO PROMOTE AND SUSTAIN AGRICULTURAL DIVERSIFICATION OVER THE LONG RUN The extensive crisis in the sugar industry requires crucial participation by the Government of the Philippines through policies and stabilize and diversify into other crops and products.programs to help the industry There are a number of steps the Governrment can take to stimulate and sustain a successful diversification program. Among the most important of these are the following: A. Promote and support changes in government policies affecting agriculture ingeneral and the sugar industry in particular. If a robust recovery of Philippine agriculture is to occur, broad policies favoring the producers of agricultural products are vital. Past policies, for a variety of reasons, have favored food consumers, urban dwellers and manufacturing interests. These include both exchange rate policies and price policies, especially for feed grains and protein. Currency devaluation would have the general effect of reserving more of the domestic market for Philippine producers while helping capture more of the internaticnal market for the country. Appropriate and stable price policies for grains are especially important in the livestock and feed industries, an important diversification option. Accordingly, the team recommends an examination of the possibility of stabilization programs with floor and ceiling prices for these products (yellow corn, grain sorghum, rice bran, cassava chips. and high-protein feeds like soybean meal, copra meal and ipil-ipil leaf meal). 6 SUMMARY AND CONCLUSIONS Finally, the government should clarify the application of its land reform lands now in sugar and to lands that may be taken out of sugar. policies to The large and meduim-sized farmers are concerned about how land reform laws will be applied. There is widespread fear of confiscation of land if crops other than sugar cane are grown or if any of the land is operated under lease or share arrangements. B. Bolster government research and extension programs affecting crops that are good candidates fo': diversification. In the intermediate and longer term, it will be important to continue and accelerate government programs to develop varieties (e.g. of soybeans) and technologies (e.g. crop systems) that are appropriate to the diverse soil and climate situations to make alternative crops profitable for farrners and more competitive in order in world markets. C. Support programs in infrastructure development. A wide range of infrastucture improvements will be necessary for the diversification programs. Irrigation, in particular, will be important. succcss of Plans for additional irrigation development should be drawn up with the diversification goal clearly in mind. Among other things, improvements in farm-to-market roads, rail terminals and port facilities are all needed and will require public investment. D. Make a clear commitment to the promotion of private agribusiness investment in alternative crops. Success for many crop alternatives will require private investment in commercial facilities for processing and marketing. Government policies should encourage the development of agribusiness supportive of ihis goal. These include, as a minimum, a market grading and inspection system with high standards and strong enforcement, and a good market intelligence system. For the develop:iient of commercial crops for export, government policies may need to encourage businesses to systematically explore the demands of major export markets. It may be advisable for the government to establish trade development offices in key foreign markets to promote products and provide up-to-date intelligence for Philippine producers. Many of these are the same kinds of activities tnat the team envisions for the special diversification Commission, described above, and can be institutionalized appropriate government agencies for long-term purposes. The Philippines in may want to draw on the experience of other successful private-sector agricultural promotion programs, such as that of the State of Hawaii in the Unlted States. The Government may also want to develop appropriate levers (e.g. loan or technical assistance programs) to strengthen incentives for estate owners and agribusiness firms to create NES production systems and otherwise assist small and medium-sized farmers. 7 SUMMARY AND CONCLUSIONS Notes (I) The study was prepared by the Ronco Consulting Corporation under contract with the Bureau for Science and Technology, USAID. The program was initiated and supported under Alan Jacobs, retired Director of the AID Office of Energy. The team included: Dr. Franklin Tugwell, Ronco Manager of the AID Cane Energy Assessment Program; John Kadyszewski, energy technology specialist with tile AID Office of Energy; Dr. Russell Olson, Agricultural Economist and leader of the agriculture group; Curtis Jackson, specialist in row crops; Mead Kirkpatrick, specialist in perennials and the marketing of agricultural products; Dr. \\illiam Klausnieier, alcohol and animal feeds specialist; Dr. Arnold Paulseri, agricultural econolist; and Dr. Donald Hertzmark, energy economist. Henry Steingass, cane energy specialist with the AID Office of Energy, contributed to the preparation of the chapter on feeds; Betsy Amin-Arsala, project specialist with the Office of Energy, contributed editorial support. (2) See \\orld Bank Repct No. 6042-P1, "Tihe Philippines Sugarlands Diversification Study' (May 30) 19S6. (3) This recoimendation assurmes that the Government of the Philippines will: " Quickly decide on the disposition of lands foreclosed by banks and lands mortgaged but not yet forclosed. This is the first step to get these lands back into production and to remove the uncertainty that now afflicts many growers. " Quicki l arid authoritatively decide which nills \kill close and announce supportive actions for the conmunnities affected and, if appropriate, for the mill owners. The lead time in reducing cane acreage is long, since planting begins i mn:-diately after the harvest starts in the fall. Once a new crop has been planted, the mill must be allowed to grind through the next season if the invest ments in the new crop are not to be lost. (4) This refers to areas where there are no other mills and therefore no market at all for farmers growing cane once the nil! is closed. (5) See Jamaica Cane/Energy Project: Feasibility Study, prepared by Bechtel Corporation and Ronco Consulting Corporation, a study funded by USAID and the LI.S. Trade and Development Program, September, 19S6. (6) Several cane farmers and mills on Negros have already expressed interest in this alternative, citing the serious ecological damage caused by illegal wood gathering: lowering of the water table, siltation of rivers and streams, and reported changes in the climate of the island. (7) See Cane Production for Sugar and Electric Power in Jamaica (Washington, D.C.: USAID), October, 1984; and Electric Power from Cane Residues in Thailand: A Technical and Economic Analysis (Washington, D.C.: USAID), May, 1986. 8 Chapter Two Crop and Product Diversification/Substitution Alternatives Philippine sugar cane production, relatively stable in the past despite wide fluctuations in world sugar prices, underwent sudden and disorderly contraction beginning in crop year 1984-85. Area and production, which averaged 442,000 hectares and 2.4 million metric tons in the five year period 1979/80 through 19,3/84, declined to 1.7 million metric tons on 385,000 hectares in 198'i/85. In the current year (1985/86) production is expected to decline to 1.3-1.5 million metric tons on an area of only about 321,000 hectares (Table 2.1). World sugar prices, which averaged more than 2S cents per pound in 1980, dropped to below five cents in 19S4,/85. About ten years earlier the Philippine sugar industry faced a year of burdensome excess stocks followed by low prices, but no substantial reduction in production or ermployinert occured, During the current period low world prices, a complex of factors has made it impossible for the Philippines to maintain sugar production and emnp!oyment. Reduced production resulted from two principal cause: denial of credit to some planters and anomalies in the government's sugar marketing practices. The problem of very high interest rates (as high as 45% in. 1984) combined with several rorths delay in receiving payments for sugar sold by the National Sugar Trading Corporation (NASUTRA) made rnany planters unable to repay in full their 1983/ 4 loans. Those with few assets were unable to obtain production loans for the following crop year. New sugar production loans in 19S decreased to only one-third of the 1923 level. Consequently, the use of fertilizers on sLugarcane declined by 30%, reducing yields. Lower yields also resulted when growers increased extra ratooning to avoid the costs of new plantings. Of the large reduction in sugar area. some small acreage moved to other crops, but most remained idle. An estimated 150,000 sugar workers are unemployed and most of the rest are seriously underemployed because of shorter milling seasons and less planting and weeding. The crisis ir the sugar industry, particularly in the provinces and communities where sugar proCluction is tne primary economic activity, has been devastating, sharply cutting standards of living and in some areas causing starvation ard serious malnutritionm. These conditions exacerbate tlhe already alarming "peace and order" problem in those areas. World sugar prices are low and are expected to remair below full costs of production for the next several years. The Sugar Regulatory Administration (SRA) is considering a quota system to limit production to the level that can be sold at an economic price - i.e. that which will meet only domestic requirements (0.9 to 1.1 million metric tons), the U.S. sugar quota (currently about 0.2 million metric tons) and a modest reserve. The target production level for the 1986/87 season has been 9 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES set at 1.3 million metric tons. This will require no more than 55% of the land area that had been devoted to sugar cane in the 1979-83 period. Planters will, presumably, be permitted to grow sugar in excess of their quotas, but only for export at world market prices which at this time seem likely to be low for the next few years. Table 2.1 Area Harvested, Sugar Production, and World Sugar Prices (Philippines 1970 - J986) Sugar Area Froduction a/ World Harvested a/ ( million Prices b/ Crop Year (000 ha) - metric tons) (U.S. jb) 1970/71 408.4 2.1 1971/72 4.50 420.3 1.8 7.27 1972/73 447.3 2.24 1973/74 9.45 474.3 2.47 30.04 1974/75 529.9 2.39 !975/76 20.49 550.1 2.88 11.58 1976/77 533.5 2.69 1977/78 8.71 490.0 2.33 7.82 1978/79 416.7 2.29 1979/SO 9.65 417.6 2.27 28.66 19S0/S 455.4 2.31 1981/82 16.89 453.4 2.41 8.40 1982/$3 441.3 2.46 1983/84 8.50 445.1 2.30 5.39 1984/85 3S4.7 1.70 N/A 1985/86 321.3 1.50 N/A Source: World Sugar 3ournal a/ Source: PHILSUCOM and FSA b/ ISA daily average price in U.S. cents per pound. As these data suggest, farmers in the Philippine luxurv of decades of trial and error to cane growing area do not have the improve their practices and respond to changing market conditions. Aware of needed adjustments, many are already keenly interested in means to improve their livelihood and will view efforts to introduce new technologies accordingly. In general, tne larger planters will be in the best position to take the necessary business risks associated with new ventures, and will likely be the ones to establish processing facilities with which smaller planters and farmers can contract for the sale of their crops. In locations where all of the growers Lhie small acreages, cooperatives can be organized and, with appropriate guidance, obtain financing to build processing facilities and secure astute operating management. 10 CROP AND PRODUCT DIVERSFICATION/SUBSTITUTION ALTERNATIVES One variation1 of these organizational forms is the "nucleus estate smallholders" (NES) scheme, which has worked very well in sugarcane plantation areas and former sugar estate locations. NES is particularly well suited to situations in which smallholders require !.pecial support if they are to take advantage of new technologies. In NES schemes, the central processing company normally farms from one-thrd to one-half of the total acreage serving the processing facilities. The smallhoiders, or independent growers, are attached to the processor by a freely negotiateu contract, wherein the processor exercises some control over the quality, quantitites and timing of delivery of crops from the various growers to the facilities. The "nucleus estate", which is owned and farmed by the processor, serves to guarantee the processor a minimum production of specific commodities at qu2lity levels and production costs over which he has full control, in order to secure his investment in the processing facilities. It also, serves as an example for the growers of production methods and standards, and of procedures for crop quality assurance. Where NES arrangenierL are created with outside (public or private) financial and technical assistan.ce, operators of the nu'ieus estate can be required to provide necessary extensicn support for small holders as part of the initial agreement. effect, such arrangements allow the ,ntroduction of new technologies In while facilitating the success of smaller farmers. Given the bleak future for sugar, the critical issue is how to achieve a reduction in sugar output while at the same time minimizing the economic costs of changing the a(7Tricu.turai base, and the social adjustment difficulties that are inherent in such change. Four strategies have been proposed for adjustment and conversion of the sugar sector: 1) efficiency Imnprovements in cane production so as to reduce the costs per ton of sugar and make the Philippines more competitive in sugar markets; 2) rationalization of the industry to reduce overall production in order to serve only the domestic market and projected U.S. quotas, 3) product line diversification for sugar producers. and 4) crop diversification and substitution in sugarcane areas. This chapter concentrates or) the last of these, i.e. identification of crops and products that might be feasible arid economic alternatives to sugarcane. Tnis assignrnent micludes a r.?view of certain conventional seasonal field crops, as well as tree and fruit crops, analysis of their cultural adaptability and economic attractiveness and requirements for introducing them successfully in the sugar growing areas. The report reflects '-he judgements of team members, based on visits to mnl s and plantationis in major sugar producing areas (Central Luzon, Southern Tavalog, Negros, and !ukidnan in Mindanao), a review of information from other sugar producing areas, and discussions with private businessmen, government officials and agricultural scientists at Phiiippine research institutions. 2.1 Constraints to Crop Diversification and Substitution The substantial reduction in sugar cane production since 1983/84 involved little real crop diversification. It was mostly a contraction of sugarcane area and yields in response to high interest rates, shortages of credit and delayed payments for sugar. There was little crop substitution, Much of the land remained idle. Some planters had no credit for planting either sugar or substitute crops. Some reduction was by planters who had lost access to their land either through foreclosure or as a result of insurgency or invasion by squatters. II CROP AND PRODUCT DIVERSIFICATION /SUBSTITUTION ALTERNATIVES Diversification is constrained by several factors. Widespread fear among planters of large risk and uncertainty associated with future market prices of alternative crops is a major disincentive. Although historical world sugar prices fluctuate widely, since World War If sugar has consistently provided the best income option for Philippine planters. If planters have expectations that world prices will again be attractive they will not be inclined to substitute crops which require specialized fixed investmients that cannot readily be converted back to sugar production. It appears that only a few of the most innovative have made permanent shifts out of sugar production. Although innovators have demonstrated the possibilities, others will not follow unless they can be assured of technical success and profitable prices from alternative enterprises. Seventy five percent of the sugarcane planters are sinall operators, with less than 10 hectares. They plant about 22 percent of the cane area. The five percent of the planters with 50 hectares or more plant 43 percci-it of the toal cane area. Quite different problems of diversification confront the small and large farmers. It will be difficult for the small farrrers to introduce new crops successfully without technical guidance, credit, input support and marketing services. Concern over how the land reform laws will be applied is a barrier to change for larger sug.r planters. The threat of land confiscation is considered greater if crops other that sugar are grown or if any of the land is operated under lease or share arrangeinents. The Philippines has a strong network of institutions doing research on agriculture, forestry and livestock problems. Technologies for producing, processing and storing a wide range of crops wth potential as substitutes for sugarcane have been developed and tested. Nevertheless, successful introduction or expansion of many of these crops by sugar planters may be difficult in specific locations. The practical packages of complete production elements and locally adapted varieties have not been determined and assembled for many crops. Sugarcane is, agronomiiically, a crop that is relatively drought tolerant and disease resistant. It is a crop that is processed where it is grown into a stable food product capable of being stored in standard, unspecialized, ambient conditions for long periods. There are commercial structures at few high value crops with similar characteristics. It is therefore to be expected that where sugarcane is extensively produced to the general exclusion of other than subsistence crops there is likely to be little in the way of comnmercial infrastucture with which to facilitate the processing, transpor: and marketing of alternative crops and finished products. This situation applies particularly to most high value export items. For this reason, infrastucture factors must be evaluated before diversification substitution options can be selected. 2.2 Crop Subtitution Priorities The principal criteria in identifying promising crops for diversification are profitability for the producers id economic benefits to the Philippine economy. Sugar has been one of the country's important earners of foreign exchange. At 12 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES current world prices, production beyond domestic requirements and the U.S. sugar quota wiil be unprofitable to producers and uneconomic for the national economy. However, it is likely that world sugar prices, which are subject to wide cyclical fluctuations, will at some tiue in the future again be attractive to producers and have a positive comparative advantage as in the past--at least for a short time. This suggests that there may be advantages for many planters in selecting crops for substitution that require mini mum fixed investinents and which permit flexibility for shifting in and out of sugarcane production. Crops which are weli adapted to agricultural conditions but which are important import items in the Philippines are especially interesting candidates for diversification programs. Crops which use only, or principally, domestic resources in thei,- production provide local employment and save scarce foreign exchange. For exan le, the Phiiippines has been importing substantial arnounts of corn and protein feeds for its livestock industry in recent years. Crops which can replace those Imports nky be fgood suhstitutes for sugarcane in some regions. The Philippines has traditionally been a large exporter of products from coconuts, oil palm, forests, and fruit trees as well as sugarcane. The country has the soil, climate and population ior growing many other crops. To justify' producing them in excess of doinestic requirements, however, the country must be able to compete with other produIcing countries in world trade. The direct resource cost (0DPC) is a mreasure used in several studies of economic policy and agriculture in the Philippines. MIC is defined as the ratio of domestic costs per ufit of a conmifodity to its price llnus foreign costs per unit. The ratic of the DPC to the (:;hmdo\v.) foreign exchange rate indicates the efficiency of the conodit v in generiting foreign exchange. If the ratio is less than 1.0 the col modit \ has a relativc conparative advantage. Several econo iLc studic- h ve been tundertaken of the conparative advantagos of sonre of the major crops and livestock enterprises in the Philippines. Generally these have analyzed the relative comparative advantages at the national level. One such stuciy by I.A. Gonzales (1) ranked commodities and enterprises by regions and provinces orj the bases of their expected private and social profitability. Based mainly on a national larmn management survey, it estimated the relative colparative advantages of several commodities in all regions under different agricultural production systems. The commodities and production systems were then ranked within and across regions based on their private and social profitabilities. This aflowed identification of specific production s'stemls wvich were financially viable and economically efficient in specific regions. The study indicates that technologies exist for a wide range of crops and enterprises which can be profitable private and social substitutes for sugarcane. It is a useful guide to where certain crop,; nray be successful. However, trials and demonstra.ions are still needed to reduce planter uncertainty and provide more comple packages. These should be tailored to diverse local agro-climatic e technology conditions and used as a basis for building market conditions required for successful irrplementation of a diversificaion program.(2) 13 CROP AND PRODUCT DIVERSIFICATIONISUBSTITUTION ALTERNATIVES 2.3 Crops Suitable for Diversification No single crop will be the best replacement for sugarcane. Rather, it will be a mix of short-term and long-term, as well as traditional and non-traditional, crops for both the domestic and export markets. Tt'e process of change and adaptation should be a continuing one; Jess profitable products being replaced by more viable crops on a field by field basis only as fast as the level of productivity and agribusiness expertise develops. Sugarcane is likely to remain the principal crop on farms within 30 kilometers of the operating mills. Diversification may involve introducing other corps largely in a multiple cropping system. Some crops, such as mung bean, which have a relatively short grcwing season, are likely to be important for intercropping with sugarcane rather than as substitutes for it. Intercropping is an effective way to increase crop production during the first few months of the cane crop without decreasing cane production. Other annual field crops. such as corn, rice and sorghum, may replace some of the sugarcane if good markets exist. However, near the mills the team expects a sugarcane-based cropping system to persist. More effective crop sequences in multiple cropping systems can be developed by farmers and by research programs through testing of additional sequences which will allow pianters to select their favorites in light of biological, economic and social criteria. Some of the crops that seem to have good potential demand, thereby saving foreign exchange, for meeting deficits in domestic are discussed in Section 2.4. Section 2.5 discusses crops which appear to have good potential for export. The crops considered for domestic use include expanding domestic demand because of the food crops for which there will be high rate of population increase and expect economic growth and livestock feed crops, which have a strong demand derived from the increasing demand for livestock products. (See Chapter 4 for a discussion of the overall market for livestock feeds in the Philippines.) The Philippines has a well established conmercial technology, including improved breeds poultry industry using modern and efficient rations. Similar, the commercial hog industry is well established and using modern technology. Both of these industries require high energy concentrates production of these feedstuffs has been and protein feeds. Domestic inadequate, requiring large feed imports of corn and soybean ineal foR these industries. Lately there has been much interest in comimerical prawn pro,-uction for the export as well as domestic market. This expanding industry will also require high quality protein feeds, which are now imported. The value of imported a -,al feeds in 1984 was $94 million. \ke believe these feeds can be produced economically on lands now in sugarcane, with substantial savinigs in foreign exchange. Beef cattle production is primarily a backyard operation in the Philippines, with animals fed Jargeiy field wastes and by-products with little or no concentrates. There is a small commercial cattle feeding industry producing about 25 percent of the beef marketed. But most of this is not well developed in the sense of using improved livestock breeds and good feeding and management practices. Much of the 14 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES high quality beef demanded by the restaurant and hotel trade, as well as lower quality meat for the fast food industry, is imported. Beef imports in 19S2 amounted to 7.45 thousand tons, costing about $17 million of foreign exchange. The government plans to help the beef industry by developing existing government stock farms, restocking them with breeding animals of improved genetic quality, and production of calves for dispersal to small farmers for breeding and fattening. Apparently breeding animals from this operation will also be made available to the larger commercial beef ranchers to increase the quality of beef ;ierds generally. Livestock operations offer an especially good opportunity for planters with small acreages and surplus family labor to increase their farming intensities and incomes. Many of these snall farmIs are located on marginal, sloping lands which are subject to erosi oil and contribute to deterioration of the wateished. Integrated crop/livcstock farmn, sy',temHs can profitably incorporate soil-building and fertilityv-restorig crop rotatio;ls and cultivation practices. Siall farms of 2 or 3 hec tares can bc quiite profitable with a cormbination of poultry, hogs and ru ninants (cattle or goats). Such comibinations can make efficient use of fanily labor throughout the year and provide a market for crop residues as well as forage and grain crops produced oni the farm. The goveriment's pronosal for developing the beef industry includes a system for distribut ing the Calves produced on the government breeding farms to srmall holders under an arrange ment where the animals are returned after they have grown to market weights. The farmer will be paid for the gain in weight. Such an arrangeinient spares ith farner the problems of credit and rmarketing. Similar arrangenmerts could be nade by the private sector, by individoal entreprenuers or cooperatives, for making i nproved technology available to small farmers for poultry and hog production as Well. Organizations such as First Farmers Cooperative on Negros doe,) diistribute day old chicks and poultry feeds to snall operators. Such organiZat ionh s coUld a so provide technical assistance and mark'eting services to small fLarme!C-rs. One barrier to developfment of a feeder cattle system is the lack of a functioning reat grading systemi. If the government wants to encourage irmproved meat quality to displace imports, it needs to enforce a meat grading system based on quality and backed by adeciuate and consistent inspection. Otherwise, the econolmic incentive to breed better cattle and feed them prope-ly created by differential pricing based on ineat grades does not exist. 