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

Introduction
In 2007, the Philippines became the first country in Southeast Asia to have
biofuels legislation when the Biofuels Act under Republic of the Philippines Act No. 9367
was signed by former President Gloria Macapagal-Arroyo where it aimed at reducing
dependence on imported fuels, enhancing the quality of the environment, and creating
opportunities for countryside development(USDA, 2013).
The Department of Energy (DOE) is the central agency in authority for the
Philippine Biofuels Program. Its plan for the country is defined in the Philippine Energy
Plan 2012-2030 (PEP 2012-2030) and National Biofuels Plan (NBP 2013-2030). United
States Department of Agriculture (2013) stated that the PEP 2012-2030 reflects the
Philippine governments (GPH) mission to ensure the delivery of secure, sustainable,
sufficient, affordable and environment-friendly energy to all economic sector.
This study presents the impact of emerging biofuel markets in the Philippines to
the farmers(what benefits can they get from this act). Moreover, this study can be used
for further research on case analysis and feasibility studies involving biofuel.

Nature and Significance of the Study

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


agricultural feed stocks such as sugarcane, potato, cassava and corn. Ingram (2012)
stated that the gasoline is blended with ethanol to lessen the use of irreplaceable fossil
fuels and the importing of fuels and to have a cleaner and sustainable domestic fuel
.There has been significant arguments about the utility of bioethanol replacing gasoline
in the Philippines. Due to the massive land requirement of crops for the production of
ethanol, along with the energy and pollution balance of the production mainly from corn,
demands for farmers are increasing.
The social welfare effects of a large-scale conversion to the use of biofuels likely
will vary across and within countries (Woods Institute for the Environment ,2006 ). While
the landless poor net food consumers are likely to be hurt by higher food prices,
many poor farmers stand to benefit if trade barriers are reduced.
In Philippines, an agricultural country, our farmers play a very significant role in
the production of crops. It is important to know the benefits they can get from the
emerging biofuel market since this Act is planned to be fully implemented in the year
2030. This study will help the farmers in knowing how far they can increase their
economic welfare given the current economic status of biofuel. Furthermore, this
research will help the farmers identify their strengths and weaknesses in adjusting to
new and unconventional use of farm lands.

Ethanol is both feeding and fueling the world. One stack of corn produces
approximately 16.5 pounds of animal feed and 2.8 gallons of ethanol. Ethanol is made
from field corn, not sweet corn that humans consume.
Ethanol biorefineries only use the starch in the corn to make ethanol. The
protein, fat and fiber in the corn returns to the livestock feed market as distillers grains
or other co-products. Distillers grains are fed to beef cattle, dairy cattle, swine, poultry,
sheep and fish.
Objective of the Study
The general objective of this study is to:
1) Evaluate the relationship of bioethanol to the production of corn
2) Assess current patterns of corn production in the Philippines, especially
during post production of bioethanol in the country.

Review of Related Literature


Republic Act 9367 Biofuel Act 2006
Biofuels Act of 2006 states the direct use of biofuels in the country, establishment
of the purpose of biofuel in the said program, assigning of appropriate funds and other
purposes. Section 2 provides the declaration of the policy.

SEC. 2. Declaration of Policy. - It is hereby declared the policy of the State to


reduce dependence on imported fuels with due regard to the protection of public health,
the environment, and natural ecosystems consistent with the countrys sustainable
economic growth that would expand opportunities for livelihood by mandating the use of
biofuels. As a measure to:
a) Develop and utilize indigenous renewable and sustainably-sourced clean
energy sources to reduce dependence on imported oil;
b) Mitigate toxic and greenhouse gas (GHG) emissions;
c) Increase rural employment and Income; and
d) Ensure the availability of alternative and renewable clean energy without any
detriment to the natural ecosystem, biodiversity and food reserves of the country.

Biofuels Act of 2006 stated the different advantages including the increase in
rural employment and income. This part of the policy affects the farmers because they
are the one addressed to the production of crops that can be used for creating biofuel.

