Thursday, 17 February 2011

A critical part of the food-supply chain

Business Mirror

As we have found out in the last two years, taking food for granted can be dangerous. When a country is hit with a 15-percent to 20-percent annual food-price inflation and the majority of its citizens are spending nearly half of their income on food, this is not politics that brings them to the streets.

In the Philippines I think we tend to look at our food-supply chain as the poor dirt farmer in the province and the giant food-processing conglomerate like San Miguel Corp. Yet, there is large middle ground.

Boo Chanco, writing in the Philippine Star yesterday, spoke of a conversation where San Miguel’s operations leader and visionary Ramon S. Ang (RSA) talked about San Miguel’s food business. “RSA essentially got bored with San Miguel’s traditional business—beer, beverages, food and packaging. They were not sexy enough. I remember him telling me that he could see only normal growth rates that simply do not excite him.” I will not comment on the sexiness of the food business, but Ang’s comments are revealing.

There is little more that San Miguel can do with its pervasive food business that would have a significant impact on its bottom line. The San Miguel group will have generated P520 billion in revenues for 2010. Probably nothing short of P10 billion to P15 billion in additional revenue from the food business would be worth San Miguel pursuing additional ventures. But there probably is an additional P10 billion to 15 billion to be made in the food business in the Philippines. What may rightly seem like economic crumbs to San Miguel opens a very large and very lucrative business opportunity for other, smaller companies.

This discussion is important because we are inclined to dismiss, if not completely put down, the agricultural/food-business potential of the country.

There are dozens of medium-large companies that make sure we have an abundance of food available and which could create wealth for the country through food exports. Few are publicly listed and, therefore, it is impossible to learn what the business model is, what their economic impact is, and what their plans are. However, two are listed in the Philippine Stock Exchange—AgriNurture Inc. and Alliance Select Foods—companies that are profiting from the business that the giant food conglomerates may ignore

Maybe you think of the Philippine food-supply chain by what you often see traveling the expressways. Foreign visitors love to take pictures of jeepneys fully loaded to overflowing with eggplant or buko or onions. But that is not the business model of a company that generates a billion pesos a year in revenue.

Ever heard of AgriNurture? Me neither. But when I started researching the Philippine food industry, I realized that I have contributed a few pesos to their approximately P50-million bottom line. The company started in 1997, and was listed as a public company in Australia in 2009. For 2010, it posted P1.5 billion in revenue. So what does AgriNurture do to make this kind of money? It is an integral and important part of the Philippine food-supply chain.

The large meat-and-poultry conglomerates created some of their success on contract growing, that is, providing small producers with funds and expertise and contracting to buy their production. For example, 80 percent of Philippine hogs are raised by very small producers.

AgriNurture has the same concept with farm produce. They call it their Farm-to-Plate model. Providing famers with demo-farming and contract growing, they distribute and retail fresh fruits, vegetables and processed food all over the Philippines. Beginning in 2001, the company diversified into other various agro-commercial businesses, specifically focusing on the export trading of fresh Philippine carabao mangoes, kinalabaw variety.

In 2009 the local distribution of fruits and vegetables through its branded First-Class Agriculture and Lucky Fruit and Vegetable accounted for two-thirds of its revenues and was the chief driver of income growth. That’s P700 million bringing vegetables and fruits to the table. And this produce was not piled high on old slow- moving jeepneys distributing to the SM Supermarket, Makro, Puregold, Metro Gaisano and Waltermart, and the wet markets that account for 70 percent of the distribution of produce in the country. It takes 700 employees and over P1 billion in hard assets to make this happen and to make corporate profits.

While we may not be able to produce all the rice we need, we do have an excess of other crops. AgriNurture exports homegrown fruits such as coconut, banana, pineapple, tamarind and papaya, as well as mango nectar, coco juice, coco cream and coco milk to China, the Middle East, North America and the European Union. In 2011 exports are expected to exceed 60 percent of total revenues, with bananas creating a billion pesos in sales for the company.

In spite of all the negative talk you hear about foreign countries doing all they can to stop Philippine agri imports, AgriNurture is one of the few accredited companies that have the capacity and license to export fresh mangoes to Japan and Korea. It went out in 2010 and bought a Filipino company funded by the Koreans just to export to Korea. It also owns a couple of Chinese-food companies to insure its presence in China.

What the principles at AgriNurture are doing successfully is not rocket science because the same basic process of getting food from farm to table is the same now (with technological advancements, of course) as it was a thousand years ago. In fact, its bottom line has not grown as fast as revenues because it has been hiring more professional managers.

Ramon Ang is described as one of the biggest and best risk-takers in Philippine business. But these companies that have risked their fortunes and futures and succeeded with Philippine agriculture are vitally important. While San Miguel may rightly bring further success to the Philippine power, mining, and infrastructure sectors, these other companies are doing the same for our orphan child of agriculture.

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