2.1 Potential Substitute Crops for Domestic Markets The crops discussed in the following paragraphs are some .hich it appears can be grown economically to satisfy requiremients of the domestic market. We believe that eventually most of the land taken out of sugarcane will be used for rice and corn production. Over the long run, these two crops will have good production potential and good private as well as social profitability prospects in all regions. There are proven technologies for both crops that are suitable for small as well as 15 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES large farmers. Several of the other crops described below may offer very good econonic opportunities but may require special facilities for post-harvest handling, processing and marketing. Several of the high value crops have quite narrow domestic and export markets. A relatively small expansion in area, however, may be possible. Rice: All aspects of the production and marketing of this crop are quite well understood. The crop is supported by a very good infrastructure, including research and development efforts. The Philippines experienced production of 3.S1 % per year from 1961-1980, a healthy growth rate in rice achieving marginal self-sufficiency by 19S0. Since then high fertilizer prices and weather calamities resulted in deficits, making it necessary to import about 400,000 metric tons in 1984 and about 300,000 metric tons in 19S5. Considering the high rate of population growth (about 2.65% per year) and the fact that per capita rice corsuinptiop rises as incomes risc (for each 1.0% increase in real national income, it is estimated that per capita rice consumption will increase by 0.10%), if the economy grows bv 5% per year, per capita demand for rice will increase by 0.5 percenit. A fairly high rate of increase in rice production (of about 3 percent) must be maintained if the Philippines is to meet demand requirements of growth in population and income and remain self-sufficient. A recent study by the International Food assessed food demand/supply prospects for Policy Research Institute (I-PRI) (3) developing member countries of the Asian Development Bank. For the Philippines demand for paddy rice from its average annual the study projected an increase in levl of 7.043 million metric tons in 1976-S0 to 12.14 million metric tons by the year 2000 (See Table 2.2). The nearly 3.0 percent annual increases in production required can be achieved by some further increases in use of improved varieties and technology, but it will require a substantial increase in land area planed to rice. In 19S2/83 the total area in rice was 3,300,00 hectares. Of this, 1,749,300 hectares were irrigated; hectares were rainfed. The IFPZI projections 1,551,000 assume that ongoing and proposed irrigation programs will be cornpleted and that will increase to 2,697,100 hectares, that by the year 2000 irrigated rice area the rainfed rice area will decline to 1,20S,000 lectares, and that the total rice area will be 3,905,000 hectares - an increase of 605,000 hectares. If proposed irrigation programs are not carried out, a larger area of rainfed rice will be required to meet demand requirements. Cori: Hybrid and inproved yellow cor:n varieties and a package of associated technologies are available in the Philippines. Corn can be grow\n profitably if yields are 3 times the current national average and marketing is available. The conflicting records of success and failure with yello\ corn should be analyzed to determine the best locations for its production. The spotty record of production Jccess with yellow corn is likely a reflection of poor balance between the variety, the cultural practices and the environment. The balance research and development to match varieties can be improved through additional to various environments. Yellow corn will be vital to the enlarging swine and poultry enterprises and will assist the developing beef cattle industry. Improved varieties of white corn, uscd mostly for food, are now available and will become increasingly important in view of the big increase in demand will be for yellow corn rapidly growing population. But the for the livestock feed industry. The 16 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES World Bank projects a growth rate of 5.5% per year in the real national income for the Philippines. The income elasticity of corn for feed is estimated at 1.10 (for each I% increase in real national income, demand for feed corn would increase by 1.10% per capita). Table 2.2 Projections of Foodgrain Production, Demand and Surpluses/Deficits, Philippines, to Year 2000 Paddy All Food Rice Corn Pulses Gra.ins Avg. annual Production 1976-S0 (000 mt) 7,043 2,950 52 10,045 Avg. Annual Growth Rate 1961 -80 (per cent) 3.81 5.7 2.4 4.31 Projections for year 2000 Production (000 mt) 12,141 5,624 72 17,838 Area (000 ha) 3,082 3,989 66 7,953 Yield (mrt/ha) 4.2 1.41 1.09 2.24 Demand (000 int) 12,290 7,080 90 21,210 Surplus/deficit -150 -1,460 -18 -3,370 Source: IFPRI, Assessment of Food/Demand Supply Prospects and Related Strategies for Developing Member Countries of ADB, 1984. Tables 1, 2, 3 and 6. The IFPIZI stud), cited above projected an increase in production of corn in the Philippines of 90% fronm the 1976-80 average annual tonnage of 2.95 million metric tons to 5.62 million tons it the year 2000. Demhand is expected to be 7.08 million metric tons, leaving a deficit of !.45 million metric tons. The IFPIZI projections assume that corn yields will increase by 2.0% per year and that the area devoted to corn production will increase by 1.1% per year. The area of corn harvested in 1985 was 3,31 4,000 hectares, about equjal to the rice acreage. An increase of 1.1% would require 36,000 hectares. Both white and yellow corn are susceptible to post-maturity/post-harvest damage. Improvements in post-harvest handling, including storage and transport, are needer, to reduce losses and deterioration of quality. Price policies with respect to corn also need study to provide security and stability to buyers from the livestc.'k industry, as well as to corn producers. 17 CROP AND PRODUCT DIVERSIFICATION!SUBSTITUTION ALTERNATIVES Mung bean: This legume is included because acceptability to the population. Adequate of its value as human food and its yields per year per hetare are possible as a double or triple crop It is also a very suitable intercrop with sugarcane other long-duration crops. There is a and possibility of over-production, however, mung bean cultivation is expanded rapidly. if The suitability of mung bean foliage, field trash, and processed grain for animal feed should be investigated. Soybean: The research, testing and development varieties and cropping conditions for work required to identify suitable soybeans in the Philippines have not co.rpleted adequately at this time. been However, future or potential prospects soybean production in the Philippines appear for to be good. As an import substitute for animal and human food, soybeans cou!d find an important place in the economy. fat content is high. Full-fat meal cannot The be fed as a high percentage of the diet, domestic or export markets for oil so are needed if ihis legume is to succeed. Cultivation of the crop requires no special machinery. An oil mill, local centralized, is required. Soybean field or or mill-trash is of value as cattle feed. suitable for sugarcarne intet-cropping. It is Peanut: This relatively drought-resistant in the Philippines, perhaps only to the legune is suitable for Iimited substitution extent of domestic consumption. It is suited to sandy suils because of harvesting best problems in heavy soils. It is a high-protein, high-oil crop and, to be viable on a large scale, would require export and domestic markets. The foliage oil is similar to alfalfa in nutritive value for ani inals. The kernels are highly susceptible to toxigenic post-rnaturity fungi. Clarified oil is toxin-free. Export of butter or whole nuts would require costly processing. No special machinery is required for production. Sorghui: This drough -resistant grain crop has failed in some parts of the Philippines but is regarded with respect by farmers in other parts. It is a hardy, relatively trouble-free crop during growth. At maturity, the grains are subject to deterioration by mold in wet weather; this ranges from severe in white-seeded varietics to moderate in red-seeded \'arietic&. Sorghum grain is not widely used as hunLin food but couid be an important animal feed constituent. Cotton: Cotton is now grown ir one region extended to othier regions. It is a rather of the country and can quite possibly be specialized crop which requires a large amnount of pest control, particularly for insects. Lint processing requires that centralized "gin" be established in the a. growing area. The Philippines imports substantiai atHou:L1 of cottcn for its textile a industry. Since tile crop does not require nuch in itmported resources for its production it could be an important saver of foreign exchange. Cassava: This is a drought-resistant, hardy crop suitable for marginal lands which are not used productively for other crops. Improved varieties are available. It is a high energy food not eaten extensively in the Philippines but an important staple many countries. It nas good potential as in a feed for swine and cattle. 18 CROP AND PRODUCT DIVERSIFICATIONSUBSTITUTION ALTERNATIVES Alfalfa: An expanding livestock industry will create a growing demand for quality forage crops. Alfalfa is an excellent fodder for beef and dairy cattle. Alfalfa leaf meal is a valuable ingredient in poultry feeds. The crops should be suitable for some of the areas with longer dry periods as it is deep rooted and quite drought resistant. Coffee: Rr'busta coffee can be grown throught the Philippines. good. It is a crop well suited to small farms. It should Yields are quite be considered for some of the areas of Negros where sugarcane is now being grown on marginal slopes. The Philippines now imports coffee and could expand production considerably before satisfying domestic requirements. Peper: Many areas are well suited to the production of pepper. The Philippines now imports significant amounts but small areas will be able to meet domestic require Men ts. Ranie: This is a fiber crop that appears to have good potential. It has been grown succesfully on Negros. Careful analysis of the scope of the market, domestic and export, will be required before promoting extensive expansion of this crop. 2.5 .Export Cro/roduct 4p.artunities ihe Philippines exports significant amounts of coconut products and tropical fruits. Climate and soil resources suggest that the country could of some of these and other crops at a competitive advantage. produce and export more Expanding exports of current commodities or launching new export ventures will require careful assessment of the nature of the demand in prosper-tive foreign markets, including prices, competing producers, quality standards, etc, Sophisticated Philippine producers have a basic understanding of m;_Irkets they now serve, but many prospective producers of new export products have had no experience with the nawurc and operation of the market systems for alternative products. Philippine food marketing systems, for various reason, are much less developed and less efficient than the major Asian metropolitan marketing systems. Fresh produce in the Philippines is largely marketed without grades, standard weights or protective packaging. Handling losses and marketing costs are high. Philippine producers often find it difficult to adjust to what they see as unreasonable demands for quality by Japanese produce buyers. Representatives of prospective Philippine producer groups, packing/processing plant managers and others in the commercial sector involved with new export products will need to learn and experience first hand the conditions of intended markets; merchandising practices, consumers tastes, competitors' product lines, product quality requirements, and the need for high standards in raw materials and product packing, processing and packaging. In the following paragraphs soime of the crops that are thought To have potential for economical prodLtction in the sugar growing areas and which can compete in export markets are discussed. For all of these it will be important that their markets be carefully assessed and market and production feasibilities be studied, as they must compete in highly competitive markets, and some of these markets are quite narrow. 19 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTiON ALTERNATIVES The key to successlul commercial ventures and to the ability to obtain conventional financing lies in obtaining reliable numbers and in making credible estimates arid projections. For new products in new markets, the procedure is somewhat different. The producer/exporter would conduct appropriately sized marker t::,sts at the optimum time of year for the product in cooperation with an interested food importer or broker. Then., estimates are made of the initial size of the mal:et, consumption, projected growch, revenues, and so forth. For example, apparent demand in selected export markets can be determined annual unload and consumption figures in metropolitan by examining monthly avid and/or regional markeos, a:,(! by observing trends in demand over time. Image enhancement is an esse.ntial part of an overall business and trade developiren, program for export products. If not already in place, trade development offices (under the Ministry that handles commerce and/or trade) should be established in key markets not only to promote products but, perhaps more importantly at this stage, to provide market intelligence and reliable numbers to potential Philippine producers and exporters. With respect to exports in general, Philippine food and beverage products cannot attain a signif;cant import presence in principal Asian/Pacific export markets (Japan, Hong Kong, Singapore, Australia/New Zealand, Soviet Far East) and elsewhere without improvement in the level of sophistication of existing systems for post-harvest handling, storage, transport systems, port operations, and packing/processing facilities. Alternatively, ingenious systems will have to be developed to circurrvent the logistics problems and other impediments of local conventional systems. Devising new systems can often be more expeditious than initially correctig existing infrastructural constraints (and there presently appear to be some significant constraints). Bananas. Fresh bananas have been exported from the Philippines for many years. However, recently 3apan has been critical of the quality of Philippine banana exports. Tthe team observed that the quality and varieties available in Manila's top quality markets do not appear to be up to international export standards. One possibility for rapidly stimulating export banana production and assuring product quality might be for the govenment to provide economic incentives (such as tax holidays, or favorable financing) in an effort to attract major multinational firms like United Fruit, Del Monte and Dole to organize growers and expand production perhaps using NES schemes. The companies may be interested to construct and operate the packing and shipping facilities and contract with growers to purchase fruit. One key to success for this type of production system is for ihe fruit packer/marketer to maintain an active grower relations staff to advise the growers in proper huslxndry in order to assure consistent quality and production volume. Fruit purchase contracts normally contain a clause whereby the packer is only required to purchase fruit that meets specified quality standards. Given the large investments that Dole (Dole Philippines, inc.) and Del Monte (Phiiipp'ne Packing Corp.) already have in the Philippines, perhaps the government 20 CROP AND PRODUCT DIVERSIFICA'TION/SUBSTITUTION ALTERNATIVES might be in a position to exercise some friendly persuasion in order to influence a favorable decision by one of these companies to undertake new plantings or expansion. Both companies are major factors in the international banana trade and have substantial staying power in the marketplace. Long Fiber Pulp: This is used for the manufacture of linen and other high quality (and high value) papers. Trees which can be grown for this type of pulp are, among others, Eucalyptus, lpil-lpil and Poplar. Planted and farmed intensively in hedge-rows (to facilitate mechanical harvesting), and with irrigation, the trees reach harvestable age in about four years in dry areas of the tropics (Hawaii). Under a scheme, whole trees would be harvested and hauled to a wood chipping plant which could be situated adjacent to a closed sugar mill. The trees would be chipped, followed by air blast separation of wood chips (50-60%0) from leaves, branches and twigs (40-45%). The pulp chips would be dried and loaded into containers, or preferably hauled in bulk, for export by barge to Japan and other pulp markets. The extraneous tree trash could be shredded and dewatered, possibly by passing it through the (modified) forrner mill train (crusher) and conveying the dewatered trash to the fireroom to he burned in the former sugar factory boiler to generate electricity. This electricity would power the chipping equipment, as well as provide surplus energy for the public utility. The commercial infrastructure as itpresently exists, or with little change, is likely to be adequate for this product scheme. Since the export product is not perishable, there would be no need for significant new port or other facilities from which to ship. A recent economic feasibility study conducted for private clients showed this concept to be attractive for production in Hawaii to serve domestic markets on the U.S. West Coast. Costs of land, labor, other inputs, and taxes are extremely high in Hawaii, where sugar workers earn an average of U.S. $100 per day, including $33 per day in nun-taxable fringe benefits. If the production concept is feasible for this location, it would seem logical that it might be substantially more attractive for the Philippines considering also the value of foreign exchange. The returns are sensitive, however, to ocean transportation costs (distances). Therefore, Far East and possibly Australia/New Zealand markets would appear most suitable. Pineapple: Like sugarcane, pineapple has the advantage of being well-4<nown locally, and is also commonly prowuced on plantations or with an estate form of agriculture. Of course, the crop is not suitabie to all locations, arid in any case, a market analysis would be needed to indicate an appropriate scale for additional plantings. Philippine fruit quality is high and of export caliber. Several alternatives for crop operations are possible. Pineapple can be mono-cropped on sugarlands, or it can be rotated with sugarcane in appropriate climatic areas. This has been the practice in Hawaii for many decades. Since both 21 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES crops are familiar, and yields are higher than normal for both pinapples and sugarcane when rooted, pineapple may be one of the better crop substitution alternatives. /\n added benefit is the fact that under normal circumstances the first crop (first year) of sugarcane does not require fertilization when planted following a cycle (plant crop plus ratoons) of pineapple. Although infrastructure requirements for individual products discussico which follows for pineapple provides a good example will differ, the of the kinds of concerns to be addressed when considering investment in commercial export of high value agricultural products. Pineapplc. can be exported fresh, canned or processed to juice. Primary export markets would likely be Japan, the Soviet Far East, Hong Kong, Singapore, Australia and New Zealand. The first step is to identify potential markets and determine the mix o products and mode of operations. To process pineapple, at least one or more fresh fruit packing plants would be required as well a s either a cannery or a juice extraction and concentration plant. Product mix will depend on market demand and prices. Normally, farm prices for fresh fruit are more than four times the price of processed fruit. If fresh fruit is the export product of primne value, then as much as 50-60% of the crop can be packed for fresh shipment, with the balance processed into juice and/or canned. Capital costs for a cannery are considerably higher than for a juice plant although product values may be higher. A new multi-product cannery to process fruit from 1 5 ,000 acres would cost aboUt $30 million if constructed in the United States. Export of fresh pineapple will require availability of refrigerated containers (preferably enpty backlhaul containers at favorable surface shipping shipping rates), facilitias at a port to handle such containers, and regular outbound shipping schedules. Alternatively, -hipment can be by air if prices justify the expense. Here again, airport facilities for handling air cargo (and the containers) must be available. In any case, fresh fruit must be packed and refrigerated after picking. A week to ten days maximum in the container within a day will still allow four days or so of shelf lfe at retail, allowing 1-2 days for handling and distribution at the broker/wholesaler level. Pineapple from Lu::on now supplies the Manila market. Required conditions such as port facilities, the, aailability of containers, and commercial may not be adequate on Negros and Panay. Therefore, export shipping schedules fruit may have to be grown on Luzon, and fruit for the Manila market where timing of delivery is less critical be supplied from other islands. In the case of pineapple, initial merchandising should probably be through private label channels, for both fresh fruit as well as processed products. This should continue until the new producers and packers in the Philippines have established a reputation as dependable suppliers of quality fruit. Quality and derndability are 22 CROP AND PRODUCT DIVERSI!ICATION SUBSTITUTION ALTERNATIVES absolutely the most important factors in maintaining an export market position. After these are well established, producers could consider establishing their own branded products (with potentially higher margins) in international markets. M/ango: The "Carabao" variety of mango comnonly available in the Philippines has an attractive appearance and popular flavor. The flavor is sweet and melon-like, not strangely exotic as are some varieties. It is therefore believed to be a possible product for significant export expansion. These mangoes are also the size usually preferred in developed country (non-ethnic) markets. The skin however, is thin and scars easily and, when ripe, the fruit is delicate and soft. For significant fresh fruit export market e'-pansion, extremely careful handling will be required in harvesting, transport, post-harvest packing in order to maintain consistent high quality standards. treatment, and Proper atmospheric conditicos for exteided refrigerated (container) storage Aill have to be developed. Fresh fruit will likely be linited to W\ estern Pacific markets including 'Japan, Soviet Far East (see also discussion under Citrus,. below), Hong Kong, Singapore, Australia, and New Zealand. In addition to these, processed products could possibly be considered for Western North American markets (including A\laska arid Canada). Compet it.;on from other producers in markets outside the 'V.estern Pacific is relatively intense. Mexico exports most of its mangoes to the U.S. and is the largest supplier to the EEC. Various Caribbean Islands are also exporters, and even Peru, Brazil and others in Sou1fh America have exported fresh and processed products to the EEC. Fruit quahlty is variable in these countries and most iango production is scattered. Florida production volu!