Biofuel Production
The development of biofuel has been expanding rapidly because of the
increasing prices of crude oil, desires of countries to be independent to foreign energies
and the alarms about climate change. Dong (2007) explained that as developed
countries like United States expands their production of biofuel, developing countries

like Philippines are expanding their biofuels industry as well in order to power their
growing economies. It has been declared that biofuel is the alternative fuel of the future
that gives new opportunities to small-scale farmers and it emits cleaner energy. Written
below is the implementation of the Biofuels Act in the Philippines.
Biofuels Act in the Philippines. On January 12, 2007, former President Gloria
Macapagal Arroyo signed the Republic Act 9367 or the Biofuels Act of 2006 which took
effect on February 16, 2007. The law is expected to bring numbers of benefits to the
country because the country is a very good location for investment along with the strong
government support and the availability of land and technical manpower in distillery
operations (Halos & Tamara, 2007).
Republic Act 9367.An act mandates the government to reduce or decrease the
dependency of Philippines to foreign and imported fuels, to phase out the use of harmful
gasoline additives and to create an incentive scheme. With the creation of a National
Biofuel Board (NBB), it shall monitor the Biofuel Program and ensure if the supply of
sugar is enough to meet domestic demands.
Still, developing countries faces bigger problems than developed countries
because developing countries still need to address the food security issue when they
develop biofuels. The development of biofuel has affected every aspect of food markets
and prices in both domestic and international markets. As more food grains will be
used to produce biofuels, food grain carryover stocks will remain tight, and average
grain prices will increase. Moreover, these price increases also increase the feed cost
for livestock(Dong, 2007).

A study conducted by the Oak Ridge National Laboratory, a U.S. Department of


Energy National Laboratory, explained that Biofuels (short for biomass fuels) are liquid
transportation fuels that substitute for petroleum products such as gasoline or diesel.
They include ethanol and biodiesel (a vegetable oil product) made from agricultural
crops and residues, forest residues, or other kinds of plant-based biomass feedstocks.
Bioethanol Production
Ethanol has become a very important agricultural product. In 2005, more than
13% of U.S. corn production went toward making this fuel additive/fuel extender, which
lessens U.S. dependence on foreign oil imports, is cleaner for the environment, and has
substantial impact on the rural economy and agriculture production (Mosier and Ileleji,
2006).

Employment Rate

Employment in Agriculture by Region and Year

PHILIPPINES
..NCR
..CAR
..Ilocos Region
..Cagayan Valley
..Central Luzon
..Southern Tagalog
..CALABARZON
..MIMAROPA
..Bicol Region
..Western Visayas
..Central Visayas
..Eastern Visayas
..Zamboanga

2006
11,68
2
36
352
715
808
757
..
766
581
882
1,178
800
760
659

2007
11,78
6
36
360
690
810
780
..
757
581
877
1,197
817
758
667

2008
12,03
0
29
369
706
793
792
..
763
602
916
1,205
851
761
675

2009
12,04
3
31
367
734
832
795
..
763
619
875
1,155
856
756
696

2010
11,95
6
25
375
752
797
802
..
759
618
844
1,155
863
743
712

2011
12,26
7
31
366
764
848
829
...
742
649
852
1,220
905
770
699

2012
12,09
3
31
351
698
844
820
..
721
626
887
1,140
874
788
661

2013
11,83
5
29
348
649
846
846
..
669
598
866
1,107
880
807
659

2014
11,80
1
31
371
662
819
832
..
725
596
860
1,206
904
502
632

Peninsula
..Northern Mindanao
..Davao Region
..SOCCSKSARGEN
..CARAGA
..ARMM

784
693
764
407
740

768
699
789
400
800

814
729
811
416
797

801
703
836
410
814

805
683
819
392
812

827
746
832
388
799

846
716
843
386
861

773
690
837
391
840

848
704
828
393

Unit:thousand persons

http://countrystat.psa.gov.ph/selection.asp
Agricultural Wage Rates of Farm Workers by Geolocation, Type of Wages, Type of Farm Workers, Year and Sex
2006
M
Davao
Region
Nominal
Wage Rate
ALL
FARM
WORKER
S
Corn
Workers
Real Wage
Rate
ALL FARM
WORKER
S
Corn
Workers

2007
M

2008
M

2009
M

2010
M

2011
M

151.8
3

143.3
9

155.1
7

149.6
4

163.6
1

156.4
5

166.1
2

157.5
9

169.1
9

166.4
3

182.7
7

179.95

141.6
0

137.2
0

143.3
6

142.8
3

155.1
7

152.5
8

155.9
9

152.9
9

160.5
5

154.8
0

170.8
7

165.74

107.9
1

101.9
1

107.2
4

103.4
1

102.5
1

98.02

99.47

94.37

97.35

95.76

102.4
2

100.83

100.6
4

97.51

99.07

98.71

97.22

95.60

93.41

91.61

92.38

89.07

95.75

92.87

In Ilocos Region, Cagayan Valley, and Central Luzon, wage rate for coconut started in 1984.
In Cagayan Valley, wage rate for sugarcane started in 1981.
Disaggregation by sex started in 1994.Type of WagesReal Wage RateCPI:2000=100Latest update:2012-08-23 10:00

Financial Assistance from the Government


Government financial institutions, such as the Development Bank of the
Philippines, Land Bank of the, Philippines, Quedancor and other government institutions
providing financial services shall, in accordance with and to the extent allowed by the
enabling provisions of their respective charters or applicable laws, accord high priority to

extend financing to Filipino citizens or entities, at least sixty percent (60%) of the
capital stock of which belongs to citizens of the Philippines that shall engage in activities
involving production, storage, handling and transport of biofuel and biofuel feedstock,
including the blending of biofuels with petroleum, as certified by the DOE.

