Cee - Securing The Future of Philippine Industries

COFFEE The Philippines in the Coffee Global Value Chain

April 2017

This research was prepared by the Duke University Center on Globalization, Governance and Competitiveness (Duke CGGC) on behalf of the USAID/Philippines, through the Science,Technology, Research and Innovation for Development (STRIDE) Program.This study is part of the Philippines Department of Trade and Industry (DTI) Board of Investment (BOI) Roadmap Initiative for the revitalization of the manufacturing industry in the Philippines. The report is based on both primary and secondary information sources. In addition to interviews with firms operating in the sector and supporting institutions, the report draws on secondary research and information sources. The project report is available at cggc.duke.edu.

Acknowledgements Duke CGGC would like to thank all of the interviewees, who gave generously of their time and expertise, as well as Richard Umali of the USAID Advancing Philippine Competitiveness (COMPETE) Project for his extensive support.

The Duke University Center on Globalization, Governance & Competitiveness undertakes clientsponsored research that addresses economic and social development issues for governments, foundations and international organizations. We do this principally by utilizing the global value chain (GVC) framework, created by Founding Director Gary Gereffi, and supplemented by other analytical tools. As a university-based research center, we address clients' real world questions with transparency and rigor.

cggc.duke.edu

Center on Globalization, Governance & Competitiveness, Duke University ? April 2017

The Philippines in the Coffee Global Value Chain

FINAL DRAFT FOR REVIEW

April 2017

Prepared by Penny Bamber, Jack Daly and Gary Gereffi Center on Globalization, Governance & Competitiveness, Duke University

Prepared for USAID/Philippines

This study is made possible by the generous support of the American people through the United States Agency for International Development (USAID). The contents are the responsibility of Duke University Center on Globalization, Governance and Competitiveness and do not necessarily reflect the views of

USAID or the United States Government.

The Philippines in the Coffee Global Value Chain

The Philippines in the Coffee Global Value Chain

Executive Summary................................................................................................................................... iv 1. Introduction ....................................................................................................................................... 1 2. The Coffee Global Value Chain ..................................................................................................... 2

2.1. Mapping the Coffee Global Value Chain ............................................................................ 5 2.2. The Geography of Demand and Supply in Coffee Global Value Chain....................... 9 2.3. Governance & Lead Firms ................................................................................................... 14 2.4. Standards and Certifications................................................................................................17 3. The Philippines in the Coffee Global Value Chain .................................................................. 21 3.1. Current Participation in the Coffee Global Value Chain..............................................22 3.2. Governance in the Philippines' Coffee Sector ................................................................ 26 3.3. Advantages and Constraints to Upgrading in the Philippines ...................................... 27

3.3.1. Advantages ..................................................................................................................... 28 3.3.2. Challenges.......................................................................................................................30 4. Upgrading: Lessons for Philippine Upgrading from Global Experiences ............................ 33 4.1. Guatemala: Product Upgrading into Specialty and Certified Coffee..........................35 4.2. Vietnam: Entry into Commodity Coffee and Upgrading into Production of Instant Coffee 41 4.3. Key Lessons for the Philippines from Guatemala and Vietnam .................................. 46 5. Preliminary Upgrading Trajectory Recommendations ........................................................... 48 5.1. Upgrading Trajectories ......................................................................................................... 48 6. Appendix ........................................................................................................................................... 51 7. Bibliography ...................................................................................................................................... 55

List of Tables Table 1. Sourcing Strategies of Lead Roasters by Market Segment ............................................. 17 Table 2. Select Private and Civil Society Standards in the Coffee GVC ..................................... 18 Table 3. Participation of Standard-Compliant Coffee in Global Market, 2012 .......................... 19 Table 4. Retail Sales of Coffee in the Philippines by Category, 2011-2015 ................................21 Table 5. Export Value of the Philippines' Coffee Exports, 2005-2014 ........................................ 25 Table 6. The Philippines' Coffee Imports, 2007-2014 ..................................................................... 25 Table 7. Advantages and Constraints of the Philippines in the Coffee GVC ............................. 28 Table 8. Key Stakeholders with Interests in the Philippines' Coffee Sector .............................. 32 Table 9. Selected Upgrading Strategies in the Coffee GVC ........................................................... 33 Table 10. Guatemala, Vietnam and the Philippines in the Coffee GVC ...................................... 35

List of Figures Figure 1. NYSE Prices for Coffee Beans and Total Volume, 1995-2015....................................... 3 Figure 2. The Coffee Global Value Chain ............................................................................................. 5 Figure 3. Leading Producers of Arabica and Robusta Coffee Beans, 2015/16 ........................... 10 Figure 4. Leading Exporters Unit Value for Exports, 2005 and 2015 .......................................... 11 Figure 5. Leading Exporters of Roasted Coffee, by Value, 2005-2015 ........................................ 12 Figure 6. South East Asia in Soluble Coffee Trade ........................................................................... 13 Figure 7. The Philippines in the Coffee GVC.....................................................................................23 Figure 8. Coffee Production Profile in the Philippines, 2008-2015...............................................24 Figure 9. Vietnam's Entry and Expansion into Coffee Production, 1990-2000..........................42

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The Philippines in the Coffee Global Value Chain List of Boxes Box 1. What is Specialty Coffee?............................................................................................................ 8 Box 2. Examples of Upgrading in the Philippines' Coffee Sector .................................................. 27 Box 3. PRDP Outreach in Coffee Sector ........................................................................................... 29

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