-es for the U.S. mar'et, are also quite variable. India produces large qLantities of juice concentrate. The Philippine variely is somewhat unique, and there is the probability that source identity could be established which could command premium prices. 111 prices are competitive % ith other quality fruits (such as pineapple anid melons), rnangoes could probably find ready acceptance in the developed Pacific rnar;<ets nentioned above. In 19SI, the Philippines had a total of 42,410 hectares planted to mango orchards, of which about 75 percent were bearing. Production that year totaled 369,864 tonnes. In 19-2, production rose 15 percent to 426,278 tonnes. Production in 19S3 and 1984 averaged about 375,000 tonnes each year. Demand for Philippine mangoes is reported to be "booming" in Asian markets. However, mango yields are well below the world average, and other Asian nations are taking advantage of the rise in demand for fresh and processed mango and are expanding or, as in the case of Australia, launching ncw mango production ventures. Low yields, erratic production levels, and uneven quality of Philippine mangoes are preventing Philippine growers and exporters from what could be consistent profits. In the period 197S-19S3, exports increased on!y 0.6 percent p r year. Fresh mango accounts for 90 percent of nange product exports. Only 20 percent of the mangoes produced in the Philippines can pass the specifications for entry into Japan, the Philippines' second largest market and by far the largest potential market. 23 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES The Philippine Chamber of Mango Exporters issued a calling for a wide range of actions for both industry position paper in June 1985 and government. The actions included more accessible credit for growers, improved extension services to upgrade cultural practices, lower freight rates to foreign markets, restr.tio.,s un packaging materials, lower government-mandated reduced import export prices to match actual market values in major importing nations, and research to develop alternative post-harvest treatment "o replace EDB fumigation for control of fruit flies. New post-harves' treatment Lchniques are important because of restrictions in export markets. The U.S. has banned the use of EDB fumigation to treat mango and other tropical fruits. Canada restricted the import of EDB treated fruit in 1984 and Japan restricted the import of Philippine mangoes treated Japanese government is rurrently assisting the Philippines with EDB in 1985. The in developing a vapor heat process. Whil(- effective extension services can help improve quality, sustained quality fruit production requires grading and price incentives. Growers need to develop good management discipline to maintain a competitive advantage in world markets. In cases where packers are not also growers, packers can provide incentives to growers by sharing with them returns from exports that meet export grade standards. Needless to say, a system of enforced grading standards will be absolutely necessary for any significant expansion of export markets. While the \Western Pacific market characteristics are unknown for frozen processed mango (chunks, slices, halves), the market may not be large. Another product growing rapidly in North American and to some extent European markets is dehydrated fruit - for trail mixes, fruit rolls, breakfast cereal additions, and so forth. Demand for dehydrated mango products in certain selected Western Pacific markets (possibly Soviet Far East, Australia, New Zealand) may exist even though demand is presently low in North American markets due to high prices. India exports prodigious quantities of mango puree and juice concentrate. Poor and widely variable production quality in India provides an agribusiness opportunity for the Philippines if processors could deliver a consistent high quality product. Demand exists in selected markets which could be stimulated through merchandising and dependable product quality. High, consistent quality puree could be exported to North American markets. Citrus: There are good local as well as export markets products. Climate and soil resources suggest that for fresh citrus and citrus citrus fruits would have good production potential in many areas, particularly in hilly, well drained areas. However, the team learned that past experience in commercial production of oranges has not been good. Repeated efforts to establish orange orchards have been unsuccessful because of disease problems. Until further research develops resistant varieties and/or better management technologies citrus does not seem to be a viable substitute crop. Significant markets exist if viable citrus production can foodstuff.,, are delivered long distances from European be established. Most Soviet Russia, West of the Urals, with some from North Korea and elsewhere in Asia. Food is needed to provision ships, but more important to meet demand for food commodities for public markets 24 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES in cities and towns of the region. By Soviet standards, incomes in the SFE tend to be high, with few premium food items available in markets. A wider variety of consumer food goods might decrease turnover in the population of technicians, engineers and other valued project employees. Japan, China and other Asian nations have certain political difficulties in developing regular commercial trade with tile SFE, a situation whi-'h presents an opportunity in friiit and fruit product exports worth evaluation by t w P'hilippines. The world market for frozen concentrate orange juice (FCOj) is expanding. In the U.S., per capita Consumption of FCO.7 has grown at a rate of 12-13% per year. As U.S. consumption increased. ,razil became the largest and most efficient FCOJ producer in the world exporting over 100,000 tons per year into the U.S. alone. Co npctition for the t.I.S. narket, however. has been steadilv increasing, with extensive ne\\ orchard plantings I tle Dominican Republic and Belize, and new ventures bt'ing considered for Costa Rica. Therefore, unless the Philippines were granted dut,' free status into the U.S., as Caribbean countries have geen granted, growers could not lkely hope to conmpete with the Caribbean and Latin America. Other \\ estern Pacific nmarkets could be more attractive. Orange orchards in the U.S. are expensive to establish. Growing an acre of orange trees in southern Florida to commercial volume takes $7,200 and about eight years. Few businesses so capital inLensivu have such a long wait for a payout. However, an in-depth study of Western Pacific FCOJ markets together with provision of tax holidays, low interest loans guaranteed against political upset, and other incentives could attract foreign capital as well as stimiiulate local business interests. For those wtho can afford the wait, the payout on orange products for North American markets has always ben worthwlnle. Yield5 normally reach 200 to 250 boxes per acre annually by the 10th to 12tth Vear, and the! keep increasing to 400 boxes in about the 20th year. The trees live for as long as 50 years, assuring a virtual annuity for their o wner. Other procuct markets, in addition to straight FCOJ, should also be evaluated, particularly juice blends which are increasingly popular in North America. In fact, products such as orange juice blended with guava and/or passion fruit juice may have greater export narket potential than FCO]. Guava: This crop should be well su;- for some of the sloping hill areas. Demand is growing rapidly in North Ainerican narkets for puree and concentrates for juice blend products, and a market is developing in Japan. Supplies of quality product are primarily from Hawaii, and there is potentiai cornpetition from CBI countries. The Philippines' potential prime markets would be in the WV;estern Pacific, with perhaps secondary markets in North America. Initial acreage should be relatively limited, while markets are being developed. 2.6. Public Policy and Diversification A wide array of crops has been suggested in this report to potentially substitute for sugarcane in a crop diversification program. Market analysis car, help determine the feasibility of each under different conditions for specific locations. The large 25 CROP AND PRODUCT DIVERSIFICATION SUBSTITUTION ALTERNATIVES planters may be able to plan and implement major adjustments in their cropping patterns, introducing and marketing new crops without much assistance. It will be difficult for some large planters and most small and medium sized planters. Seventy-five percent of sugarcane growers plant less than 10 hectares of cane. Another 13 percent grow only 10 to 20 hectares. Most of them wili be too small for private processing plants or irrigation systems and deficient in financial resources and managerial skills to risk new ventures. These growers will need considerable assistance in introducing new crops. It will be particularly difficult in areas that have tradit.onally had sugarcane nor:o-culture since commercial facilities to support other crops do not exist. In suri, it does not appea," sufficient to try to implement a by simply adding funds to existing government programs. diversification program The team suggests that the government undertake a more vigorous prograrn with the following elements: 1. In response to the immediate crisis, create a special commission force with The iwo principal objecilves: a) to promote or task and support new ventures by growers (and groups of growers) to diversify the products produced front land currently devoted to sugar: and b) to bring together special comrnunity-based task forces to address the problems of communities or regicns forced to find alternative crops and products because of the closure of mills. As the team envisions it, this commission would have a temporary life of five years, and would report directly to the President. Appendix C contains a more detailed description of what such a commission might be expe ted to do. 2. In -esponse to the continuitig problem of pror oting transition to new productive activilies on sugar lands, the team feels it is urgent for the government to consider a range of policy reforms designed to provide incentives to those farmers willing to risk experimentation \viti products other than sugar. Opportunities for diversification in sugar production are determined by public policies. Macro economic policies to a large extent determine the money supply, taxation, public spending, local and forein borrowing and international trade. They affect the level of employment, interest rates, availability of credit, the peso cost of imports and peso value of exports, inflation rate and GNP growth rate. The government has announced that agriculture and rural areas should lead the way in economic recovery. This could mean improved opportunity for diversification. Past policies of the Philippines have favored food consumers, urban areas and manufacturing. Imports of rice, corn, wheat, beef and soybean meal have, in the past, insured the urban consumers of adequate food at reasonable prices. However, given the overvaluation of the pLeso, these cheap imports have discriminated against rural domestic producers. Devaluatio- of the peso lowers the dollar cost of all goods produced in the Philippines. Currency devaluation is a general economic policy that has the effect of reserving more of the domestic market for domestic producers, while helping to 26 CROP AND PRODUCT DIVERSIFICATIONSUBSTITUTION ALTERNATIVES capture more of the world market for Philippine workers. Devaluation prices Philippine goods more competitively in the world market. After devaluation, more can be sold both at home and abroad. Diversification of the sugar industry could also be encouraged by appropriate policies for grains, especially feed grains and protein. Livestock feed rice is potentially a large user of land diverted from sugar. Corn or grain sorghum are feasible crop substitutes on most sugar lands. Yellow corn is an intermediate product - an input to commercial livestock raisers and a cash crop to corn growers, The marketplace needs to be stable and secure to serve both sides of the market. Both the price level and security of supply and demand are important. The expansion and efficiency both livestock producers and corn growers depends on the stability, profitablility of and predictability of the market. A market stabilization program, with floor and ceiling prices for feed grains, could be administered by the National Food Authority. The lower limit would be defended by government purchascs and addition to storage. The upper linit would be defended by release of government stocks and sale on the market of importea grain. The livestock feed complex for which market stabilization is suggested includes yellow corn, grain sorghum, rice bran, cassava chips and high protein feed like soybean meal, copra meal and lpil-lpil leaf meal. Uncertainty about government policies is an impediment to diversification planters. Clarification of the new government's policies could remove by many risks of land confiscation in the sugar areas and facilitate rational crop substitution. Enunciation of a policy that would encourage voluntary land sharing arrangemtnts could help sugarcane workers produce many of their food requirements. A decision on redistribution of lands foreclosed by the banks, and lands heavily mortgaged but not yet foreclosed, could be helpful in getting these lands into production in order to provide employment. An early decision is needed on which sugar mills are to be closed to reduce milling capacity. Areas which will no longer be served by an operating mill will have major crop adjustment problems. These adjustments cannot be made intelligently \ithout sufficient lead time to assess and develop supporting services and infrastructure. Government policies also ieed to support a strong research program, including programs that address the problems of aCdaptation of varieties and technologies to local conditions in areas where crop substitution is feasible. 27 CROP AND PRODUCT DIVERSIFICATION/SUBSTITUTION ALTERNATIVES Notes (1) Gonzales, L. A., Philippine Agricultural Diversification: A Regional Economic Comparative Analysis, 1984. (2) The following additional studies are also relevant to Philippine crop diversification: Gonzales, L. A., Towards Greater Efficiency Through Agricultural Import Substitution: The Case of Corn, Cotton, Soybeans and Mung Beans, 1984. Gonzales L. A., Potentials for Crop Diversification in the l3icol Region, 1984. Gonzales, L. A., N. D. Perez, V. B. Marfori, and C. L. Opena, Changing Comparative Advantage of Philippine Soybean Production, 1985. Marfori, V. B., and Gonzales, L. A., A Regional Comparative Advantage Analysis of Sorghu:rn Production in the Philippines, 1984. (3) International Food Policy Reserach Institute, Assessment of Food Demand/Supply Prospects and Related Strategies for Developing Member Countries of ADB (An ADB Supported IFPRI-IRRI Study), Washington, D.C. 1984. 28 Chapter Three POTENTIAL FOR ENERGY PRODUCTS Since the rapid escalation of energy prices in the 1970's, the sugar industry has actively investigated opportunities to produce products for energy markets, especially electricity and liquid fuels. This chapter examines the potential for development of three energy products for which the team felt markets in the Philippines exist and for which the technology is either already understood or could be easily adapted to conditions in the Philippines. Potential to develop energy proclucts does riot exist throughout the idustry. The teani does riot believe development cf energx products will save the sugar industry in the Philippines from difficult restructuring and contraction. The teami, does believe sic of energy products can improve the economic perfornance of the industry, generate additional employment in rural sugar-growing regions, help meet national energyv requirenlents, and possibly provide a market for some cane. Discussion i tiis cha,.pter focuses on three potential energy njarkets which could be exploited by the sugar industry: Boiler fuel, electricity, and alcohol. During the study, the teanr visiteo facilities on Lnizon, Negros, and Mindanao. The opportunity for boiler fuel aplxars greatest on Negros where refineries and distilleries currently burn large quantities of wood or imported oil. The opportunity to produce electricity is greatest on Luzon in conjunction with established mills. Tile opportunity for alcohol depends on the government policy for phasing out lead from gasoline. 3.1. Use of Canc "Trash" for Boiler Fuel Cane tops and leaves are an available resource at many locati(s in the Philippines and could be econornijcaJly substituted for other fuels currently burned in boilers. The team did not attempt to determine the size of the market for boiler fuel. The recemn-mencation to consider the boiler fuel market results from visits to several facilities or, the island of Negros where fuel supplies for boilers are either costly or in short supply. On Negros, wkere the problems of the sugar industry have had the greatest negative economic impact, the team visited sugar mills, refineries, and distilleries. The crushing season on Negros lasts from five to ten months with the majority of mills operating for six months. (1) Distilleries and refineries often run for longer periods. Most mills meet their steam and power needs by burning bagasse. However, mills operating distilleries arnd refineries often cannot produce sufficient steam and power from their bagasse to neet all their needs. These mills usual!y purchase either electricity or oil or wood or some combination of these three to make up the 29 POTENTIAL FOR ENERGY PRODUCTS difference. For example, the Victorias Milling Company on Negros purchased 150,000 tonnes of fuelwood and 20,000 tonnes of bunker last year in addition to electricity and diesel. (2) Sugar mills on Negros purchased electricity in i9S6 for prices ranging from PI.5-2.0 per kWh (P20.5 = $1). This price exceeds what it costs mills to generate electricity from bagasse by at least 30%. Oil products used for diesel, kerosene) are sold at government-set prices boilers and generators (bunker, which are considerably above the world market. Prices for wood reported to the team ranged from P2 0-P450/tonnes and were increasing. The price of wood on Negros is likely to continue to increase. The team observwd extensive deforestation throu 'uhoit Negros duri., its tour of the isla.,d, which has been reported by several other sources. Wood continues to be cut even at risk of damage to the watershed which supports agriculture on the island. Given the high costs and increasing demand for wood and oil fuels, the team recommends a detailed Study' of collection and ("trash") left in the fields after harvest. This processing of cane tops and leaves study can help determine whether supplying fuels io these irarkets can provide new sources of revenue for the cane industry on Negros. Commercial experience with cane trash collection is limited worldwide. One of the places it has been collected is the Tarlac Mill on Luzon. The Tarlac Mill collected cane trash for several seasons in conjunction with machine harvesting but stopped the practice because the machine cane harvesters were more expensive than harvesting by hand. Substituting cane trash for wood and oil fuels on Negros will generally stimulate local eccnornies. Of special interest will be the additional income to growers, the increased demand for agricultural labor and the increased business selling and servicing nachinery and equipment. Ultimately, decreased use of fuelwood furthers the protection of the watershed on the island. 3.1.1. The Resource Base The sugar plant produces large amounts of fiber in addition to sugar. Each tonne of cane stalks milled yields about one-third tonne of fiber residue (at 50% moisture content) which is called bagasse. \ .hen cane is hand harvested green as it is on Negros, additional material is left in the field where it is often burned as a nuisance. The actual amount of material which is available from cane fields depends on the plant varieties, application of water and fertilizer, and cultivation and harvesting procedures. information from other locations suggests, however, that the material left in the field can equal or exceed the quantity of bagasse left after milling of the stalks. (3) In the most detailed study conducted to date, a teamr in the Dominican Republic concluded that on average two-thirds of a tonne of residues were left in the field for every tonne of rnillable stalks harvested. (4) 30 POTENTIAL FOR ENERGY PRODUCTS The 10.5 million tonnes of cane harvested on Negros in 1984-985 would thus have produced approximately 7 million tonines of residues. A recent study in Thailand estimated that 35% of residues left in the field would be available for energy use. (5) Applying the same percentage for cane grown on Negros yields about 2.3 million tonnes, or 15 times the annual fuelwood demand of the Victorias mill complex. At harvest, the composition and moisture content of cane trash is similar to bagasse as it leaves the milling traini. If left in the fields, the tests in the Dominican Republic showed that the moisture content of the residues could fall from 50% to 30% in 4-6 d0" . Of course, it would not be either practical or desirable to collect all of this material. \Ahe. and how much cane trash could be collected would depond on terrain, location, the need ior moisture retention and weed control, and the need to retain organic matter in tie soil. Cane tops aid leaves are burned in many places and harvested in some others apparrently without decreasing the productivity of the land. Some of this material could be used to displace expensive fuels if collection and processing costs were econon ically attractive. 3.1 .2. Harvesting arid Delivery of Cane Residues Few attemrpts have been made to determine the most appropriate ways to collect and transport cane tops and leaves. Cane tops and leaves are collected cornmercially by machine in the Dominican Republic as a feedstock for furfural production ard mcilia)J', in India and China for roof thatch and animal feed. In T]hailand, sortie (:ne trash js hand harvested for ani mal feed. Transport is by oxcart, tru-ck, and railroad car. These experiences along with the experience at the Tarlac Mii are not always readil,, tr.,iansferable to other locations. \, ork on cane trash collection is being done to augment the meager data available. The t.!.S. Ag--cy for Internation'al Development has initiated a program to design and test harvesting ecluipmuent in conjunction with a project to produce electricity for sale to the grid at the Moiymusk Mill in Jamaica. The Government of Puerto Rico has recently announced a program for next year to test techniques for the production) and nanagenient of high-tonnage cane for combustion in the Aguirre region. Work being carried out at these locations may be relevant to conditions in the Philippines. Without conclusive results fron elsewhere, the Philippines sugar industry would need field trials prior to investment in equipment. Such trials could verify or deny the feasibilit\ . collection and processing of cane trash. One system to be investigated has the following steps: 1. Leaves and tops are allowed to dry in the fields after harvest. Tractor-drawn mechanical rakes pile the material in windrows where it is allowed to dry further for 4-6 days (down to 30% moisture content or less). 31 POTENTIAL FOR ENERGY PRODUCTS 2. Large round baler/compactors (already available commercially) pulled by tractors compact the material into 1/3 tonne bales measuring 1.85 meters in diameter and 1.23 meters in length. 3. The bales are stored outside near the point of harvest. Round bales of this type shed water and will continue to dry during the storage period to as little as 20% moisture. Space requirements preclude storage at the power plant. 4. Bales are transported to the boiler site as needed in the same vehicles and aiong the same routes currently used for cane. Observations of the team while in the field suggest this type of system would be workable in the PI'":Dpines. The approach would be particularly attractive on Negros where cane not commonly burned before harvest. Harvesting, storing, and transporoing cane trash would loading, generate employment. The acceptaLle distance between the boiler site and areas where trash could be harvested would of course be determined by transport costs. The cost for field trash delivered at a mill will depend on thc price paid to the farmer, the cost of labor, the cost for necessary field equipment, and tlie cost for transport. (6) To entice farmers into collecting trash and providing it to mills generating power, incertives such as purchase cont;'acts or price guarantees will be useful. Such incentives could include long term contracts or price guarantees. As collection practices are understood, market forces would set prices. 