While global demand for fossil fuels grows, gasoline prices remain volatile. Add in concerns
about climate change and alternatives to oil-based fuels look increasingly attractive. However,
corn-based ethanol, the most prominent biofuel in the United States, will not answer any of
these issues.
The ability of corn-based ethanol to reduce U.S. dependency on foreign oil is limited; even
dedicating the entire U.S. corn crop to ethanol would displace only a small share of gasoline
demand. Plus ethanol does little to nothing to fight climate change. Large-scale corn production
requires farm equipment that runs on fossil fuels. Coal-powered ethanol refineries can lead to
higher greenhouse gas emissions than the fossil fuel ethanol is intended to replace.
2016 GRACE Communications Foundation

Corn growers and ethanol producers talk enthusiastically about replacing the oil fields of the
Middle East with the corn fields of the Midwest. But the true potential for biofuels to replace oil is
not as sparkling as the rhetoric.
The most favorable estimates, which include still-developing cellulosic feedstocks, point out that
fuel made from biomass can replace only a fourth to a third of transport-related oil
consumption. The Congressional Research Service has estimated that even if 100 percent of
the U.S. corn harvest were dedicated to ethanol, it would displace less than 15 percent
of national gasoline use.

When blended with gasoline, ethanol helps to burn the fuel more effectively and produce less
pollution. Ethanols role as an oxygenate G became prominent in the mid-2000s when many
states began banning the more widely used oxygenate MTBE. MTBE was found to be a drinking
water contaminant requiring expensive cleanup efforts. Ethanol became touted as a safe
alternative resulting in a big push to blend it with gasoline. This does seem like a redeeming
quality, but is not enough of a reason to expand corn-ethanol use.

White

2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016

Retail

Yellow

corngrain

Corngrain

Wholesale
10.28
11.98
11.73
15.46
16.88
15.38
16
16.05
15.56
14.58
15.38

Wholesale
10.62
10.88
12.70
15.25
13.29
15.37
16.06
15.96
16.33
17.06
17

14.23
14.80
15.22
22.50
22.67
18.99
19.45
19.83
19.73
20.02
22.22

Retail

14.21
15.07
17.72
20.24
18.74
19.84
21.14
21.80
21.67
22.61
22.44

Corn as Fuel
Humans do not eat the corn used to make ethanol
Ethanol production is not taking away from human food consumption. There are two
types of corn grown in the United States. Field Corn, a grain that humans cannot digest
in its raw form, is used in the production of Ethanol. Sweet Corn, a vegetable that
humans can digest, is not used in the production of ethanol.
In the Philippines, there are two type of corn; white and yellow corn.

Land Usage
http://unctad.org/en/docs/ditcted20064_en.pdf
One concern involves land increasingly being devoted to fuel crops, with diversion from other
purposes, such as food and feed production, forestry, animal grazing or conservation. In the
mind of some observers, this is a threat to the availability of suitable land for all purposes. In
some regions, the availability of water, rather than land, may become a constraint to growing
energy crops. Scientific evidence shows, for example, that some biofuel crops consume very
large amounts of fertilizers and water.67 According to some, engaging in large scale energycrop plantations may require a trade off between lower food security for higher energy security

Soil resources are very important for the Philippine economy. Half of the
countrys soil resources is classified as Inceptisols, best suited for cultivated crops.
Those classified as Entisols, Vertisols, and Mollisols are economically important for rice
and other crop production. The Ultisols are considered problem soils because of their
high erodability and low nutrient content. This type of soil is found in steep areas and is
best suited to woodland, recreation, or wildlife. Nevertheless, Ultisols still have
potentials for agricultural production (see appendix table B.7, page 88). Despite its
structural transformation, the country remains to be primarily agricultural and rural. The
1995 data from the National Statistical Coordination Board (NSCB) showed that
agriculture contributed about 20 percent to the Gross Domestic Product and employed
43 percent of the labor force. The 1990 Census of Population and Housing (CPH) of the
National Statistics Office (NSO) showed an increase in the countrys population,
indicating a growing population largely dependent on land for its food and livelihood.
Other countries have also made similar calls for increased food production in the wake