3.1.3. Boiler Modifications Necessary To Burn Bagasse and Cane Trash Many of the boilers now using oil and wood on Negros bagasse. These boilers could easily be modified were actually designed to burn to burn processed baled field trash. Before burrnirng in the boiler, baled field trash would need to be broken up. Bale processcrs or shredder/disintegrators to carry out this task are readily available and would cost about $3000 (at U.S. prices) per tonne trash per hour capacity plus installation. The boiler site would likely already have equipment capable of moving bales. Combustion characteristics of cane trash are quite different from those of wood or oil but sinjilir to bagasse. Boilers designed to burn oil will not easily be retrofitted to burn cane trash. Boilers designed to burn solid fuels like wood or bagasse can probably be modified at little cost. The major differences between the combustion characteristics of bagasse and field trash are moisture content and possibly ash content. Burning field trash at 20-35% moisture content compared to bagasse at 50% moisture content will significantly increase the heat release rate in a boiler and lower excess air requirements leading to higher boiler efficiencies. At the same time, boiler temperatures will increase. Increased boiler temperatures can have adverse effects on grates and refractories 32 POTENTIAL FOR ENERGY PRODUCTS depending on design especially when fuel has higher ash content. Fine particles or ash can melt and form deposits on heat transfer surfaces or damage grates. The problems posed by switching fuels for solid--fueled boilers insurmountable. The extent of modifications must be determined are not for each boiler. Simple tests can provide useful data and !educe risk and uncertainty before any major investment. 3.2. Use of Cane "Trash" to Generate Electricity The potential for the sugar industry to obtain revenue from sale of power to the National Power Corporation (NPC) depends on the extent of demand for power, the willingness of NPC: to purchase power from the industry, and the cost at which the sugar industry could generate power. The sugar industry may a!so be able to sell power to private cus to ners. As an archtpelago, the Philippines do(", not have a continuous national grid. Each of the sevwn major island,: has its own generation, transmission, and distribution systemis. However, NPC plans to link the five islands in the Visavas group into one grid in the near future. Tahle 3.1 gives the NPC installed capacity and gross energy generation for I 9S0 and I 985 for each of the major islands. (7) Alrost 90% of the power generated on Mindanao came from hydro while 99% of the power generated on Negros came from geothermal and the rest from hydro. New capacity planned on both these islands will not require fuel imports. Although power shortages were reported to the team on Negros, they appear to be problems of the distribution systemn rather than supply problems. As a result, the team does not recommend that Negros or Mindanao be investigated further for power production by tihe cane industry at this time. Power generation may in som- limited instances be attractive for sale to p, ivate custo nmers. The major miarket for electricity in the Philippines is Luzon. In 1985, 40% of the electricity on Luzon was generated with oil, 30% with geothermal, 20% with hydro, and 10%V with coal. Demand for new capacity was to be met by the nuclear power plant installed at Bataan. At this time, plans to operate this plant have been cancelled. As long as the nuclear plant is not operated, the Luzon system will move toward a shortage of capacity by 19S9 at the latest. If the economy picks up more quLckly, the shortage will be felt even sooner. The team concludes that electricity, is needed for the Luzon grid and that sugar mills on Luzon could provide power to the grid at costs likely to be lower than other options available to the National Power Corporation (NPC). Power sales would provicie employment in regions growing sugar cane, additional income for cane growers, additional electric capacity for the country, and new revenues for the sugar industry. The foreign exchange required to modify sugar mills is small relative to the oil displaced and may be obtainable from private sources. 33 POTENTIAL FOR ENERGY PRODUCTS Table PHILIPPINES INSTALLED CAPACITY 3.1 AND ELECTRICITY GENERATION 1980 1980 1985 1985 Installed Energy Installed Energy Capacity Generated Capacity Generated MIA, Million kWh MW Million kWh LUZON 3226 13,115 4101 14,449 VISAYAS 103 321 1343 1343 Cebu 44 178 184 478 Negros 15 35 131 244 Panay 29 94 68 150 Leyte-Samar 3 5 147 441 Bohol 12 19 12 30 MINDANAO 492 1650 907 2965 inHawaii, the sugar industry initiated electric power production As their investment in power equipment has grown, ultimately in the early 1970's. reaching more than 60% of Kauai's and 40% of the big island's power supply, electricity has become a major product in its own right. Indeed, Hawaiian sugar millers admit that without the revenues from electric power sales, sugar production would have declined sharply by now. (See Section 126.96.36.199.) Tne sugar industry in the Philippines may also be able to benefit from the added value electricity sales can bring to the sugar crop. The USAID study in Thailand estimated that production of electricity from cape trash could add as much as 25% to the value of the farming operation and increase milling profits substantially. Similarly, the production of solid fuel from cane trash discussed in Section 3.1 will add value at both the farming and milling ends of the business. 3.2.1. Denand and Supply Issues for Negros and tne Visayas Like Luzon, Negros is experiencing the effects of the nation's economic crisis. However, in a, essentially one crop economy, the depression in sugar prices has exacerbated the effects of the economic crisis in Negros. Efforts to diversify the 34 PTNTIAL FOR ENERGY PRODUCTS economy away from sugar have been ineffective thius far. In the electric power sector, the entire system operates on a part time basis, with load factors of less than 25%. (See Figure 3.1) The three sources of electric power are a large geothermal unit, a small hydro station and a small oil-based plant. The oil plant did not operate in 1985. (See Table 3.2) Th-e hydro plant, at 1.2 MIA, provides peak power for the Negros grid. The recently finished (19S3) geothermal plant now provides almost all of the baseload capacity. In the past, at oW-fired plant with II MW of capacity and a virtually all of the power for Negros. In 1981, the oil-fired power barge provided plant operated at just 32% of its capacity. The 32 i'd\ barge which operated from 19,?2-19S4 had an even lower capacity factor. Unlike Luzon, there is no i mininent shortage of power in Negros. In fact, the island has considerable excess capacity in its geothermal station. Indeed the issue facing Negros is the development of industries to use the power that can already be generated in existing facilities. The large geothermal unit, originally built to provide power for mines on the isla,ad, is underutilized largely because the anticipated demand from the mines never materialized. Not all planned mines were established, while at the same time growing NPA activity forced mine operators to install their own generation. There are localized power shortages in various parts of Negros. These shortages result from an inadequate transmission system and do not reflect fundamental supply/deiriand factors. An iumnlinent ADB loan for transmission, including the Pana, interconnection, is supposed to eliminate loc.l power shortages. The Panav grid relies on oil power plants for 100% of its electricity. The load factor for the plants on Panay was L7% ir 19S3. In 19S4, the 32 MW power barge was moved from Negros to PanaV. Expected growth in demand did not occur which decreased the load factor across all plants to 2SL% in 1985. In Cebu, the regional center, over 70% of the capacity is from oil. Even with a recently constructed (1982) coal power plant, more than 75% of the island's power comes from oil. There has been one 32 MW power barge on the Cebu grid since 1985. Once the coal power plant operates at its planned capacity, factor the power barge will only be needed as a peaking unit. A third oil-fired power barge has been on the Leyte-Snamar grid since 1982, although it is hardly used. On those two islands, more than 75% of the capacity is geothermal while oil provides less than 5% of the power generated. Interconnection between the islands of the Visayas will change the supply and demand Jissjes Jn the islands. Unlike Negros, the Cebu arid Panay grids are heavily reliant on power plan-ts fueled with oil. With interconnection, new sources of power could reduce the need for power barges in the Visayas. However, the availability of existing geothermal capacity and untapped geothermal resources decreases the attractiveness of power generation by the sugar industry. 35 POTENTIAL FOR ENERGY PRODUCTS Figure 3.1 CAPACITY FACTORS IN NPC SYSTEM _____(noorpe'ato 330 cfays 0 24 h~z -1) 0.9 Nr IL. / 0.6 0 .- x-N , o 0.4 '7 N 0.31 0 LUZON VISA'iAS NEGPJJS NATION 01 OL [G~P GE 0 COAL TOTAL 36 POfENTIAL FOR ENERGY PRODUCTS Table 3.2 CAPACITY OF NPC's NEGROS POWER PLANTS BASELOAD AND PEAK UNITS (MW) PLANT TYPE OIL GEOTHERMAL COAL HYDRO TOTAL Baseload 0.0 118.5 0.0 1.2 119.7 Peaking 1 1.0 0.0 0.0 0.0 11.0 Total 11.0 11...5 0.0 1.2 130.7 SOURCE: NPC Costs of powver production vary widely throughout the Visayas. (See Figure 3.2.) In Cebu, coal-fired power is relatively costly at P1.65/kWh. The coai plant suffers from high fuel and capital charges. In Negros, baseload power is reasonably inexpensive, less than P1.00/kwh. Unfortunately, most power is consumed at peak hours on Negros. Consequently, the generation costs jump to P1.50/kw\h overall. With peak output cormin ating the system, the entire cost structure of electricity in Ne.ros appears unfavorable. New baseload capacity, even inexpensive capacity, cannot reduce the peai fuel charges. 3.2.2. De Ii,,d and SupplV Issues for Luzon Tile mriajor supply issue for NPC on Luzon is the replacement of the cancelled nuclear capacit y. This comes at a tirne of oighly uncertain demand and strained resources. Ali of Wlhe company's expansion plans on Luzon were geared to the reliable output of 620 .M% of baseload power starting in 1986. Without the nuclear plant, NPC could have two distinct and unpleasant problems in the next few years. The first problem is the prospect of having to shed and peak demand f aseoad I the economy picks up. Current reserve margins at 35% are just about the industry standard. \With projcx:ted demand growth and addition of planned new capacity, the reserve margin will fall to 26% in 1990 and to 14% in 1994. (See Table 3.3) Any delays in constructing new capacity or unanticipated strength in demand will lead to load shedcing. Prior to the economic downturn in the country, MERALCO, serving Metro Manila, experienced regular brownouts. WVith less industrial output and demand from office air conditico-ing. overall demand in 1985 fell by 5,5% from its 1983 level. Current forecasts do not predict reaching the 1983 level of demand again until 1988. Thereafter, NPC predicts an increase of 6% annually. Without additional capacity, a return to the 1983 level of demand may mean a return to that year's brownouts. 37 POTENIAL FOR ENERGY PRODUCTS Figure 3.2 COST OF POWrER PRODUCTION, 1985 LUZON, NEGROS, CEBU 1.3 1.2 0.9 0.8 0 .7 - \ "-\ , /1 0.6 // I I 0.3 • /,//,/ ./ ,/ / / .. -/ , , LUZON NEGFOS CEBU ~ FIXED . FUEL, PEAK. FUEL, OFFPEAK. 38 POTENTIAL FOR ENERGY PRODUCTS TABLE 3.3 LUZON DEMAND TRENDS AND CAPACITY RESERVES, 1986 DEPENDABLE PEAK YEAR CAPACITY* DEMAND F.ESERVES 1986 3654 2373 1281 1990 3884 2856 1028 1994 4444; 3822 624 Source: National Power Corporation, "Cogeneration Potential and Grid Interconnectl ons," January, 1986. Dependable caDacity is defined as the total installed capacity of the system minus scheduled service, unplanned outages and variations in seasonal output from hydro. Figures do not include the nuclear reactor at Bataan. With much of the nation's industrial and financial activity concentrated in the Metro Manila region, load shedding may cause serious economic problems. In particular, industries that rely on continuous processes will install their own power equipment to meet demand at peak time when NPC sheds load. Expenditures for power equipment which will operate only intermittently drives up costs of production. Loadshedding by NPC may cause more serious secondary problems. If load shedding becomes commnon, NPC risks defection of industrial customers from the grid due to poor service and high prices. Were this to happen, the power utilities would be faced with the worst of all possible worlds, with their demand increasingly concentrated in the highly peaked and low tariff residential categories. With the future status of the nuclear plant highly uncertain, NPC must plan to meet the projected level of demand by other means. However, the nation's foreign exchange and investment capital shortages preclude an early recourse to other large projects. As a result, the schedule of planned construction has been pushed back by at least one year from its original targets in the 1984 power plan. Table 3.4 shows the current capacity of the Luzon system without the nuclear plant and then with it as a part of the expansion plan. There will be no significant additions to capacity untii 1992. However, by 1990 even modest demand growth will cut the reserve margin below the one-third level generally considered prudent. The most important aspect of the expansion plan in Table 3.4 is that it represents an optimistic assessment of the time needed to plan and build additional capacity. To meet the schedule, NPC must: 39 POTENTIAL FOR ENERGY PRODUCTS - Start reconditioning the Sucat oil thermal plant immediately. - Finance the Manito geothermal by 1987 and start construction in 1988. - Finance the Isabela coal plants by 19S7 and start construction in 1988. None of these projects was envisioned as a substitute for the nuclear plant. However, since the cancellation, NPC stated it intends to speed up the schedule given in Table 3.4. Such large projects require a prior committinent by lenders. The accelerated scenario of NPC does not appear realistic given the requirements of planning, financing and building such plants. TABLE 3.4 POWER SUPPLY ON LUZON, 1986 OIL GEOTHERMAL COAL HYDRO TOTAL CAPACITY (MW) Baseload 1725 660 1/ 300 916 3601 Peaking 200 2/ --- 300 3/ 500 Total 1925 660 300 9166 4101 PLANNED EXPANSION (MW), 1986-1991 1986 620 4/ 1988 100 / 100 1990 110 110 1992 200 200 1993 23 100 123 1994 300 300 Tota 6 100 133 600 -- 1453 Sources: 1985 Annual Report, National Power Corporation. A. Gulstone, H. Razavi, World Bank, Personal Communications, 14 July 1986. Notes: 1/ Production varies on a seasonal basis to provide peaking in low season of hydro 2/ Converted from baseload, not designed as peaking units 32 Pumped storage 4/ Bataan nuclear power plant 51/ Renovation of Sucat oil-fired thermal power plant to return plant to nameplate capacity 6_ Includes 620 MV of nuclear power at Bataan 40 POTENTIAL FOR ENERGY PRODUCTS The options which NPC has fcr meeting its new demand include: Bringing tile nuclear plant online at low power Je.vels. Technically, starting the nuclear plant represents the easiest way to gain the capacity that the grid requires. Whether NPC will be allowed to operate the plant is beyond the scope of this study. Howev.r, as long as NPC continues to pay for a plant that it does not use, tile company will find the financing of other projects difficult. Current interest charges are $127.75 million annually. With these funds, NPC could fully amortize more than 950 MW of oil or 650 MW of coal at current world prices. The NPC's next expansion project on Luzon, rehabilitation of the Sucat oil-fired power plant, was chosen in recognition of the restrictions on capital expenditures. Other planned projects listed in Table 3.4 were developed with the idea that the Huclear plant would be producing revenue for the company. Without it, successful financing of alternative investments becomes more dif ficu It. Converting the nuclear plant to a coaj-fired boiler. Copversion of the nuclear plant to a coal-fired plant is technically feasible, though expensive and arduous. Such a converted plant could not be available to the Luzon grid until toe early 1990's. Currently no plans exist to undertake such a project. More rapid exploitation of geothermal power. More rapid exploitation of geothermal power must be preceded by a stepped-up exploration and development program. Once the resource is better known, additional wells can be drilled and turbines installed. The current geothermal program in Luzon anticipates a decline in output from existing sources through 1990 (NPC Annual Report). Consequently, there is little short-term prospect Lor increased electricity from geothermal sources. Increased relitri.e o si.0 A scale pOv'vor producers. NPC's final option is to meet the demand through increased reliance on purchased power from private producers. The company has already looked at the technical and economic questions surrounding such an option. A study by Stanley Consultants indicates that cogeneration of power from industrial sources is often cost effective and could immediately supply more than 100 MW to Luzon. (S) The Stanley Consultants report suggests the sugar industry could supply more than 50 MW on Luzon. The team examined the potential and the costs and believes that such production is attractive enough in the near term to warrant more detailed examination. 3.2.3. Technical and Economic Considerations for Generation of Power By the Sugar Industry The results of the team's preliminary investigation show that the island of Luzon meets two criteria for economic generation of power from sugar mills: 41 POTENTIAL FOR ENERGY PRODUCTS - NPC needs power sources to help meet projected power demands of the late 1980's. Current NPC plans seem des. ned to return the region to the power shortages and brownouts of the early 1980's. Electricity can be produced from cane residues at costs much less than NPC's current avoided cost of production. - Cane leaves and top- are available as iuel resources. Field conditions suggest that these ,r~dues can be collected economically. Changing the practice in some places of burning cane before harvest would increase the supply of fuel available. The team did not examine the economic feasibility for specific mills. However, recent work in Thailand and Jamaica indicates that power can be produced by sugar mills at attractive costs. If predicted costs for projects in other locations can be matched in the Philippines, purchase of power from sugar rniils can save money for the utility and reduce foreign capital required from the GOP to build new capacity. Based on general review of financially sound mills on Luzon, the team believes power production to be economically and financially attractive. (9) Existing factory boilers at several large sugar mills on Luzon could be operated during the season when mills are not crushing cane to help meet peak demand. Without major capital expenditure, the team estimates mills on Luzon might provide over 100 MW of peak capacity during the out-of-crop period, more than will be produced by the proposed modernization of the Sucat oil-fired facility. The value of such power equals the avoided energy cost of peak power generation on Luzon. (See Figure 3.2.) Because the cane crushing season on Luzon lasts about half the year, Luzon mills would need to produce enough power to export during the crushing season in order to provide credible baseload capacity for the system. Some mills could improve their efficiency of bagasse cornbustion and their level of power production during the milling season without major capital expenditure. But, overall, sugar mills on Luzon need to invest in greatly improved boilers and turbines before they can provide baseload power. To amortize the large investment in new power equipment, NPC would need to agree to buy baseload power and pay a capacity credit. Sales of power by the sugar industry, whether baseload or peak, increase the value extracted from the sugar plant. From the work in Thailand estimates that sale of baseload electric power will add and Jamaica, the team P80-140/tonne to the value of cane. With new investment, the industry may be able to produce baseload power at less that P1.0/kwh. Capital costs for such new plants will be about the same as for NPC's current baseload plants on Luzon. The fuel costs, however, will be considerably less than those for coal or oil. (See Figure 3.3) The USAID study in Thailand found that existing mills could return their investments in under three years while new mill investments could pay out in less than five. Assuming investment decisions for the Philippines were made in 1987-1988, plants 42 POTENTIAL FOR ENERGY PRODUCTS Figure 3.3 COST OF POWER PRODUCTION, 1985 NPC PLANTS V. THAI SUGAP MILLS 1/ 142 D.\\ \ I.' , ' / , \\,\ , . / .. . 1 '. /'- , ," . 10- 0.6\ /3 0 71,//', l, - ,// ,,/'/. I. / ,1"/ ' ,L,0. ... ,, . . , .;,/., . . ,.1 . .1 / /1. ///7/ , 0 "' 031 / /I/ '/ 7- ,, / /il117, N P EA ,AP, N OF" THAI ( .LD THAI NEW FUEL ANE L-AE)]F FIXED 43 POTENTIAL iFOR ENERGY PRODUCTS fueled with cane residues could be supplying power to the grid in the early 1990's at a time when NPC has few other options to meet expected demand besides shedding load. The relatively short payback periods for power plant investments indicate that plants can be built without risk that future NPC investment plans will undercut their financial at trac tivenes s. 188.8.131.52. Current Power Generation Conditions in the Philippines Sugar Industry Generation of electricity is not a new concept for the sugar industry. Sugar mills traditionally have provided their own power using residue from the milling operation as fuel for boilers. Most of the energy consumed in a sugar mill is in the form of low-pressure steam. In most plants, steam powers mechanical drives for the crushirng and grinding operations as well as providing the heat to process cane into raw sugar. In sugar plarnts with refineries, large quantities of stean are also used to melt raw sugar for purification. In sugar mills with distilleries, large quantities of steam are used to separate water from alcohols. Typically, a mjili crushing 5,000 tonnes/day will have electric generating capacity of at least 5 M\A. In addition, the nill may have considerable standby capacity preserve certain vital operations during an outage. On to Luzon, virtually all of the mills are connected either directly to NPC or to one of the distribution cooperatives. Inr the Visavas, many of the mills are off tle grid and must supply all of their powtr. In general, sugar mills have not tried to sell power to NPC. Data collected by the team shows that sugar mills in the Philippines do not currently use steam or generate electricity efficiently. Most boilers are old and operate at low pressures and temperatures. (10) Similar results were reported by consultants to the Asian Development Bank (ADB) in a 1983 study. estimated average stean consumption at a sugar factory (11) These consultants in the Philippines to be 1200 lbs/ton:re cane. Efficient modern factories consume less than 950 lbs/tonne cane. The ADAB consultants asserted that excess steam consumption in the remelting and recrystalization of sugar was the main cause of high fuei oil demand across the industry in the Philippines. They suggested improvements in the refining process which could save 400,000 barrels of oil equivalent (boe) annually in refineries alone. (12) The ADM stUdy reported that bagasse in the Philippines was burned at an average efficiency of 59% compared with 84% for fuel oil. The difference between the efficiencies of combustion of the two fuels is about equal to the volume of fuel oil used annually in the peril 1974-19S2 (2 million boe per year). Theoretically, an improvement in bagasse utilization could replace all of the fuel oil currently used in the sugar industry. (13) 44 POTENTIAL FOR ENERGY PRODUCTS Among raw sugar centrals, the apparent efficiency of bagasse utilization varies widely. The mill survey conducted for the current report indicates that some centrals have surplus bagasse while others use large quantities of auxiliary fuels. Some mills have dramatically improved the efficiency of their power plants in the past few years. For example, the Canlubang mill on Luzon greatly reduced their purchase of auxiliary fuels over two years with no significant capital expenditure. 22.214.171.124. Potential For Sugar Mills To Generate Surplus Electricity Power plants associated with tile Hawaiian sugar industry first started generating power for sale to the utility in the mid 1970's. Of course, conditions in the sugar industry in tawaii are different than they are in other countries which produce sugar. hn HaIn ai, sugar cane is mnchine-harvested year round after a 24 month growth cc neause of the higlh cost of labor. (, NotwiIthstaridig tlhc uicluje features of the Hawaiian industry, approximately 15 sugar in,ils in Hawaii now provide approximately 10 percent of the state's power (63% of the Power on Kauai, 40% of the power on Hawaii, 29% of the power on Maui, and 2k' of the power or Oahu). (14) Power plants at sugar mills run 24 hours per day and in sone cases are the most reliable power plants serving the grid. Revenues from sales of power provide approximately 20 percent of the net revenue to the sugar industry. In 19 3, the sugar industry in Hawaii sold 815 million kWh to the utility and had a narneplate installed capacity of 213 M\W. The capacity of the largesi plant is 40 \\ . The smallest plant has a 2 M'V capacity. Six mills have contracts to provide firm power to the grid. Others provide power on an unscheduled basis. The amiount of power that can bc produced in association with sugar production depends on the quality of fuel arid tile basic efficiency of the boiler and generator s\'sten1. Most sugar njills in the Rilippines today reiv on low pressure boilers (200-300 psi) to produce stean for mili drives and electricity generation. Steam is exhausted from mill drives and steam turbines at lower pressures and sent to the factor) to meet processing needs. Il the past, rnai. sugar mills have considered bagasse more of a nuisance than a resource. The average sugar mill produces only 10-20 kWh per tonne of cane processe.d, generally enough to meet mill and factory demands. In a surprising number of CdseS, sugar mills are forced to import large amounts of electricity from the grid to suppoemnent the power they produce. As demoonstrated in Hawai:., i-t is possible to dra,.- tically increase the amount of electricit\ produced in association with sugar operations. The more efficient Hawaiian mijlls produce some 70 kWh per tonne of cane. Hawaiian high-pressure boilers (front 800-1250 psi) and separate sugar operations mills use from power generation to enable power production to continue ,wen if the mill or factory shut down. The power plant provides all process steam needed for sugar processing. 45 POTENTIAL FOR ENERGY PRODUCTS To help examine the potential for the global sugar industry to produce electricity, AID's Cane Energy Assessment Program developed a model to predict the quantity of electricity that could be produced by an efficient sugar operation using an 865 boiler and modern turbo-generator equipment. psi particular situation, the niodel predicts (15) By using input parameters for a the technical and economic performance a mill producing multiple products. For of example, a hypothetical mill with efficient equipment grinding 4600 tonnes per day working 44 weeks per year could expect, after satislying its own needs for electricity, electricity. At $0.09/h W, the revenues to export an average of 10.5 MW of from electrici. would equal $7.5 million annually. if sugar mills add cane tops and le:-ves collected as discussed e irlier, the qtuantity of electricity from fields after harvest to bagasse the hypot et ial m!ill discussed above, that could be produced jumps. For adding 0.25 tonnes of cane tops and leaves bagasse would increase the electricity to produced per tonne of cane stalks processed to 200 i<\h. The nlill would be able To export an average of 27.5 M\\ to the grid obtain revenues of $19.6 million annually. and 220.127.116.11. OPpr tunities for the Phli!ippine Sugar Industry To Sell Surplus Power The potential niarket for surplus power from the sugar industry varies widely one region to another. At this time, power from shortages only appear to be a problem on Luzon. Until the nation's econorn pick:s limited to peak demand periods. However, up, the power shortages cn Luzon will be an economic recovery could leave Luzon with baseload capacity shortages by 1999-1991. Investment decisions made by 1988 would lead to plants able to deliver power at that time. On Luzon, nLnch of the crop is burned prior to harvest and the efficien~cy of use in the industry is generally low. energy Consequently, a discussion of the possibilities for electricity production must assune improverments in mill efficiency. Less certain changes in field practices and burning of the crop can be induced changing thi incentives for cutters. In by Thailand, for example, burned cane receives a substantially loker price than green cane. Many of the Philippine mills rely on very old boi' .rs. Replacing such units is desirable if the outside electricity sales can pay for the energy savings. The team found that new boilers and generators offer attractive rates of return at electricity prices well below the current wholesale levels in the Philippines. Section 3.1 suggested ways in which cane trash could be collected to be used as for power plants. Recent work in Jamaica fuel suggests costs for collection of trash will fall in the range of $8-I 4/MT (about $4-7 boe). Changes necessary to make electricity production a feasible alternative with existing equipment are relatively minor. A study prepared for AID in Thailand found that relatively simple, low cost modifications of existing equipment could reduce the 46 POTENTIAL FOR ENERGY PRODUCTS heat rate for electricity in existing boilers from 45,000-50,000 BTU/kWh to the 35,000--40,000 range. The major changes include reduced turbine backpressure and improvements to the boiler's performance. (16) The entire power output from a modified unit could be delivered to the grid for 175-200 days, the period when sugar mills in the Philippines are not grinding cane. Only relatively sinall amounts of power would be available during the crushing season. In mills with efficient boilers, the retrofits required to produce commercial quantities of electricity during the off-season are small. They range from about P0.fJ3-0.0/k,h. The only equipment purchases needed are fuel handling processirg systerrs for th ! cane trash and improved synchronization and equipment for feeding the power into the grid. Figure 3.3 shows the breakdown of electricity costs by ixcd and variable rates for the NPC and also shows the estimated values for two Thai sugar milIs. The first Thai mill, with existing boilers and turbo generators, would produce baseload power for less than the NPC offpeak fuel charge of P0.95/k, h. A new ulit with high efficiency boilers and generators should prodUce power in Thailand at an equivalent of P0.65-0.70/I0Wh. Using the existing capacity of all the nills currently operating on Luzon would produce more than 130 M\ of capacity additions for ihe Luzon system from the sugar industry during the off-season. An additional 100-150 MW is available for the whole year with investment in new boiler and generator units. Before any definitive answers can be given on the desirability of using sugar mills to contribute to Luors power supply, several issues need to be investigated more closely. These issues are: - the receptiveness of the NPC to large volumes of private power; - cane trash harvest costs and required changes in agronomic and harvest practices; - financial support for equipment purchases from external donor agencies or banks. NPC has indicated a willingness to discuss power generation by the sugar industry. Modified existing units could be used to meet peak and intermediate loads since their capital costs are low per unit of output. Investments in new efficient power generation equipment can probably only be justified if units operate as baseload plants. In the Thailar,d case, the authors found that upgraded plants needed to operate at a load factor of at least 50% before they were economic. 47 POTENTIAL FOR ENERGY PRODUCTS 3.3. Production of Fuel Alcohol The rnost-publicized alternative to sugar production for the sugar industry has been the ferme~itatiof of sugar (cane juice, high-test molasses or final molasses) ethanol. Anhydrous (dry) ethanol can be blended to conventional automobiles or hydrous with gasoline for use in (wet) ethanol can be used alone specially-acdapLed spark ignition engines. in Brazil. which now produces over I I billion liters per year of fuel alcohol, demcistratc-ci the feasibility of both has approaches. Experience in the U.S., produces over 2.5 billion liters/year, which has also proven the octane enhancement properties of etharol when blended -with gasoline up to 10%. Mandatea reductions gasoline lea, coliteni in the !.S. (from 0.29 to 0.03 in g/l) have boosted the demand for ethal- .lin spITe Of a dr, ,atic recluctjor ini the Price of oil. Some 20 countries produce ',o1Fol Ifor use as anhaUtT110i now In yetl lV a ad over tile past seven years, \YorldA'id(j eilK. ial production h isincreas(,cd itiore tho-iil Seven fold. The econo ics oi a lcoiJ fL:'l productiori, hov(,-er, are highly sensitive to world oil prices and NIust be evalLii3ted on a case-by-ca new facilites ,t ichl proch(-. alcohol fro e basi,. "ith current low oil prices, l i si.agarca no \V ill not be attractive subsidlo. D)cisionls Concerninp aliCohol 1ui4 examine Without benefi s associated 'Vith sugar industry the econo mic costs and employ meit, oil import displacement, J ispl a'ern ent in goso iin-, a!d alcohol-based lead by-products (animal feeds). Inlthe the future of alcohol development Is uncertain mandates ior 1_:ad reductioii and alcoho.! at this time. GOP blending with gasoline will be important stiuli to, a p roduCtion Ironi cane. At current oil [o fro:, ca i- prices, however, alcohol e nnot bu a profitable enterprise in the sub1sidies. Philippines in the absence of \ t gs:, lorce fro:ui the Minister of Trade and a ud benefits and tais recoui ii ended a subsi Industry has studied costs dized alcohol progra nm to disalace lead. Prosp,--ct, for ilcohol exx)rts are poor at current world oil prices. Nevert;eless, cujrrent world sug ir and oil prices, sugar at is worth more as alcohol than it is as sugar. 3.3.1. History of Alcohol Fluls De'elopmIent in the Philippines The Philippin.s has made several atte ipts to supply fuel icr aiutonrnobiles. The "Alcogas" build a domestic ethanllo industry to mid-1970's ini Negros and Panav' was program, which tool, place in the 1iinited to inixing locally produced hydrous ethanol with re'gulor gasoline fro:n the PNOC refinery in Bataan. At tile tilne, -apan stroql\j encouraged production of beverage or chemical grade alcohol throughout Scotheastl Asia. The Philippiies prograin, however, did not take steps to prevent water contamination or phtse separation and did not modify the gasoline to account the volatility of ethanol. Consequently, for vehicle owners reported numerous cases of 48 POTENTIAL FOR ENERGY PRODUCTS vapor lock. Vapor lock and alcohol's tendency to attract water pose problems for transport, storage and use in engines. These problems, however, car be effectively controlled. The second program, in 1983, planned to upgrade five annexed molasses distilleries to produce 50 nillion liters of 95% ethanol annually. At the same time, five new annexed distilleries and two autonomous distilleries another 97.5 miillior liters of 95% ethanol. would be built to produce The roughly 150 million liters of ethanol would be suLiiie t to displace tetraethyl lead in gasoline throughout the Philippines. The Philippine government, under decree 22W by fermer Preside t Marcos, formally announced the institution of a natioiial alcohol prograin in 1985 ,hich expanded the I 9S3 pla. lhe newk progran called for rapid constru(-tiolr aLice\e aI prodtL ti on- level of 600 mJio Il/yr of distillery capacity to of anhydrous -Alcohol, of which half \Yotjld he xievrted (ostcmsibly to 1-ipcLin). The decre- cal led for creation of an 'Alcolhol Corpora: io, t0 oversee '.h programi and possi ly to operate new alcoliol dit iillerc-., i i the col intry. At least three new distillery contracts were signed before the chanr'e i d1mistrationi. (Iiider thle AIUtJInO dd!l Jl tration, to a task force sUW'i;-vsed by the the alcohol program was remanded for evaluation Ministry of Trade and Industry (MTI). Both and World Kiank evaluations rejected the MTI prospects for an export market for Philippine lcohol and have, instead, recoinniended a more liinied program aimed at the domestic substitution of ethanol for tetracthy! lead in gasoline. (18) Phase 1. 19S7: Produce 43 nil lion liters of fuel ethanol using existing capacity. Establish 10% blends in Regions 5-12 (all islands south of Lu-on). Phase I1, 19S: Add capacity through distillery renovations and new annexed distilleries to produvt( 100 li illioi liters of Juel ethanol. Begin 5% blends in Regi ons 3, 0, and Manila. Phase 111, 1989: Further expansion of capacity through annexed distilleries to produce i50 million liters per year. Institute 10% ethanol blends nationwido. Legislation already exists in the Philippines which mandates phasedown of lead additives. The level of lead in the air in Manila is 0.68 milligrams per cubic meter which is 30 tilnes higher thaii th-e Philippine standard. There are other products available to displace lead such as MTBE fro aii natural gas which are currently less expensive than alcohol. Any of these prodCILct-s would need to be i iported. Several distilleries are already in operation. A relatively large distillery (210,000 I/day) was constructed by Asian Alcohol Corp. in Negros to produce anhydrous 49 POTENTIAL FOR ENERGY PRODUCTS alcohol for fuel blending. In anticipation of the widespread introduction of alcohol fuels, several smaller distilleries installed dehydration columns (Victorias Milling Co., Destileria de Tarlac). 3.-5.2 Alcohol Cost/Benefit Issues The two principal motivations for the alcohol program approved by MTI are the continued severe depression in the sugar industry and concern over lead contaImination/ in urtban areas. Of the 200,000 Ha of sugar lands now idled by declincs in sugar decrna:d, 55,.00 Ha could be put back into production by instituting the program and 100,000 jos ,.vuid be created. Displacement of tetraethyl lead jmports by cbalhi n rill aIsa s.ave the country P/00 million (approx. $20 million) annjAly. Alcol o] curr(,entlv cost,, substannt ilv nore to produce than; gasoline. Philippine alcohol producer, clairi a price ol P7/I (34V/1) is necessary to produce alcohol from "A-strike" (or "high-te ")r olosses costing P12 0 0/tonne. (19) Eventually, cane juice wil bOt.,. preferred feedstock. The Sugar Regulatory Administraticr, guaran~teedi a of ici erici' irlr 'emelts has vii allow the alcohol price to be reducXed to '(.50,I 'v (kS', as eV del -, of teiic- importance ( imrplementatic n of the prograni. the industry attaches to the The MTI Taisk Force recornller,, the (OP subsidize ethanol blends to maintain pull!p prices for gasoline at curre-it lc\'els. The subsidy takes two forms, foregone taxes and consurmer subsidy. \\ith oil at $15/bbl., the .:ost of foregone taxes is esti mated To be P1400 millh ,/year (net of P67 mlliion in new taxes generated bc tihe program). The co'snJ that will be cir SuJs ,Jyto Majutai purnp prices will cost PS7 rrillion /year. At current oil prices, the losses in government revenues are partially offset by savings in loieign exchange from reduced petroleum product iinports. STI co ...... clt t cono niic It ral Rate of Return of the 1.69 perc:ent. He alth arnd either soc al benefits alcohol progra n to be were not included in the analysis as they are difficult to quantil). The program's Domestic Resource Cost of 1.1 indicates the relative efficiency of alcohol p; uction in saving foreign exchange. Approval of the alcohol program by the full cabinet expected by November 30, with program implenentation and President Aquino was to begin on 3anuary 1, I9S7. Reviews o alcohlo fuel potential and programs in the Philippines by the Asian Developinent Bank and World Bank over the past three years have raised questions concerning the timring, feasibility arid economics Specificaily, tire \orld Bank, and many of new distillery constructio,. Filipinos feel that alcoho devetopient l should be financed by private investmrents, rather then through a government directed imnplernentation timInetable. At the price of P7/I set for ethanol from A-molasses, the incentives to prompt produced sugar companies to invest in new distil leric may be in suf fici ent. The \\ orld Bari, and some Filipinos also question the need for a consumer subsidy. If alcohol costs were passed along lo consumers, gasoline prices would rise about 20 centavos ($0.01) per liter and still be much lower than prices of the_ recent past. 50 POTENTIAL FOR ENERGY PRODUCTS 3.3.3. Effect of By-Product Sales on Alcohol ProdUction The econo:mics of alcohol prodicion could be improved by using distillery by-products. Many Filipino distilies already recover yeast and carbon dioxide for sale. In addition, tihe Destilaria de Tarlac has developed an anaerobic digestion system thlat, when expandeci to Ilul capacity, will produce enough methane to meet all of thc distillery's energy requirements. Potential by-product credits are smoinE'ri-ed in Table 3.5. (20) In total it may be possible to achieve as untich as $0.10/1 in bv-produc t credits with technoiogy that is either coinmercia; now or that is likely to be commercial withi) the next 3-5 years. If alcohol is worth $0.34/1, by-product credits can poteuiallv increase distillery revenues by as much as 30% in the near term. Table 3.5 Potential Distillery By-Product Credits Quantit y By-Produc t Cost of Produced \,Va lue Recovery Net Credit (k-%d'li )_ g) /Id Lrn I_.2 er) Yeast (from 0.04-0.08 3 3.0 11.0 0.87-1.74 fernen tat ion) Carbon Di oxid 0.55 15.4 6.6-S.8 3.61-4.84 Bag.ss- 0-0.26 8.4 0 0-2.29 Sti llgl 0.72 (organics) nil -3-01 -3-nil 2 Methane from stillage 80 liters/liter 0.014 Vt/liter 0.007V/liter 0.58 Yeast fron; stillage 0.15-0.25 33.0 12.5 3.08- 5.1 Algae fromr 0.5-1.53 (34.0)4 8.3 - 24.9 stillage I Cost of stillage tredtonent in aeration lagoons. 2 A slight benefit can be achieved using stillage in "ferti-irrigation" if an irrigation system already exists. 3 Theoretical upper limit 4 Cost based on theory. No commercial systems in operation. 5i POTENTIAL FOR ENERGY PRODUCTS Notes (1) Data from Philippine Sugar Commission, "Annual Synopsis of Factory Performance Data Crop Year 1984-1985," Quezon City, Philippines, 1986. (2) The team with the help of the Philippine Sugar Commission distributed a questionnaire to a number of sugar mills on Luzon and Negros. The data presented on Victorias Milling Company is taken from their response to the questionnaire. Throughout this chapter, tonnes represents metric tons. (3) The productive capacity of the cane plant is discussed in detail i-i Alex Alexander, The Energy Cane Alternative (New York: Elsevier), 1985. Tests conducted by Alexander and his associates at the I:liversity of Puerto Rico, which measured the amount of dry, matter in machine-harvested cane stalks, concluded that for each tonne of stalks, there was an associated 0.85 tonne of tops and leaves. Barney Eiland and others at USDA in Burned Sugarcane Harvesting in Florida," TransactionsFlorida in "Unburned and of the ASAE (Vol. 26. No. 5, 1983) discuss quantities of trash left mechanical harvesting. Extrapolating from their in the field after burning and estimates suggests that for each tonne of stalks, there was an associated 0.5 tonne of tops and leaves. (4) The electric utility in the Dominican Republic sponsored a study to determine the feasibility of a power plant fueled by cane trash. For details, see Republica Doninicana, Corporacion Dominicana de cuantificacion, recogida, acopio, manipulacion, Electricidad, "Estudio de transporte y almacenamiento del barbojo en los ingenios Barahona. Consuejo y Quisqueya; Informe Final" (Santo Domingo: DCE, 19S3). For further details, see "Cane Crop Residue fo Biomass Fuel," by Allan Phillips available at the Department of Agricultural Engineering, University of Puerto Rico, Mayaguez. (5) Estimates of how much of the cane trash left in the field after harvest can be collected given the role of trash in water retention, weed suppression, ana soil fertility are discussed in detail in the resource base chapter of USAID, "Electric Power From Cane Residues In Thailand," Washington D.C., September 1986, pp. 15-22. The chapter also discusses the effect of the spatial distribution of fields and several other important factors. (6) Ibid. (7) Data presented in this section is from the National Power Corporation 1985 Annual Report. (8) Stanley Consultants, "Cogeneration Potential and Grid Interconnections," Ministry of Energy Bureau of Energy Development, Nonconventional Resources Division, Philippines, January 1986. 52 POTENTIAL FOR ENERGY PRODUCTS (9) Because of low world sugar prices in recent years and high costs to repay investment capital, a number of mills in the Philippines have been taken over by the banks holding their loans. The future of these mills depends on the results of negotiations between the Government of the Philippines and the World Bank on how to restructure the sector. (10) The team surveyed ten sugar mills located on Luzon and Negros. For this survey, each mill provided the age and design detais of its installed boilers. (11) The primary focus of the Syner-Tech, Inc. report, "Philippines Bagasse Utilization," (Asian Development Bank, 1983) was the potential to improve performance of existing sugar mill processes. (12) lhid, p. 54. (13) lbid, pp. 1-43. (14) Data on the Hawaiian sugar industry throughout this section was provided by Charles Kinoshita of the Hawaiian Sugar Producers Association. (15) Stephen Clarke and William Keenliside from the Audubon Sugar Institute at Louisiana State University (LSU) developed a computer model to predict the production and value of sugar and/or molasses arid/or ethanol and/or electricity using alternative milling, processing and steam conditions. Bechtel Corporation modeled a modern steam plant optimized for use by the sugar industry and integrated their model with the LSU work. Both models are available from the Cane Energy Assessment Program, AID Office of Energy, Washington, D.C. 20523, and can be used to estimate technical and economic performance of sugar mills producing multiple products under varying conditions. (16) Details of the modifications needed to improve efficiency at existing mills and allow thern to burn cane trash are detailed in USAID, "Electric Power from Cane Residues in Thailand," Washington D.C., September 1986. (17) William Klausneier, "Worldwide Review of Biomass-Based Ethanol Activities," Final Report to Meridian Corporation by Jaycc,, Alexandria, Virginia, April, 1985. (18) The team assessment of planned alcohol activities is based on conversations in the Philippines and private communications. (19) Patrick C. Parsons, "The Fuel Alcohol Program and Philippine Sugar Policy in 1986," Asian Alcohol Corporation, Manila, May !986. (20) The information in Table 3.5 is based on analysis of alcohol by-products in USAID, "Fuel Alcohol Production in Honduras," Washington, DC, May 1986, and on market data collected by the team in the Philippines. 53 54 Chapter Four FEED PRODUCTION OPTIONS FOR THE PHILIPPINE SUGAR INDUSTRY The production of animal feeds from local sources represents an important new commercial opportunity for the Philippine sugar industry. Chapter 2 addressed some feed crops (alfalfa, corn), which could be planted on sugarcane lands in place of cane, as well as prospects for development of an improved feeder calf industry for beef ciltle. This chapter examitines the Philippine anim-l feed industry and markets, the tecl)ologi - for producing feeds directly froin sugarcane and froI sugar industry by-products, and the potential to apply these technologies in the Philippine,. Tie cha ptcr closes by discussing str-.' pis for introducing technologies of uterJt. The P ilippilies cur rentlv iitports imost of its ani mal feed ingredients, particul arly tie expelsivt, protein cot portents. The market exaninatioi in this chapter reviews th e curre,1 status of the liV'estock, poultry and feeds industries. The technology sectiolt then reviews the types of systtt, beth coinmercial and emerging, for produicing, feed protein and fodder i[ron l lolases. cane juice and bagasse wastes. It eriuphasizcs those options that can be iit1pleitented using existing facilities in the Phi lip pine sugar ii dustry. The evaluation of potential applications in the Philippines includes a preliit mlary cost analysis to help identify feasible approaches. 