of rising population, shrinking food plots, and changing climatic conditions, among
others. Of the multitude of factors affecting food security, the physical and biological
characteristics of soil as a natural habitat for the production of food and raw materials
dictate the capacity to produce food. The productivity problem is further aggravated by
the fact that not all of the countrys agricultural lands are arable. Some areas do not
provide good ground for the cultivation of crops because of various soil and terrain
constraints. These areas cover about 21.5 million hectares of land. Aside from the soil
constraints (e.g., acidity, texture), soil is also subject to the phenomenon known as soil
erosion. This has become a major agricultural and environmental problem because it
decreases crop productivity, reduces Environmental and Natural Resource Accounting
Philippine Land and Soil Resources Devoted to Agricultural Uses 54 water storage and
electricity production, shortens the lifespan of dams through siltation and increases
maintenance cost. Considering that soil is one of the most important natural resources
because of its direct relation to food production, it is necessary to understand its nature
and characteristics to be able to optimally manage and conserve the resource. Without
proper management and conservation measures, soil will become susceptible to
damage.
http://www.nscb.gov.ph/peenra/Publications/asset/soil.pdf
1. MARKET AND REGULATORY FRAMEWORKS IN SELECTED DEVELOPED
AND DEVELOPING COUNTRIES The Philippines
The Philippine government is actively promoting the integration of biofuels
into its energy portfolio as a means of increasing its energy self-sufficiency,
environmental stewardship, and economic development. The demand for

gasoline in the Philippines is predicted to increase over 60 per cent in the next
decade and the country is highly dependent on imported energy: In 2004, it
imported 49 per cent of its energy supply, up from 46 per cent in 2003.
Meanwhile, environmental concerns, including air quality and global climate
change, have assumed prominence in recent years, increasing the attractiveness
of cleaner fuels. The 2005 Energy Plan aims at increasing energy self-sufficiency
to 60 per cent by 2010. Additionally, the Philippines is actively promoting itself as
a host to projects financed under the Clean Development Mechanisms (CDM) of
the Kyoto Protocol.
Three biofuels constitute the primary focus for the country. Coco-methyl
ester (CME) is produced from indigenously-abundant coconut oil. Its qualities as
a diesel fuel substitute are noteworthy both for stationary and automotive
engines. The oil industry is, however, still reluctant to promote CME blends, citing
lack of testing on rust implications and pipeline capabilities as rationales for their
reticence. Jatropha-methyl ester (JME) is made from the vegetable oil of seeds
from the jatropha curcus plant.
In 2005, the Philippines produced around 83 million litres ethanol, mainly
from sugar. In 2004, President Macapagal Arroyo required all government bodies
and affiliates to substitute at least 1 per cent of their diesel use with CME.
Government agencies also launched a programme to substitute CME for diesel
fuel in the island province of Romblon to demonstrate its potential benefits.
Throughout the pilot project, environmental impact assessments will be
conducted and operating data will be carefully tracked for use in future
undertakings. In November 2005, 17 Philippine congress passed a bill which

requires all gasoline sold to be blended with 5 per cent ethanol within two years.
The government is also offering economic incentives for the promotion of
renewable energy including duty-free input imports, tax credits for domestic
capital equipment, and tax exemptions for real estate. Furthermore, the
government set up a profit sharing scheme for the proceeds from renewable
energy development projects. These government-led initiatives are successfully
spurring private-sector investment as evidenced by Petron's commitment this
year to sell coco-diesel products in its fuel stations. Additionally, Japan-based
Marubeni Corp. plans to invest in five new ethanol distilleries and cogeneration
plants in the Philippines, and Hong Kong-based Asiagen has shown interest in
building an ethanol plant there as well. The Kyoto Protocol's allowance for biofuel
projects under the CDM brings further opportunities for the deployment of
biofuels. Barriers to further diffusion of CME include lack of standards,
processing costs, weather volatility, and immature technologies. However, the
government can help CME overcome these obstacles by offering tax exemptions,
tariff reductions, and research funding. The Philippine government has
implemented the following five strategies to encourage the expansion of biofuel
markets: (i) build capacity for national authorities to develop and implement a
new regulatory framework; (ii) expand external assistance and support through
the coordination of regional and international initiatives; (iii) establish national
databases for bioenergy sources to facilitate more efficient markets; (iv) develop
programmes to more effectively utilize the supply and demand sides of biofuels;

(v) launch pilot projects to verify the technological feasibility and provide lessons
for subsequent activities.
Farmers benefits
For example, farmers in Mexico, currently unable to compete with the U.S. in
maize production, likely will be able to produce corn profitably given higher corn prices.
In China, where many of the poor are landowners, much of the country likely will benefit
from higher commodity prices. (Woods Institute for the Environment)

Study form US
The price of corn varies to the supply and demand curve of the corn