4.1 .ni ma! and Feed .Markets 4.1.1 t1aTtls of I.jvesto(-k. Poultry and Fishery Industries The IiVestc'Ck, pou!trv' at d! fishery industries contribute an average of 29.30 to the gross valtu acJdduC inl thte agriculture sector (which also includes forestry _ Vilegas, et a!., I -$5). Hogs. poti!try. catle and carabd),aos. in that order, account for most of tH-' CounLtrV'S spl' Of ll('al prodIuc ts, with goat productiont experiencing recent ex paitsiott inl response to s.rong denand from the Middle East. There is currently a ban onl the slaughter of carahaos because of their irportance as draft ani nals. The procluc 'ion of hugs a-nd chickons has slo\lv increased over recent years, with chicken produc tion growing somit ewhat faster tha .n hog. There is a trend towards greater cornnie-cial proctJCtioii of hogs-, and chickens (as well as goats). Froit 1970 to 19S3, the percentage of hogs produced conimercizill, grewk fron 10% to 36% of total hog prodiltctoi, and the comnmercial prodction of chickens grew fronm 19%,, to 37%. Increasvd conimerci,_il production of hogs, chickens and goats probably reflects the lower space ati in\'estrent require itents, and the higher reproductive and feed-to-prot.itri couversiort rates they have whe., comupared to cattle. Although the trend is still up, increasing feeJ and drug/biologics prices co,"mbined with inflatiott and ilternal problems disrupted hog. chicken and goat production in recent years. Contpq)etition, high feed prices arid turbulent markets forced numerous small independent producers out of business, and reduced aninal populations in some 55 FEED PRODUCTION OPlONS cases (e.g., poultry operations by 5% in 1984). Historical data on livestock and poultry populations is summarized in Table 4.1. Historical and projected trends in meat production are summarized in Table 4.2. Table 4.1 Livestock and Poultry Population (000's of ' ad) 1979 19S0 1981 19S2 1983 1984 Cat tle 1,805 1,824 1,921 1,94 2 1,938 1,849 Carabao 2,803 2,870 2,783 2,908 2,946 3,022 Hogs 7,445 7,934 7,556 7,953 7,980 7,61 3 Goats 1,424 1.640 1,698 1,783 1,859 2,362 Chickens 49,320 52,7614 56,275 59,710 62,255 59,2053 Source: Philippine Bureau of Agricultural Economics -attle production, by contrast, has stagnated for many years and has even declined recently for a variety of reasons. These include an insufficient breeding base, lack of incentive to produce high quality beef, and the lack and high cost of prepared feeds. The Philippines imports beef, and there is a clear need in the domestic market for an expanded fed-cat-de industry. Livestock production is pri airily a "backyard" industry, accounting for 75% of cattle and 95% of carabao production in 1983. Feeding is generally haphazard with heavy reliance on forage and little use of concentrated feeds. Domnestically produced meat quality is poor and nearly all imports are higher grades. Beef imports in 1983 totalled 7,159 MT, or about 6% of domestic production, and were worth almost $20 million. Furthermore, milk production in dairy cattle is poor and domestic production cannot compete with low cost dairy product imports, which totalled 105,S30 MT in 19S3. Fish and other marine animals are the principal sources of protein for the population of the Philippines. Estimated per capita fish consumption is 30 kg per year (compared to approximately 18 kg of meats) for a total annual fish consumption rate exceeding 1.3 million MT (Robinson, 1985). It is difficult to accurately document total fish production and consumption since it is largely a local enterprise. Import/export data, however, is readily available value of marine product exports has increased (Table 4.3), and it shows that the steadily, exceeding the value of imports since 1977. Marine product exports declined 25% in 1984, however, totaling 56 Table 4.2 Trends in Meat Production (in thousdnds of metric tons) Product 1979 1980 1981 19S2 1983 * 1985 1986(est) 1987(est) Beef/Carabeef 1 10.2 99.1 110.9 107.3 119.7 136.33 142.6,8 149.31 Pork 436.7 491.2 1;41.2 30.3 14 471.0 382.5.9 400.09 418.39 Poultry 133.3 143.1 147.3 151.8 154.2 223.90 233.7 244.28 Chevon 8.7 9.6 10.3 11.5 12.9 33.62 35.14 36.73 Eggs 170.02 177.59 185.57 Mik 12 i.65 1298.79 1355.29 *1984 Data not available Sources: Policy Analysis Staff, Philippine Ministry of Agriculture and Food: and M. Mosqueda-Velasco, Livestock Policy Choices: The Philippine Experience, Bureau of Animal Industry. FEED PRODUCTiON OPTIONS 57,999 MT (compared to 76,300/MT in 1983). This decline is attributed to a tight dollar supply and changes in export policies which adversely affected the canning industry. (PFDA, 1985) Table 4.3 Imports & Exports of Marine Products (US$ million, FO) 1970 1975 1979 1980 1981 1982 1983 Imports 16.6 33.4 19.7 26.5 29..5 38.1 6.8 Exports 4 .0 16.7 94.4 138.2 143.3 119.3 131.6 Sources: Food Processing Sector Report, \\orld Bank, 1985, and Foreign Trade Satistics, Philippine National Census k Statistics Office Much of the recent increase in fish production can be atributed to aquaculture of milkfish and tilapia in fishponds. In 1980, 176,000 Ha of ponds produced 136,000 MT of fish (Leeds, 1984). Aquaculture current!y accounts for 25% of total fish production in the Philippines, aid an estimated 375,100 Ha of additional swanpland is considered suitahle for comnercic. i development. As in Thailand, Ecuador, Hoiduras and a nuni~wr of other countries, continued aquaculture industry expansion presents a prom ising duvelopment opportunity for the Philippines. One of the most pro: I Ising aquaculIture areas is the production of shrinp. Penacid shr ifup (the principal class of riarine shri!I p) landirigs have decliied over 10% in recent years, troei 19,368 NIT in 1977 to 17,244 MT in 1981. By contrast, shri inp exports more than doubled from 2,349 MT in 1977 to approximately 5,000 MT in 1984, and currently generate $21 miillion in export earnings (PFDA, 19S5; Leeds, 1984). The Philippines now produces about 2,000 MT/yr of Black Tiger prawns by aquaculture for the 3apanese miarket with production groving at an annual rate of 20-50% . The most optimisiic projections suggest that shrimp farming in the Piiilippines could reach 300,000 .\1T annually by the end of the century (Mock, 984). Much shrimp aquaculture is conducted by small fdriers in operations of -- 20 Ha, and industry expansion should continue to provide opportunities at this scale. Nevertheless, large-scale corporate shrimp operations have production cost advantages, and are in a better position to acquire the feed Droduction and hatchery technology needed for large-scale expansion of the industry. Perhaps the le.rgest constraints to the growth of fish and shrimp aquaculture in the Philippines are the shortage and high cost of feeds necessary for these intensive operations. Both large and small producers are currently experiencing a severe 58 FEED PRODUCTION OPTIONS shortage of quality feed because of limitations on the imports of fish meal and soybean ineal feed components. Furthermore, feed costs comprise up to 70% of the cost of shrimp production. The developm(nt of local sources of protein to substitute for imported ingredients in aquaculture feeds would be a major step in promoting the continued development of this industry. 4.1.2 Status of Feed Milling Industries There were 121 commercial feed imi!Is registered in the Philippines 19S2, with ,S3of those mills located on the island of Luzon . as of July 31, The aggregate capacity of these nils is just under 30 millio 50-4-g bags/year (Viliegas et al., 1985). Historical data on cor;ercial feed sales in the Philippines is summarized in Table 4.4. Hog.and poultrY feeds represented 9S% of all feeds produced in 19983. Aquaculture feed produr -tim has only become significant in the past fe\\ year: Overall feed sles grew at an average annual rate ol 7911 between 197S-1982 but declined sharply in) 19S3 and 19S14 because of the problems, discussed earlier. Rapid inflation and oiier eCono ic LUncertainties continued to hurt all sectors during the last two years, including hgs and poultry. Table 4.5 sh)ow s f(.'cJ,tul ffi mports into the Philippines in 19S.3. Imports of sonie S34,000 MT represefnt S5 percent of total feed sales in 1983 (97.5,000 MT -- Table 4.4). Local sources of feed raw materials, excluding, corn, aiinourtted to ,'89,000 iT in the sanc year (Table 4.6). Table 4.4 Estimated Total Sales of Commercial Feeds in the Philippines (000's of 50 kg bags) Feed 1978 1979 1980 19s1 1982 19S3 1984 Poultry 15,066.4 15,542.1 15,975.5 17,177.4 19,357.1 .-- Hogs 3,853.3 4,198.6 4,621.8 5,220.0 5,501.0 -- -- Total 18,919.7 19,740.7 20,597.3 22,397.4 24,858.1 19,500 17,195 (or 975,000 MT) Source: Philippine Association of Feed Millers, Inc. (PAFMI) 59 FEED PRODUCTON OPTIONS Table 4.5 Volume and Value of Feedstuff Imports in 1983 Volume Value Feedstuff (MT) (000 US $) Corn 520,643 77;200 Soybean Meal 260,594 65,000 Meat N Bone Meal 38,5i 4 9,852 Fish meal 13,653 4,857 Meal mwal 117 24 Total 833,881 137,033 Source: Feed Control Division, Bureau of Animal Industrics Table 4.6 Volume of Feed Raw Materials from Local Sources, 1983 Volume Feedstuf f (MT) Fish Meal 3,202 Bone Meal 1,285 Copra Meal 56,339 Corn Bran 16,197 Ipil-lpil It. meal f 8,748 Feather Meal 1,015 Yeast 588 Feed Supplements 1,698 Total 89,072 Source: Feed Control Division, Bureau of Animal Industries 60 FEED PRODUCTION OPTIONS To a large extent, the high cost of meat and poultry is a direct result of high feed prices, which constimute up to 70% of the total cost of production in the larger commercial operations. Concentrated fecds, in turn, are expensive in the Philippines because of their high iInport content and because of currency devaluation in recent years. between) 19S3 and 19S4 alone, the average production cost of poultry feeds increased 121 % to P 198.69 ($9.69) per 50-kg, bag, and hog feed prices increased 1091%to P 160.90 ($7.85) per 50 kg-bag. Because of their high protein content (35-42"'), shrimp feeds are even more sensitive to high cost inputs. A donmestic shriJ)p feed prodUced by San Miguel costs P 31 ($1.51)/<g compared to P 24 ($1.17)/kp for P>resident's feed ijriported from Taiwan. Non-currency related diknarisi,: in feed ingrcJnot costs betweeN tile Philippines and other countries might -, attr itut a bh to diffrernces iii inport dcties, tight local supply conditions, or othLer re-suo s. \ cor>i sor v it i lla:nd is shown in Table 4.7. Table 4.7 Comparison of Wholesale Feedstuff Prices for Thailand and tie Philippines (as of -Ltnuary 19S5) \\ holesale Price Wholesale Price in Thailand in Metro Manila Ingredient (leso [-qIivalents/kg) (pesos/kg) (V/lb) Corn 1.95 3.90 (8.6) Soybean neal l cx-al 4.S3 .... imi ported 4.55 6.70-8.01 14.9-17.7* Fish meal lcx-al 6.65 13.00 28.8 imported -- 15.50 34.4 R ice bran 2.30 2.35 5.2 5oybean ineal price range for quotes from 3une-August, 1986. Source: Villegas, 19S5 The iripac1t of rising feed prices nn producers has been dranatic. Thirty to forty percent of the siljil poulkry and hog raisers ceased operations in 1984. These ci osiigs led to ira,rd wholesale and retail prices for chicken and pork and further eroded tle abilit of pruduce(rT to comlpete in export markets. As a consequence, a 19S5 report Jroni, thew Land tbarki, of the Philippines onl the livestock, poultry and feed n iTl ing industry called for actions to ameliorate the industry's current problems: 61 FEED PRODUCTION OPTIONS 0 Programs to increase yellow corn, soybean and feed root crop production; o Improved physical irfrastructure and financing programs for the transport of feed and animral products; " Program for increasing fishmeal production and reducing imported feedstuffs by the fishing industry; o P 50 million ($2.5 million) for R&D intothe production of non-conventional feed raw materials from local sources; o Import substitutijon strategy to discourage dependence on iported feed Materials; o Program to help reduce the cost of importing breeding stocks (\illegas, et al., 19S5). Future growth of the livestock, poultry and fishery industries is not strictly dependent on the development of large local sources of quality feedstuf Is, as the innovative exixlricfice of a nurmber of Philippine operators has demonstrated (e.g., Monterey Farms' use of pineapple and banana wastes to supplement rations). However, the large-scale expansion of these industries will require the development of domestic sources of feed ingredients in order to gain a degree of protection from the urlcertainties of import supplies and currency fluctuations, and to establish operations which are more vertically integrated and which offer the potential for greater cost reduction. In addition, the industry s-:ens to recognize at this time the irmportance of investigating non-:raditioiial sources of carbohydrates and protein. This recognition helps establish support for an examination of feed production opportunJtics associated with sugarcane and the sugar industry. 4.2 Feed Pr oduc tioi Technologies As the productiorn of meat and marine products expands in the Philippines, both for domestic consurnption and export, lower cost feeds and reliable year-round supplies will becomne necessary for the industry to grow. Commercial developments in the production of an1ilmal feeds fromi sugarcane offer the potential to greatly ameliorate proble~ris now Laced by the poultry, livestock and fishery industries. This section reviews the technical options for producing feed ingredients, both protein and cirbohydrate (or fodder), fromn the constituents of sugarcane and from other products of sugarcane processing such as alcohol. 4.2.1 Feed Protein Protein is an esserntial ingredient in all ani mal diets and ranges from 10-11% in prepared feeds for dairy cattle, and 19-22% for poultry feeds, to as high as 35-40% in shrimp feeds. The use of prepared feeds requires the import of over 300,000 MT of soybean meal and other protein ingredients annually to the Philippines, which cost 62 FEED PRODUCTION OPTIONS over $80 million in foreign exchange in 1983 (Table 4.5). Attempts to grow soybean in the Philippines have so far proven unsuccessful, and production of other protein sources (ipil-ipil leaf meal, fish meal, bone meal) is quite limited, amounting to only 13,500 MT/yr (1able 4.6). ,1) Yeast productiC represents a vast potential protein source for the Philippines. ) east is a proven substitute for soybean meal (42-4S% protein) in many feed fornu lations, is usually richer in vitaruins and minerals, and will often out-perform soybean meal in comparative tests. (2) Its nucleic acid content poses some li mritations on the quantity that con be used in poultry fornulatJons (Carangal, 1986). Currently, use of yeast for foed is snall (just over )00 MT/year), but a nunber of counercial systenms could easily be applied in the sugar industry. Yeast can be grow'ii on a variety of su!)strates, as shown belo,v. The most widely available source of yeast proteini loda\ is brewer's yeast (Saccharomnyces cerevisiae) produced as a by-product of alcohol fc! en iat ior,. Subst ra tei. Processes Products Distillery feedstocks Yeast-Growth Phase prior Brewer's Yeast (Molasses, Cane Juice, to Alcohol Fernentation, Torula Yeast Other) \\aldhof Fermentat ionA Stillage Biowastech Process* Candida Ingens Yeast Treated Lignocellulose Experimental Aerobic Yeests, bacteria Fermentation arnd fungal Single Cell Proteins -'These are all examiples of aerobic fermentations The growth of yeast requires sugar or another metabolizable organic substrate and aerobic conditions (presence of oxygen). In an alcohol distiller), yeast is grown on molasses or cane juice feedstocks to a sufticient cell density, then air is cut off and the fermentation. switche, to produce ethanol instead of more yeast cells. Yeast is recovered, either for re-use in the distillery or for feed purposes, by means of (:centrifuges or settling tanks. 'ith the prospect of increased alcohol investments in the sugar industr, op[xrtLum1ities fnr yeast recovery as protein feed supplements may be promising. Commercial yeast production dos not require alcohol processing, however. For exami ple, by maintaining aerobic conditions in yeast propagation, high yeast yields (50%) can be achieved from molasses and cane juice (with the appropriate nutrients). 63 FEED PRODUCTION OPTIONS Different yeast strains, Torula or Fodder yeast (Candida utilis or Torulopsis utilis) are preferred for their ease of maintenance, fast growth, good pentose-utilizing abilities, good nutritional properties, and tolerance of a wide range of substrates (Hajny, 1981). (3) ihe commercial production of such yeast is usually confined to low-grade sugar sources such as sulfite pulping wastewaters and blackstrap molasses. However, the rather high value of yeast and low value of surplus sugar in the Philippines might make yeast production from cane juice an attractive option for the sugar industry in the near term. Furthermore, energy requirements for torula yeast production would be lower than for sugar production, and quantities of bagasse available for fodder and energy applications. this can make However, tile energy requirements for producing a dried yeast product are considerable and can exceed the energy needed for alcohol production. Yeast is easily separated by centrifuging the fermentation broth or allowing the broth to settle in a separating tank if the yeast has the propensity to flocculate. The use of centrifuges for separaticn adds significantly to the capital cost and energy requirements of a yeast recovery plant. (4) Equipment to dry the yeast also adds to capitail costs and energy requirements. A substantial savings could be realized if yeast cream (10-20% solids) was sold directly to avoid the drying step. However, the wet l)roduct would ha\'e to be consumed within 24 hours to avoid spoilage. Dried yeast at 3-4% moisture can be stored at room temperature for several years without problems. Although not yet comnnercially practiced, yeast can also be grown on organic wastewaters such as stillage (also call,,d vinasse and slops). For every litre of alcohol, M0-1 6 litres of stillage containing 0.72-0.g4 kg of organic wastes is produced. This waste is heavily contaminated with organic compounds nutrioits, and represents a major disposal problem for and distilleries. (5) The yeast, Candida Ingens, grows on such wastewaters and the process is purported to have beeni demonstrated at a ruinJ distiller), in Australia. (6) -Ine ability to produce )'east protein from a waste strean thai would otherwise be a costly disposal burden represer its a funda menail inmpro\'enent in alcohol production techiiology and provides a possi'ility, for integrating sugarcane/alcohol processing arid feed produc tioh. A number of unproven processes seek to produce yeast, algaes and single-cell proteins by novel means and somne are nearing commercial application. Treated lignocellulosic materials, such as hydrolyzed bagasse (see next section), release significant quantities of ferr,entable sugars which can be aerobically fermented in the solid state to produce yeast. Furthermore, the solid state fermentation of treated residues with cellL1iolytic (cellulose degrading) organisms such as the fungus, ChaetomihurnceluloyticuMn, can afford high conversions of lignocellulosic substrates to single ccll protein (Moo-Young, !9S5). The growth of protein-rich bacteria and fungi has also beeni investigated. Alcohol plants could also use stillage as a nutrient mediun for the culture of protein-rich algae. Algae cultures could also use the carbon distillery by-product. The algae, Spirulina, for example, dioxide produced as a is 68-70% protein and is 64 FEED PRODUCTION OPTIONS proven to be an excellent substitute for soybean meal in aquacu!ture, poultry and swine rations. Conrinercial development of such algae production processes is currently underway ina number of locations. (7) Proteins can be produced directly irom sugar products or fron various byproducts and wastes. Althoug.h not without problems, fermentation to produce yeast from sugars is well understood and VwirJcly accepted, having undergone commercial refinemwent since the 1930's. Costs are highly variable and depend on a number of factors. (s) Sont,(, relevant research has been carried out in the Philippines. 4.2.2 Feed (art)o()!,es (Fodder) drit SUars an r rh ,I,:d'-I provide nost of tIeIC(1W rgy content of anim;al feeds. SUVarc1Q jIlici is,of our , retdlily (ligestiblo but there is no co, ponent of cane collipar,:hle to s , , th' peva-lent carlbohydrate. in corni and other grains and tubers,. (:ane jui h,I( ot been) used historicaliy as a feed sugar, although nmolasses ha-s o, b( 'en tus d ill this wa-V. t1.r1inants (cattle, 'olts, sheep) are only able to utiliz(- the sut'ars in) ligrIKo(eullliJi(ic iaterials to a lim rited extent. lost grasses are rr'ad fly digest iIle although tougher liaterials such as bagIasse aild wood have Iillrited iestibili I \ l, s ti ,t.irst suhjec tedl to solme foriri of disrLipt ive treat IIent. This cl ass of tpart, - 'y dJvgestible carbohydrate feedsitifs is tcfrnied fodder and a suL)stait ial aIroun'ft of effort has beer devoted to the developillenit of methods for proCuciriig foddt:r iromi sugarcane, bagasse and field trash (tops treat I nent, echnie are no\ in) use that hrea, down the and leaves). Siinple resistant structure of bigass. lI gnoe IlJ1o. . For exauple, feeds ba sed on bagasse and other u fibrous residues SL)i\)rt c iiicrcl i feedlot opcralti o s ir iBrazil and else where. Soie cane-derived fod der,, (an be used directly witho, ' pretreatruent. Pagacillo, fine bagasre derived fron caine pithl which ca, be separated n fronm raw bagasse fiber during naIling, is more digestible to ruiiinziots than raw bagasse. Several sugar upcirr cI i e otjth te Philipinhs offer feeds forHLI1iat(,d With hagacillI. CLrOe tops anfl tied trash are. also collected ii a nulliber of plares for direct feeding of Iivestoc,:k. Chopped cane hla, occasionailly been use(uas fodder (First Farmers, (Got rboa t-klriinanos ar Moterrey Farriis have done tests in the Philippines), but itis -iot ver)' palatable to the aninmats and results sto\k poor weight gain. (9) Table ,t surm L-iri:,e s the treatr rit.i t available for entrancing the digestibility of baga sse and othlier ligr ocelIlulosic residues. I is important to point out that these alternatives are based oi residues frni existingr sugar fill Zind field operations. Bagasse is generat.ed in surplhus at imany sugar mils and serves as the rawimaterial for Brazilian feedlot operations. Cane top, a id field trash can augment residue supplies, especia ly where fields are not burned prior to harvest. Steali a utot I1rolsis refers to subjecting lignocellulosic materials to stearin at elevated telperature .s (100--I70o) C) and pressures to disrupt the piotectiVe lignin-hellicelluJose m-natrix. Autohydrolysis renders bagasse as digestible as high 65 FEED PRODUCTION OPTIONS quality green pasture and considerably more palatable than raw bagasse, resulting in larger weight gains per unit of feed. The bagasse is aiso stable and can be stored for up to 6 months because the treatment sterilizes the material and the low pH prevents contamination. In practice, this treatment increases the in-vitro digestibility of bagasse from 35% to 65%. (Autohydrolyzed bagasse properties are compared with those of raw bagasse in Table 4.14 in the Technical Notes) (10). Autohydrolysis is probably the most widely-accepted treatment method and can take advantage of surplus exhaust steam generally available at the sugar mill. The process has been under development for the past 5 years in Brazil, now supporting 3000 head of cattle in a confined feedlot associated with an alcohol distillery. The total cost for producing the balanced feed is $15.40/ton at 50% moisture (January 1985 cost). ( 1) Table 4.8 Technology Options for Residue Digestibility Treat ment Inputs Status Reference Autohydrolysis Steam Commercial Navarro, 1985 Hydrolysis Alkali - Na20 Commercial Unger, 1985 - urea (urine) Experimental Wanapat, 1985 Oxidation Hydrogen Peroxide Experimental Kerley, 1985 Ozone Experimental Owen, 1984; Ben- Ghedalia, i982 Alkaline hydrolysis is a second treatment in limited commercial application, also in Brazil, and has the advantage of being suitable for year-round operations. This simple technique consists of mixing ground bagasse caustic soda (Na 2 0) for a brief period at ambient with an aqueous solution of conditions. Under these condition3, the alJ<aline solution will hydrolyze the hemicellulose quite readily although the degree of hydrolysis may be somewhat lower than that achiever by steam treatment under more severe conditions. Salt, urea and a protein complement such as yeast are then mixed with the treated bagasse prior to feeding. The cost of a balanced ration including additives is bagasse, ranging froai $t3.86 to $15.40/ton, depending comparable to hydrolyzed upon the size of the animal and the corresponding jurmulation required. (12) Results in animal performance are also comparable. (13) 66 FEED PRODUCTION OPTIONS Alkali treatment of rice straw has been studied in the Philippines but did not appear attractive because rice straw already has a relatively high level of digestible nutrients and is too dispersed. Some studies with urea treatment (which is a weakly alkaline compound) of straws showed improved digestibility and additional nitrogen in the resulting fodder (Arboleda, 1986). Reports of urea treatment of the tougher material, bagasse, have found it too weak to have much effect on digestibility (Wanapat, 1985). Other techniques are being tried and may yield useful results in the future. (14) Applied research indicates that adding the oxidant hydrogen peroxide improves the effects of alkaline treat ment (Kerley, 19'5). Recent studies also indicate that oxidation with ozone might be more effective than hydrolysis with certain feedstocks, such as cotton stalks, but ozone is expensive costing approximately $20/tori of treated material (b')en-Ghedaiia, 1983). 4.2.3 Integrated Operations Feed production from corwe residues can benefit from linking sugarcane processing oterations vith animnal feeding. Integration eliminates transportation costs and permits the use of muore "as-is" products without drying and/or storage. Both sugar-rich waslewaiers generated by yeast processing and manure produced by livestock can he used as fertilizer in adjacent cane fields. Alcohol production could also be integrated given appropriate market conditions. Figure 4.1 depicts a system in which ani ma and alcohol production are integrated; a number of variations on this concept are practical. In the P!1ilippin1es, the sugar 1il would replace the distillery (there are no autono1oou1s ciJstilleries usinlg cane Iuice in the Philippines), a yeast plant could be addcd to provide rmore feed ingredients, and hogs or poultry could replace the cattle. The opportunity to substitute yeast for soybean meal already has been identified by one Philippine sugar company which also operates a separate poultry feed mhill and is seekinig cheaper sources of protein. Integration would be an easy step. ( 5) 4.3 Prospects for Feeds in The Philippines This section examines the prospects for applying the feed techniques discussed above iin the Philippines sugar industry and market environment. 4.3.1 Yeast Protein Potential The potential yeast market is some 260,000 MT, or the current level of soybean meal imports (section 4.1). Yeast is already recovered from stillage in the Philippines for suostitution of soybean meal, but at a low level. Its price, P3.5-5.0 or 8-1 ll/lb, is lower than that for soybean meal (P6.7-8.0/kg or 14.9-17.7v/b), because it is sold as less desirable yeast cream. This would change with drying and baggin g. 67 Figure 4.1 Inegration of Livestock Production with an Alcohol Distillery DISTILERYALCOHOL 714800 LITERS OF DS E ALCOHOL (1268 galb) CANE PLANTATION OI 1 HECTARE OF CANE r CANE_ 0, o [ tBAGASSE. 3300 kg RAW BAGASSE (1500 kg DM)" -K:= BOILER COMPOST ) STEAM 7.2 t ORGANIC CO S HYDROLVZER 7TREATM:NT / " (NoUG FOR 2 HEAD IN FEEDLOTS FEEDLOT FC 120 DAYS) 120 kg WEIGHT GAIN 4 -': CONCENTRATED FEED 3300 kg HYDROLIZED BAGASSE *DM - DRY MATTER 750 kg (1500 kg DM) • FEED PRODUCTION OPTIONS- Potential feedstocks for protein production in the Philippine sugar industry are molasses, cane juice and stillage. Projected cane production of 15.5 million MT 85/86 will yield approximately 555,000 MT of molasses which could be converted into 150,000 MT of yeast (42% protein). However, the current export market for surplus molasses is strong, at a price of P 1200/MT ($59/MT), and reduces interest in making capital investments in facilities to convert molasses to yeast. Nevertheless, if converted to yeast, a MT of molasses would displace $100-$110 worth of soybean meal at current prices, almost twice the dollar value of molasses exports. Although the production of yeast protein from cane juice is not common, it is well understood and appropriate to consider under present price circumstances. Feed markets couid sustain a substantial amount of sugarcane production. Replacement of the 260,000 MT of soybean with yeast protein would require cane juice from 4 irrillion MT of sugarcane. A yeast plant annexed to a sugar mill using cane juice as a feccstock could boost the capacity utilization of a mill in much the same way an annex:ed ethanol distillery can, without increasing sugar output. Yeast productiol from cane juice or molasses is a well-established option in terms of technology and product market acceptance. Numerous vendors offer yeast production technology and many in the sugar industry have considered this option. The reason it has not been introduced in the Philippines appears to be that vendors know little about how to adapt their systems to circumstances in the Philippines. For example, firms are reported to have offered estimates for sophisticated systems (human food quality yeast; systems using exotic feedstocks such as methanol) with high production costs. Estimates indicate that a simplilied yeast plant using cane juice or riiolasses costs far less but these plants have not been offered. Table 4.9 presents a comparison of two yeast plant quotes (estimates only), one autonomous plant producing hurnari food yeast (high cost) and one annexed facility at a sugar factory (low cost). If yeast is priced near the price of soybean meal ($330-39D/MT, depending upon a range in yeast protein content of 42-48%), then its production Iron cane juice rmlay well prove economically feasible, (16) The potential merit of yeast production can be compared tc ethanol as a diversification option for the sugar industry. The metric ton of cane required to produce 100 kg of sugar will yield 66 litres of alcohol or 65 kg of yeast. If the alcohol is priced at 2SV/l (current US price) the value ot alcohol from I MT of cane will be $18.4S. If yeast is priced equal to soybean meal, the value of the yeast will be $24.31, (value of yeast having 4S% protein) about 30% higher. Also, the Immediate ability to substitute yeast for soybean mCdl in the feeds industry is perhaps considerabiy more feasible thanj marketing ethanol as a blending agent with gasoline. Stillage wastewaters froni alcohol distilleries represent a third potential sugar industry feedstock especially if the Philippines expands alcohol production. As noted, stillage has traditionally been a disposal problem, but recent advances in yeast and algae culture suggest ways to effectively use it as a feedstock for protein products while also improving the economics of distillery operations. Recently, the 69 FEED PRODUCTION OPTIONS technology has been demonstrated at a commercial scale although more work is needed to demonstrate commercial viability. The fundamental reasons for considering it are comDelling. The quantities of stillage available in the Philippines are summarized in Table 4.10. Excluding the two distilleries which have made major investments in treatment systems, Tarlac and Victorias, 3.4 million I/day of stillage containing 2.7 m:Ilion kg/day of organic waste is available for conversion to yeast. This represents a potential production of 560-800 MT/day of yeast, or 101,000-144,000 MT/yr, assuming that the distilleries operate 180 days/year. Given the current status of the technology, capital investments for the process (Biowastech) will be high, but it is estimated that a net credit of approximately 5V per liter of alcohol produced may be realized. Table 4.9 Comparison of Yeast Production Costs (10,000 MT/yr yeast plant using cane juice)(17) Annexed Plant Autonomous Plant Developing -US Site- Country Site Capital Investment ($) 35,200,0001 4,000,0002 Production Costs ($/Ton) Feedstock 2403 1774 (213)5 Nutrients and Minerals 140 8 Utilities Electricity 2000kwh 100 506 Stean 27. lxlo3lb 190 07 Gas I 8.9x I 06 Btu 85 08 Cooling water 9 9 Labor (57 employees) 57 12 Investment costs 235 13 Total Cost ($/Ton) 1,056 282 I Source: Clristensen, 1986 2 Sources: Upton, 19S6; Nabisco (1986); Abay (1986) 3 Based on a world market sugar price of 6V/lb. 4 Based on average production cost of P 230/TC, 135 kg reducing sugars/TC and a 45% yield of yeast. Assumes costs for grinding cane are sunk costs. 5 Molasses feedstock cost at $58/MT 6 Cost at the transfer price of mill-generated electricity 7 Stearn provided by burning bagasse and from surplus steam 8 Gas-fired dryer not used/steam-heated dryer used instead 70 FEED PRODUCTION OPTIONS Table 4.10 Stillage Production in Philippine Distilleries Alcohol Stillage Current Treatment Distillery Capacity (l/d) Generated (l/d) System Hind 4,500 40,500 Not Surveyed Pa njiqui 10,000 90,000 Not Surveyed Tarlac 45,000 455,000 Anaerobic Digest ion/Lagoon Don Pedro 27,000 243,000 Lagoon Santos-Lopez 8,0000 72,000 Not Surveyed Talisay-Silay 26,000 234,000 Not Surveyed Victorias 47,700 472,000 Aerobic Treatment Lagoon La Carlotta 22,500 225,000 Lagoon Biscorn 30,000 270,000 Not Surveyed Asian Alcohol 210,000 2,100,000 Lagoon/Ocean Discharge Kool Alcohol 20,000 180,000 Ocean Discharge Total 450,200 4,376,500 *Calculated on a basis of 10 1 stillage/l alcohol for anhydrous alcohol and 9 1 stillage/l alcohol for potable alcohol. The proper treatment of stillage in aeration lagoons costs 3-5V/1 of alcohol (Deypalan, 19S6). The other alternative in use, anaerobic digestion, does produce fuel as a by-product but the fuel involved rarely justify the costs of the , 'a,,ing digestion systen One anaerobic digestion system being used with stillage which claims fuel savings sufficient to geierate a positive return or the system investment is at the Destileria de Tarlac in the Philippines. Another alternative way to use stillage is to mix it wiih irrigation water but its value in this application is rminiscule. 4.3.2 Fodder Potential Bagasse, bagacillo, and field trash and tops could be used to produce fodder or carbohydrate feeds. The atractiveness of producing fodder from these feedstocks is complicated by uncertainties in fodder markets and feedstock supplies. The market for cane-derived lodders is very difficult to estimate. Most cattle produced in the Philippines are raised on forage. Little supplementary feeding is done, not necessarily by choice but as a consequence of the extremely high feed prices in the Philippines. If a low cost balanced feed was avaiiable, a market for the product would certainly develop and commercial feedlot production would probably 71 FEED PRODUCTION OPTIONS increase from its current level of 25%. Replacement of high quality imported beef (currently $20 million per year) with domestic beef would require about 45,000 MT/yr of hydrolyzed fiber plus protein and other supplements. To feed all the beef now produced commercially in the Philippines would require I million MT/yr of hydrolyzed fiber. One of the impediments in achieving a significant market for sugarcane-derived feeds is that the feed purchaser must perceive an added v.!lue in using prepared feeds; i.e., better quality meat that commands a premium value. A meat grading system is crucial to stimulate this development. The current lack of market for fodder combined witlh the lirnited commercial development of bagasse treatments, will serve to make any introduction of fodder from sugarcane technology gradual. Urcertainty about the availability of feedstocks fron which to produce fodder because of recent fluctuations in sugar markets also decreases its attractiveness. Even assuming predictable sugar output, the availability of bagasse as a feedstock for fodder production depends on competing uses. Bagasse is currently burned in most mills to provide steam and power to sugar mill operations. The size of existing bagasse surpluses can be used as a crude measure of bagasse availability but is by no means accurate because mills have traditionally viewed bagasse beyond that needed for power and steam as a clisposal problem. New markets could quickly increase its availability. No comprehensive survey of bagasse surpluses at existing sugar mills has been performed. The sugar industry in 1979 met 86% of its energy needs by burning bagasse (,IOEL, 1979) indicating that a great deal of bagasse is already consumed. A spot survey oJ IS mills conducted in the course of this study identified 13 mills that had a combined bagasse surplus of 185,293 MT. This bagasse e i*sither sold, given away as fuel to surrounding businesses, or is ]aud-iiled. Table 4.1 1 lists Philippine sugar mills, their rmted capacities and bagasse surpluses. In general, those mills that have either a distillery (-1) or a refinery (0-) or both (111) are not likely to have s-plus bagasse because of the added energy needs of these operations. MilIs with bagasse surpluses ont Luzon are primhee candidates as sites for producing bagdsse-based fodders because of their proximity to the principal areas of commercial cattle production. Estimating the availability of cane tops and field trash as a feedstock for fodder production is also difficult because there is limiited history of organized collection and use. (See Section 3.1 for discussion of the quantity of cane tops and field trash available.) Some cane tops are collected by hand for local use as fodder in Negros. An AID-sponsored evaluation in Jamaica indicates that trash can be collected mechanically and delivered to a inill for $10.50/dry ton. The Tarlac mill in the Philippines has mechanically collected for co-firing with bagasse. Tarlac management believes and baled trash in tests that trash collection is feasible and that up to 12 MT of trash per ha (25% moisture) can be recovered. Other mills with sophisticated harvesting and transportation systems such as the Don Pedro mill in Luzon are ;n an excellent position to use their systems to collect field trash with little added capital investment. Most companies, however, have inefficient systems for harvesting and transporting cane, and the potential for collecting trash cannot be predicted. 72 FEED PRODUCTION OPTIONS Table 4.11: PHILIPPINES SUGAR MILL CHARACTERISTICS Rated Capac. Annual Bagasse Rank Mills Location (tc/day) Surplus (MT/yr) I Bobo-Medellin Cebu 2,500 not surveyed 2 Canlubang* Luzon 6,100 9,584, 4.2% 3 SONEDCO/c Negros 4,000 not surveyed 4 Don Pedro* Luzon 6,300 all consumed 5 First-Farmers Negros 4,500 25,000, 13% 6 AIDSISA /c Negros 4,000 not surveyed 7 BUSCOA */b,/c Mindanao 4,000 12,861, 12% 8 -San Carlos Negros 4,000 4,000, 4.1% /d 9 Hlawaiiarn-Phil Negros 6,200 5,900, 2.3% 10 Dacongcogon /c Negros 1,500 not surveyed 11 T"larlac -1 Luzon 7,000 12,000, 5.2 % /a 12 La Carlota* Negros 10,000 all consumed 13 BISCO.M Negros 10,000 not surveyed 14 Saga), /c Negros 3,000 not surveyed 15 vICMICO * Negros 10,000 15,000 16 Batangas** Luzon 4,000 not surveyed 17 Paniqui* Luzon 1,500 3,250, 6.7% i8 UPSUMCO /c Negros 4,000 all consumed 19 Durano Cebu 2,000 13,235, 15% 20 Lopez Negros 7,500 not surveyed 21 PASUDECO Luzon 6,500 33,400, 25% 22 Passu /c Panay 4,000 26,341, 20% 23 Sarntos-Lopez' Panay 2,600 not surveyed 21; Austurias Panay 2,000 not surveyed 25 1,acolod-Murcia Negros 3,600 6,082, 6% 26 Ormoc /c Leyte 2,500 not surveyed 27 BUSYDECI /c Kyzib 4,000 not surveyed 28 Tolong /c Negros 3,000 not surveyed 29 Pilar Panay 3,500 not surveyed 30 1-tilid Luzon 523 all consumed 31 C;ASLICO* /c Luzon 4,000 not surveyed 32 Calinog-Lamfbunao** /c Panay 4,000 not surveyed 33 Allied Panay 3,000 not surveyed 3/4 Bais • Negros 8,000 not surveyed 35 Talisay-Silay- Negros 3,600 not surveyed 36 HIDECO LEYTE 5,000 29,208, 22% 37 Ma-Ao Negros 6,000 not surveyed 38 NOCOSII /c Mindanao 4,000 1,432, 11% 39 Danao Negros 3,000 not surveyed 40 NASUDECOO Luzon 5,600 not surveyed 41 Davao Minidanao 4,000 not surveyed /a Bagasse surplus used for running distillery during off-season. /b 6,000 tonnes of cane per day (TCD) in crop-year 1983/84. /c Mills heavily indebted to gov't. banks and taken over by Philsucor. /d Bagasse sold to pulp mill for feedstock. \With distillery. * With refinery. With both distillery and refinery. 73 FEED PRODUCTION OPTIONS Given the attractiveness of producing protein from sugar at current prices, the potential to produce fodder from bagasse and field residues, and the collapse of the Philippine sugar market, an existing mill could, ostensibly, be dedicated exclusively to the production of feeds. However, it is much more logical to use existing grinding capacity and utilities by annexing yeast and fodder plants to sugar mills now under-utilized, at least untii the operation and economics of feed production technologies are firmly established in the Philippines. Another possible alternative for growing cane for feed markets is simplified small scale processing where the cane would be chopped and allowed to ferment as an unseparated mash to boost the mash's protein content, followed by treatment with heat or all-i to ralke the fiber more digestible. Such a process would be most useful to s!will Lrm(irs -who canrtt afford or gain access to prepared feeds. Techniqucs art- reported to be in use in Trinidad and Guatemala. 4.4 Conclusion In summary, the evaluation of possible feeds applications within the sugar industry has identified yeast protein production as a promising diversification option. The technology is proven and the market as a soybean meal substitute is clearly defined. A feasibility study at a specific site would provide a decisive determination of the corrmercial viability of yeast production. The design basis should be flexible enough to accommodate cane juice, molasses and stillage as feedstocks. This will allow the running of commercial-scale tests once the facility has been established using proven technclogies. The potentia!s for producing fodder from bagasse and whole cane are less easily defined but clearly merit further investigation because of the availability of feedstocks. This optior: is technically feasible but major questions exist concerning the potential rrarket for the product. A market analysis should precede technology demonstratio. efforts concentrating on commercial feedlots which are mor dependent on prepared feeds than srrmall farmers. The study should also focus on sugar companies currently involved in livestock production through parent or subsidiary companies. Both steam and alkaline hydrolysis appear attractive in producing a balanced feed product at reasonable cost. The choice of which technique to use will depend on site-specific circumstances. 74 FEED PRODUCTION OPTIONS Notes 1. The growing use of Ipil-lpil leaf meal (8,748 MT in 1983) is the principal innovation in feed protein production in the Philippines. Dried Ipil-!pil (leucaena) leaf -neal contains 25-30"' protein and is now widely used as a cattle feed. However, the leaf contains an unusual amino acid, Mirnosine, which in some animals has adverse effects (hair loss, abortion, delayed sexual maturity, slow growth). iourninants are able to break Miniosine down but poultry are susceptible and exhibit adverse eflects if the aiiouit of leaf meal in their diet exceeds 6% (NAS, 1984). Since 7 .V of all feeds cur-reritly produced are for )oultry, lpip-lpil leaf meal substitute potentia] is liiitt>. 2. Iri additiori to often having a higher proteiie content, yeast is richer in b vitamins, minerals, cal,_i-Ji and phosphoras. One drawback worth noting is that most yeasts are def-ici et i!1 thW sulfJ-contain ing a 1nino acids, cysteine and methionine. This is of no consequenice in aninal feeds, but these amino acids should be supplerented in sore rodent and avian feeds. The comparison of various types of yeast to soybean meal is shown below in Table 4.12. Ihe comparative performance of soybean meal and yeast-based feeds in pigs is shown in Table 4.13. Table 4.12 The Composition of Soybean Meal and Selected Yeasts (percent by weight) Soybean Meal Brewer's Torula Biowastech Provesteen Component (ex pelier) Yeast( ) Yeast(2) Yeast (3) Yeast(4) Proteir, 42.0 54.7 46.7-54.2 38-58 43.8-62 Fat 3.5 5.6 3.76-5.82 -- 4.3-5 Carbohydrates (by difference) -- 29.4 .... 18-24 Moisture -- 3.3 .... 4-5.5 Ash 6.0 7.0 5.56-9-53 -- 11-18.8 Calciuni 0.25 0.12 0.1 3-0.90 6 0.01 -2.2 Phosphorus 0.6 1.5 1.19-2.08 7 2.5-4.1 Sodium -- 0.0- 0.01-2.2 (I) Saccharomvces cerevisiae- source El Consult. 1985 (2) Candida utilis -source, Hajny, 1981 (3) Candida ingens -source, Henry, 1983 (4) proprietary strains - source, Norell, 1984 7.5 FEED PRCDUCTION OPTIONS Table 4.13 Comparative Performance of Soybean Meal and Yeast In Weanling Pigs 18% Protein Diet Using: Soybean Meal Provesteen P Yeast Feed per kg of gain, kg 3.25 2.74 Appxireit dry mnat ier igcst ihl ii , % 91.5 94.4 Apparent N digestibility, % 89.3 94.0 True N digcstibility, % 92.6 96.8 Source: Slagle, 1979 3. Provesta Corporation, a subsidiary of Phillips Petroleum, has developed a series of proprietary yeast strains (Provesteen TK,P) that reportedly are well-adapter to sugar substrates and yield 0.145 kg of yeast per kg of sucrose or rnolasses (Christensen, 19S5). Other firms (Linde, Vogelbusch, ICI Amoco Foods and Hoechst) have been activelh pro, ioting yeast single cell protein (SCP) technology based on methanol and ethanol feedstocks (C\\, 1979). The use of alcohols as feedstocks makes little sense for the Philippines where sugars are so readily available and inexpensive. 1. The total uivest nerit (installed) for yeast recovery, spray equipnient is estimated at US$620,000 for a 120,000 l/d drying and bagging distillery excluding the centrifuge, and $1 million including centrifuge (Fuel Alcohol Production in Honduras, USAID, April 1986). Drum dryers are actually used more widely than spray dryers and drying is quite energy-intensive. 5. Solids concentrations for stillage from alcohol plants range from 1.2% when corn is the feedstock to 6.7%-8.7% when blackstcap molasses is the feedstock. The composition of stillage from an alcohol plant using cane juice is as follows (% by weight): \Water 9S.5S Ash 0.22 Solids 1.42 Lignin, phenol 0.19 Sugars 0.717 Glycerine 0.08 Gums 0.33 Lactic Acid 0.08 Protein 0.22 Fiber 0.01 (Source: El Consult, 1985) 76 FEED PRODUCTION OPTIONS 6. Queensland Science and Technology, Ltd. recently announced the successful commercial-scale test at a rum distillery of its BJowastech process based upon F novel, versatile yeast, Cndida ingens. The yeast was originally developed to produce protein from piggery wastes but has subsequently been adapted to utilize distiller), stillage as well as more conventional sugar substrates (QS&T, 1984). 7. It is possible to produce protein by the culture of algae such as Spirulina which contains 6S-70% protein (Hunter, 19S5). Spirulina is now grown commercially as a high value specialty food ($10/kg) but production costs have not yet been reduced sufficiently to render Spirulina culture atn economical source of feed protein. Spirulina is cultured in several lakes in Chad and Mexico and in shallow oval raceway ponds. A promisifn avenue for lowering the cost of Spirulina production is by using waste organic nalerials such as distillery stillage. The use of a photosynthetic process can also make use of carbori dioxide produced in the distillery (Behrends, 1985). 't is theoretically possible to produce 1 1/2 kg of algae from the stillage left after producing o1e liter oI alcohol. If algae protein value is equal to that of soybean meal, then its value approaches the value of the fuel alcohol. The capital investmnent for a 4,500 MT/yr facility annexed to a distillery is estimated at $3.5 million, versus $10 million for an autonomous facility. Operating cost estimates (fromi a largely theoretical analysis) indicate that Spirulina could potentially be produced for 34t/kg in an annexed facility, $1.32/kg in an autonomous facility (Zaborsky, 1985, Klausmeier, 1986). The recovery of high value specialty chemicals such as xanthophyll and linolenic acid offers a means of improving feed economics. Additional research will be required before algae culture is proven commerciall', viable for feed production. S. The production ol lodder yeast by aerobic fermentation is not without complications. These yeasts have a tendency to foam up during fermentation which necessitates, the addition of antifoani agents or the use of mechanical foam breaking. To prevent foaming, the fermentation process must be vigorously aerated, otherwise unwanted by-products will form. The power requirements for aeration can represent 50% or more of the yeast production costs. A number of different fermenter configurations with mechanical stirring and air supply have been exanined. The basic components of these designs are shown in Figures 4.2 and 4.3. The continuous stirred reactor design used by Provesta employs mechanical foam breakers to control foani and actually takes advantage of foaming to achieve high oxygen transfer rates. An extremely high cell density can be achieved (120 -l50g yeast dry wt./liter) presurmiably because the strains developed resist the inhibitory effects of high osnotic pressures. High cell densities preclude the need for centriIugation. Another stirred reactor, the Waidhof propagator utilizes a central draft tube to circulate foan and maintain the fermentation as an emulsion which also greatly enhances oxygen transfer rates. However, the maximum cell density for this fermenter is only about 25g yeast dry wt./liter (Hajny, 1981). 77 FEED PRODUCTION OPTIONS Figure 4.2 Provesta Continuous SCP Process (Source Prepared Foods, 1985) Continuous single cell protein process D4, le, a~t '- '-I .G . 11 MEQ It U1 I WI AL DNIA 06aa vl ,1 0 " MDNIAP ODuI 4 M TRi ATE( NI ld PA Y[ U R IZED A Y A9 | O RAIA [ A substantial amount of .esearch in yeast single-cell protein (SCP) production has also been conducted at the University of the Philippines has concentrated on the production of Candida utilis at Los Banos. This research on coconut water and molasses (del Rosario, 1980, del Rosario, 98). These investigations an anti-foamn ageni and examined the use of utilized coconut oil as the aeration tower and airlift fernentors depicted in Figure 4.3 to achieve high oxygen transfer rates. The best results using coconut water were achieved with the airlift fernenter although the low cell density (25g yeast dry, wt/liter) and the non-flocculating properties of the strain em ployed nece_, sitates centrifugation for yeast recovery. Investigators suggest that the use of a flocculating yeast in a continuous stirred reactor system woud prouabl, be preferable for achieving more concentrated aerobic fermentations and for facilitating yeast recovery. Recent achievements in fermenter design have significantly improved the reliability and economics of yeast SCP production systems. Production costs for yeast SCP are highly variabl , and depend on the grade of yeast produced (food or feed), the process design and siL, -- fabrication, and the plant configuration (e.g., autonomous or annexed). Investment yeast plant range from $2 million for an annexed ,s t_' for a 10,000 MT/yr facility producing fodder yeast to $35 inillion for an autonomous facility producing yeast for human foods. Conversion costs can range from $100/Mi" of yeast for ani annexed facility using on-site utilities and surples steam to more than $400/MT of yeast for an autonomous facility. Minerals anrd nutrients can cost from virtually nothing up to $140/Ml of yeast. Feedstock could be free, as in the case of stillage, or could cost up to $178/Ml-$2l3/MT yeast for cane juice or molasses, respectively (NEDA,1985). Thus, yeast production cost could range from $125/MT to $1,036/MT. With the soybean equivalent value of yeast being roughly $365/MT of yeast, it appears possible to produce yeast profitably, but the circumstances will have to ', ;.-fuly designed. 78 FEED PRODUCTION OPTIONS ......... ........ Figure 4.3 Three General Types of Fermenter Designs L. Inner tube ]- Mee r d- l A T AIR LITI] 9. Studies at the University of the Philippines at Los Banos 40% TDN forraw bagasse showed that rice straw had a 20'%TDN (Total Digestible Nutrient) compared to a (Arboleda, 1986). 10. The terni autohyclrolysis comes from the fact that the initial event is the hydrolysis by steam of labile (readily-attacked) acetyl noieties in the hetmicellulose to release acetic acid. This lowers the pH to 3-4 which is ',uflicient to catalyze the hvdrol\'sis of sugar linklages in the hemuicellulose polym er to waler-solJble subunits, thus disrupting the protective matrix ((asebier, 1969). 1he sudden depressurization of the cooked riash further softens fibrous material by tiw: rapid expansion of gases within the material (Navarro, 1985). In addition to making the cellulose more susceptible to attack by digestive enzymes in the rumen, the pentose (5-carbon) sugars released from the hemicellulose are also digestible by ruminants (Harris, 1958). Table 4i.l4 below shows properties of raw and hydrolyzed bagasse. 11. Industrial tests through the 1984-,95 harvest were carried out by Destilaria Alcedia SA in Brazil. Cattle were fed 1000 tons of balanced ration containing 2/3 hydrolyzed bagasse and 1/3 concentrated feed (protein, minerals, salts). The average live weight gain over the 120-day period was 1-1.2 kg/day at a feed consumption rate of 10.2 kg dry matter/day (Navarro, 1985). Plans were to expand the feeding operation to 3,000 head of cattle for the 1985-86 season. 12. One difference beLween techniques is that caustic soda must be purchased for the alkali process. The cost of alkali is low (US price: $205/ton for 73% liquid) and constitutes only 25% of the total cost of the feed. Protein accounts for 35% of the cost and salt, urea, bone meal and other additives constitute 40%. Developers indicate that yeast recovered from a distillery will reduce the cost of protein by 79 FEED PRODUCTION OPTIONS two-thirds. The total investment for the feed-production system is $57,750, sized to produce feed for 3,000 animals for a year, with the alkali treatment part of the system costing $23,000. (lnvestment costs for steam treatment have not been reported.) Table 4.14 Cornarison of Raw and Autohydrolyzed Bagasse Determination Raw Bagasse Autohydrolyzed Bagasse Dry matter (weight %) 48.31 44.32 Raw protein (g/lOOg dry matter) 1.86 1.86 Raw fiber ('9 45.09 34.45 Cellulose (") 44.69 43.99 Hernicellulose ('9 22.91 Lignin (") 14.89 15.06 Ether Extract (") 2.26 4.86 Mineral Mat :er (") 2.73 4.77 Non-nitrogerated Extract ('9 48.06 54.25 In-vitro Digestibility of Dry Matter (0) 35.31 64.82 Animal \\eight Gain (g/,-ay) 610 1160 Feed consumption rate (kg/day) 7.2 11.8 Source: Navarro, 1985 13. The alkali treatment does not incorporate the rapid depressurization step which further disrupt. the lignocellulose when using steam autohydrolysis. However, aqueous alkali will disrupt and begin to dissolve some of the lignin and this will enhance breakdown of the matrix (Koukios, 1983). Unfortunately, product analyses for alkali treated bagasse have not been reported so a direct comparison of the results of steam and alkali treatments is not possible. Weight gains (1 kg or more per day for a 300 kg animal) and intake rates (8 kg dry matter/day for a 300 kg animal) are comparable to those reported for steam-treated bagasse feeding (Unger, 1985). This technique was developed in Brazil by the Usina de Japungu in Paraiba, which now uses the process to feed catTle at a confined feedlot operated by the distillery's parent company, Grupos Agrofertil e Economico. 80 FEED PRODUCTION OPTIONS 14. The conceptual basis behind the effectiveness of techniques to improve the digestibility of bagasse lies in the structure of lignocellulose, which has three components: cellulose, hernicellulose and lignin. Hemicellul-ise, a complex carbohydrate polymer, and lignin, an equally complex polyphenolic material, are both cross-linked to provide a rt-sstant amorphic (non-crystalline) matrix. The principal constituent, cellulose, is a highly crystalline polymer of the sugar, glucose, whose fibers are embedded in the lignin-hemicellulose mairix. h!!en the mal.rx is intact, th( cellulcse is inaccessible to biological attack by enzymes such as those produced by bacteria in a cow's rumen. Either the hemicellulose or lignin component of the matrix must be degraded to render the cellulose accessible to biological attack. The two principal methods of attacking biopolymers are through hydrolysis using acids or bases, or by oxidation. Heriicellulose (2;- 0% of bagasse) has proven to be quite susceptible to hydrolytic attack while lignin is much less susceptible. Lignin, however, appears quite susreptible to oxidative attack, as the biodegradation of lignin in nature occurs by way of oxidation. Thus, the effectiveness of new treatirients can be anticipated. 15. One organi:.,.i anal approach that may be useful in the Phillipines, in use at the Usina de Japunga ir, Brazil, is to distribute feed produced at the mill (or distillery) to surrounding small farmers. The distiller supplies feed, calves and marketing services to the surrounding small farmers. The farmers feed the calves to market size and theni return the cattle to the distiller for sale. Proceeds are divided between disti.'.er and farmer according to an agreed upon formula (Unger, 1985). In the Philippines, a coordinated effort between the feed producer and a farmer's cooperative or !Lvestock distribution program may be needed. 16. In 1975, a yeast plant using cane juice was installed in the Island of Leyte for the procLuctior: of nucleic acid flavor enhancers. The estimated cost of yeast production in this autonormous facility was $il14/MT which is roughly consistent with the lower production cost estimated for an annexed facility. The plant is rio longer opera-ti:ig. In Taiwan, yeast produced from molasses, is now used widely in aquaculture feed formulations (DeBaussey, 1986). In addition, the estirnate in Table 4.9 for a feed yeast plant sited in a developing country is consistent with reported production costs for an autonomous yeast from molasses plant recently opened in Brazil by Nabisco. The cost of crude yeast product is $340/MT in which the investment in utilities, crushing equipment and other infrastructure is included in the cap;tal cost. The cost at an annexed facility would be somewhat jess because of existing capital equipment, thus the estimate of $2S3/.1 for an annexed facility (Nabisco, 1986.). 17. The annexed plant cost estimates are from the Australian firm of Queensland Sciece and Technolr.gy Ltd. The principal savings for the developing country case are in capital cost and utility requirements. Energy requirements for the process are substantial and some electricity will probably have to be purchased from the grid since most mills have limitations in their generating capacity. The bagasse generated in producing the cane juice should meet about 50% of the process heat requirements and there should be sufficient surplus steam available from the mill to meet the remaindcr. 81 FEED PRODUCTION OPTIONS 18. Whole cane can also be used for fodder feeds; for instance, whole cane could be ensiled, or used in simplified on-farm schemes, or even processed at a sugar mill annex where advantage was taken of excess cane crushing capacity and exhaust steam. This would raise the theoretical potential of cane available in the Philippines fcr carbohydrate leeds. 82 FEED PRODUCTION OPTIONS References Arboleda, C., Personal Communication, University of the Philippines, Los Banos, June 5, 1986. Badilla, R., Personal Communication, Monterrey Farms, Metro Manila, June 6, 1986. Behrends, L.L., Kingsley, J.B. Price, A.H., "Use of Ethanol Production By-Products for Producing Microalgae, Tilapia, and Freshwater Prawns", Tennessee Valley Authority, Muscle Shoals, AL, 1985. Ben-Ghedalia, D., Shefet, G. and Dror, Y., J. Agric. Scie. Comb., 100, 393 (1983). Carangal, A.R., personal communication, San Miguel Corporation, Manila, Philippines, October 20, 1986 Casebier, R.L., Hamilton, J.K. and Hergert, H.L. "Chemistry and Mechanism of 'W-ater Prehydrolysis on Southern Pin, ""uo6",Tappi, 52, 2369 (1969). DeBaussey V., personal communicati on, USA,0, Teguc igalpa, Honduras, October 20, 1986. del Rosario, E. J., "Biotechnology of Coconut Water Utilization", NSDB Technology 3ournal. p. 26, April 1980. del Rosario, E.J., "Papa, GM, Bergonia, HA, Malones, R., and Reyes, C., "Production of Food Yeast Using Coconut Water", WSIA-ASEAN Program Industry Information Report. University of the Philippines, Los Banos, 1984. El Consult, Diversificacion Agro-Industrial en base de la Produccion de Alcohol y .Subproductos de la Destileria Sula, Tegucigalpa, Honduras, December, 1985. Hajny, G.3., "Biological Utilization of Wood for Production of Chemicals and Foodstufis", USDA Research Paper FPL 385, Madison, WI, March 1981. Harris, J.F., Saeman, ].F. and Locke, E.G., "Separation and Utilization of Hardwood Heinicelluloses," Forest Products Journal, 8, 24S (195S). Henry, D.P. Greenfield, P.F. and Thomason, R.H., "The Pellicle Growth of Candida Ingens; an Organi-srr for the Treatment of Anaerobically Fermented Animal Waste and their Production of Protein", Dir. J. Appl. Microbcol Biotechnol, 18, 109, 1983. Hunter, B., "Feeding Trails Using Spirulina as a Feed Ingredient", Oceanic Institute, Warnianalo, HI, January 1985. Kerley, M.S., Fahey, G.C., Bergber, L.L., Gould, J.M., Baker, F.L., "Alkaline Hydrogen Peroxide Treatment Unlocks Energy in Agricultural By-Products", Science, 230, 1820, 1985. 83 FEED PRODUCTION OPTIONS Klausmeier, W. "Development of a Process for Converting Distillery Wastes into Aquaculture Feeds", 5ylvatex Corporation, April 1986. Kou<ios, E.G. "Physiochemical Fractionation of Annual Plants", presented at the symposium "Business Refining; Developing the Whole Plant Concept", 186th National Meeting of the American Chemical Society, Washington, D.C., August 28 - September 2, 1983. Leeds, R., Th( Philippine Shrimp Farming Industry: Risks and Opportunities for Private lnvestor:>, International Finance Corporation, Washington, D.C. Juiy 1984. Mock, C., Shri.:D Situation and Outlook, Fisheries and Development Analysis Branch, Nationa larine Fisheries Service, June1984. Moo-Young. M., Carnptey, J., Girard, P., "Costs Probed for Fuel, Feed from Corn Wastes", C&EN 59, 1985. Mosqueda- Velasco, M., Livestock Policy Choices: The Philippine Experience Bureau of Animal lndustrV Manila, Philippines, 1984. Nabisco, Personal Communication with Plant Chemist, Harrison, New Jersey, September 1986. NAS, Leuca-ena; Prorising Forage and Tree Crop for the Tropics, National Academy Press, Washington, D.C, 1984. Navarro, L., "Utilization of Sugarcane Bagasse as Animal Feed". CONSPEL, Sao Paulo, Brazil. 1985. NEDA Su.ar Industry Study, National Economic and Development Authority, Metro Manila, February 1985. Norell, J. R., Dreisker, D. W., Wegner, G. H-, and King, A. C., "Provesteen Products and Processes/Substrate3 Methanol, Sugars and Whey Dermeate", presented at Biotech '4 \Aashington, D.C., September 12, 1984. Ov'en, E., Klopfenstein, T. Urio, N.A., Straw and Other Fibrous By-Products as Feed, Developi-nent in Animal and Veterinary 5cience 14, Elsevier, Amsterdam, Holland, 24S, 1975. PFDA, "A Year of Modest Growth," in 1985 Philippines Fisherie Annual, Philippine Fisheries Development Authority, Quezon City, 1985. Prepared Foods, "Philips Develops Process to Streamline SCP Production", Prepared Foods, February 1985. QS&T, Prospectus, Queensland Science and Technology, St. Lucia, Australia, November 9, 1984. Robinson, M.A., "Trends and Prospects in World Fisheries", in the 1985 Philippines Fisheries Annual, Philippine Fisheries Development Authority, Quezon City, 1985. 84 FEED PRODUCTION OPTIONS Slagle, S. P., Zimmerman, D.R., "Evaluation of Yeast Single Cell Protein with Young Pigs", J. Animal Sci., 49, 1252 (1979). Soldis, S., "Forraje para Ganado", Mieles y Alcoholes, AS.A. de C.V. San Pedro Sula, Honduras, 1986. Unger, T., "Trans ormacao de Bagaco de Cana in Racao para Gado", and "Eugorde bios Corn Bagaco de Cana Tratada corn Soda", Unger Consultatioria e Particupacoes Industraisltda, Sao Paulo, Brazil, January 1984. Ventura, P., "Distillery Slops Treatment by Anaerobic Digestion," Destilaria de Tarlac. Villegas, P.M., Maldia, \\.C., Buergo, A-E. and Lacquiao, E.V., Technical Notes on the Livestock, Pouliry, Feed-Milling and Veter~nary Drug Industries, Farmers Development Assistance Group, Land Bank of the Philippines, February 19S5. Wanapat, M., Sundstol, F. and Garmo, T.H., Animal Food Sci. Technology, 12, 195 (1985). World Bank, Philippines: Sugarlands Diversification Study, The World Bank, Washington, D.C., March 6, 1986. Zaborsky, 0., "Feeds from Spirulina Process Engineering and Genetic Engineering Analysis of Co-Products" OMEC International Washington, D.C., November 1985. 85 APPENDIX A A NOTE ON REGIONAL ECONOMIC COMPARATIVE ANALYSIS 87 APPENDIX A A Note on Regional Economic Comparative Analysis The direct resource cost (DRC) is a measure used in several studies of economic policy and agriculture in the Philippines. DRC is defined as the ratio of domestic costs per unit of a commodity to its price minus ioreign costs per unit. The ratio of the DRC to the (shadow) foreign exchange rate (DRC/SER) indicates the efficiency of the commodity in generating foreign exchange. If the ratio is less than 1.0, the commodity has a relative comoar,,tive advantage. If the ratio is greater than 1.0, it has a relative comparative disadvantage. To standardize comparison among different production systems, the social profitability (SP) is computed as an index measuring social profit as a percentage of the social value of scarce domestic factors used in production (SP = net social product/domestic factor costs x 100). The private cost ratio (PCR) is a useful measure of private profitability. It is defined as the cost of domestic resources required for every unit of value added. (PCR = cost of domestic factors/total revenue - cost of traded inputs.) To standardize comparisons among different production systems, the private profitability index (PP) is expressed in terms of private net profit as a percentage of gross revenue or actual market prices (PP = net private profit/gross private returns x 100). L.A. Gonzales has analyzed the economic comparative advantages of major crop and livestock production systems of the Philippines. Tables 6, 7 and 8 of his publication Philippine Agriculture Diversification: A Regional Ec. )n':,mic Comparative Advanta'c Analysis are reproduced on the following page to illustrate the results of the ana , -is with respect to one of the crops studied. 88 Table 6 RANKING OF THE PRIVATE PROFITABILITY (%) OF RICE PRODUCTION SYSTEMS BY REGION, PHILIPPINES, 1983. R E G I O N S PRODUCTION SYSTEMS I II Il IV V I VI VII VIII IX x X1 XlI PP Rank PP Rank PP Rank PP Rank PP Rank PP Rank PP Rank PP Rank PP Rank PP Rank PP Rank PP Rank PSI: Ra nieo ;;pland, mechanized 14 PS2: Racnted upland, non-mechaitized -88 -1I 6 30 8 6 PS3: Ram!ed lowland, mechanized II 47 I -20 P54: Rauled loWldnd, non-mechanuzed 20 37 4 14 15 12 29 9 36 5 P55: Irrigated, mechanized 2a 41 2 21 27 39 3 34 6 30 8 12 PS6: Irrigated, iton-mechaiuzed 24 31 7 6 26 20 0.7 34 6 25 28 10 -59 SOURCE: Gonzales, L. A., Philippine Agricultural Diversification: A Regional Economic Comparative Analysis, 1984. Tahle 7 DOMESTIC RESOURCES COST (DRC) AND COMPARATIVE ADVANTAGE OF RICE PRODUCTION, BY TYPE OF SYSTEM, BY REGION, PHILIPPINES. 1983. R E G 0 N S I If fI IV V VI V11 Vill IX X XI XlI PROJECT SYSTEMS DRC PRC DRC DRC DRC DRC DRC DRC DRC DRC DR(- DRC DRC DRC DRC DRC DRC DRC DRC DRC DRC DR( DRC DRC SER SEP SEP SEI SER SER SEI SER SER SER SER SER PSI: Rainked upland. mechen:7ed 7.2 0.43 5.7 0.34 PS2: Rainfed upland, non-n-e,-hanized i5.3 0.l 9.7 0.58 9.1 0.54 A.2 0.17 9.5 ).If PS3" Rainfed lowland, mechanized 7.0 0.42 5.4 0.32 PS4: Rainfed lowland, ron-mechani7ed 7.1 0.42 6.3 0.37 8.4 0.50 8.4 0.50 7.1 0.412 7.9 0.4, 6.4 0.38 5.8 0.34 6.5 0.39 8.40 0.50 PS5: Irrigated, mechanized 7.4 0.44 6.2 0.37 7.3 0.43 9.3 0.55 A.7 0.40 6.7 0.40 7.1 0.4 2 12.9 0.77 PS6: Irrigated, non-mechanized 7.7 0.46 7.9 0.47 8.9 0.53 8.9 0.53 7.5 0.45 7.5 0.45 10.3 0.61 6,.4 0.38 7.3 0.43 SOURCE: Gonzales, L. A., Philippine Agricultural Diversification: A Regional Economic Comparative Analysis, 198t4. Table 8 RANKING OF THE SOCIAL PROFITABILITY (%) OF RICE PRODUCTION SYSTEMS 13Y REGION, PHILIPPINES, 1983 R F G 1 0 N S PROJECT SYSTEMS I II I IV V VI Vll Vill IX x XI Xli SP Rani P aik SI' I~irik ')'lRnk, SII Rank S3 Rank P SP Rank S11 Rankr Rank PP R P 96R PSI: kaifed upland, mechanized PS2: Ratnled upland, non-mecharuzed -8 44 54 127 4 44 2 P53: Rainled lowland, mechanized 98 98 162 I 67 PS: Rauiled lowland, non-mechanized 123 6 66 96 80 117 7 143 3 P55: Irrigated, mechanized 88 126 5 92 5I 108 10 109 9 114 8 67 P56: Irrigated, non-mechruzed 82 76 57 87 87 36 117 7 ' 7 97 6 SOURCE: Gonzales, L. A., Philippine Agricultural Diversification: A Regionzi Economic Comparative Analysis, 1984. 2 APPENDIX B INFRASTRUCTURE AND MARKET FACTORS FOR NEW AGRO-INDUSTRY VENTURES 93 Appendix B Infrastructure and Market Factors For New Agro-Industry Vertures Following are examples of the kinds of infras-ructural factors and market system considerations upon which commercial success for new agro-inclustiy enterprises depends: 1. Roads - Access and transport; conditions and distances to processing/storage sites. 2. Rail terminal poinis - Frequency and regularity oI service. 3. Potable water availability - Re: packing/processing operations. 4. Electric power availability. 5. Ports - Proximity to air/ship ports; frequency and regularity of service; port fees; cargo capacity of planes/vessels available; days to marketplace; level of "baksheesh' required to store, handle and move goods through port facilities. 6. Avaiiability of shipping containers - Refrigerated and dry; power sources for refrigerated contaihwr; oplprtunity for container backhaul utilization. 7. Repair and rnainitenance - Capabilities available to service agricultural, trucking and packing/processing equipment; level of expertise of available tradesener (mechanics, electricians, welders). 8. Spare parts availability - Customs regulations, duties; delivery time. 9. Sources and availability of any special fuels and lubricants. 10. Sources of packing materials and packaging - Boxes, tinplate, liners cost to imports vs local manufacture. A 11. vailability of uirkets for by-products. 12. Seed sources or availabil.ity nf nursery stock, or ability to establish propagation operations. 13. Government quality standards for products - Level of government inspection and enforcement. 94 Appendix B 14. Availability of tax and other incentives for agribusiness investors. 15. Extension services provided. 16. Commodity marketing or prevailing brokerage system and how organized; seasonality and price trends; marketing system organization and operation. 17. Producers' access to market intelligence information (supply, demand, price, and trends) for intended export markets. 95 APPENDIX C RECOMMENDA'IONS WITH RESPECT TO CIREATION OF A SUGARLAND DEVELOPMENT COMMISSION AND SECRETARIAT TO STIMULATE INVESTMENT IN NEW CROP VENTURES AND TO ASSIST COMMUNITIES FACED WVITH FORCED CROP SUBSTITUTION DUE TO MILL CLCSURES 97 Appendix C Recommendations wJth Respect to Creation of a Sugarland Development Commission and Secretariat to Simulate Investment in New Crop Ventures and to Assist Communities Faced with Forced Crop Substitution due to Mill Closures Due to the extreme urgency resulting from currently high unemployment and underemployment in rural areas, the sharp adverse impact that additional mill closings are likely to have on already depressed sugar producing regions, and the need to expedite economic development in order to strengthen the country's generally weak economy, the study team suggests that an organization - a task force or commission, assisted by a secretariat - be established for the specific purpose of facilitating new and/or expanded agribusiness development. Sugar growers, large and small, seem sincerely interested in exploring new crop opportunities, and appear willing to secure and -vest capital to accomplish this goal. However, many of the growers, their cooperatives, and commercial packers and processors are not convinced that key government agencies and ministries are prepared to make the necessary supportive commitment to develop expanded agroindustry. Farmers in the Phiiippines are no different from their counterparts in other countries. They are pragmatic, realistic, and unlikely to make bold initiatives involving the commitment of resources where they perceive a high degree of risk and/or a lack of commitment on the part of government and the public sector in suppo! t of those initiatives. The establishment of an organization to facilitate crop diversification ventures woulo be an initial dernonst:ation of the govern~aent's firm commitment to successfully develop the agricultural sector of the economy. The organization would serve two basic purposes: I) to promote and assist new agricultural investments; and, 2) to identify communities needing special priority attention. If successfu, such a commission would: 1) increase gross revenues from agiicultural products; 2) increase the number of jobs in depressed regions; 3) diversify the agricultural economy; 4) stimulate secondary and peripheral (supporting) industries; 5) promote social and political stability. The organization we recommend (Sugarlands Development Commission) shou!d probably be both temporary (5 YC ars) and independent of existing ministries, reporting directly to the President. The Commission's responsibilities should include: 1. Wcntification and promotion of diversification and substitution projects/ ventures that are implemnentable on a comrmercial basis under existing incentives and government policies. 98 Appendix C 2. Identification and promotion of projects/ventures which would yield commercial and social benefits, but which require additional incentives and policy support. 3. Performance of economic and technical evaluations for proposed new projects and ventures; analysis of site alternatives; development of proposed operating concepts; conduct of market reseach and planning. 4. Provision of assistance in drafting bankable business plans; limited technical assistance, where needed, to get projects started; assistance in obtaining government clearances and permits; and general facilitation for the developmet and/or expansion of ventures. 5. Provision of equity loans and/or partial (limited) guarantees where viable projects have elements of venture capital requirements, and where commercial financing has been refused or is otherwise not obtainable. 6. Counsel to the 'overninent in establishing policies and programs to accelerate the sugar lands' economic development process. 7. Establishmert of Community Task Forces in critical locations requiring special attention. We suggested the following as a possible implementation program: A. Establish a small, effective commission or task force composed of key ministers and representatives oI the sugar industry (including small as well as large growers) who have political influence and a high degree of professional competence and who would report directly to the President. B. Appoint an Executive Director and a Secretariat to carry out the work of the Commission, and to administer a reasonable initial operating budget. C. Set forth quantitative objectives and draw up a system of priorities for development. D. Formulate a development strategy, with the application of sound economic parar eters to evaluate project/venture alternatives. Initiate programs to promote private invest ment. Strategy could include: I. Analysis of resources and censtraints to economic development in sugarland areas. 2. Evaluation of markets, both domestic and export. Identification of comparative advantages. 99 Appendix C 3. Performance of prefeasibility analyses for proposed ventures to determine commercial viability. 4. Coordination of private capital, investors and entrepreneurs for feasible ventures. 5. Coordination of export product development projects with foreign market promotion/intelligence and trade mission offices. The "Sugarlands Development Commission" would be responsible for identifying areas requiring assistance in planning and implementing diversification programs. The Commission would also work with regional and provincial governments in creating local Community Task Forces to assist those communities. These local task forces should include staff from the extension, research and other government development agencies as well as local commercial, banking and community leaders. These would be truly "local" task forces, but the Sugarlands Development Commission1 would provide technical guidance and financial support, coordinating with regional and provincial governments. Principal functions of these Community Task Forces would include: 1) assessment of local physical and human resources, adjustment problems and production opportunities; 2) identification of the most promising crops and production technologies, testing of their technical and economic feasibilities and demonstration of their validity as potential alternatives to sugar production; 3) identification of deficiencies in infrastructure and constraints in support services for these crops or products to be successful; 4) determination of requirements for external technical and financial assistance; and 5) planning and organizing promotional programs for irnplernerilation of adjustments. 100 APPENDIX D OUTLINE FOR CHARACTERIZATION OF BEEF CATTLE INDUSTRY 101 APPENDIX D Outline for Characterization of Beef Cattle Industry A. Marketing ipformation for primary products I. Spatial and temporal demand for animal products. 2. Estimated profitability of domestic sales. 3. Transportation. 4. Quality assurance. 5. Wholesale and retail marketing methods. 6. Rural accumulation systems and auction sales. 7. Distribution and sale of feeder cattle. B. Processing capabilities. I. Locations and capacities 2. Utilization of secondary producis - horns, hide, hooves, bones, offal. C. Production Formation 1. Appropriate breeds for nucleus herds. 2. Breeding (crossing) strategies for production of feeder cattle. 3. Nutrition at optimal or sub-optimal levels. a. Sources of feed and composition of rations. b. Field production systems, e.g. extended or confined pasture, feed D. Animal health problems and solutions. 102
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