Industry Clustering using the Value Chain Approach

Transforming Relationships to Increase Competitiveness and Focus on End Markets

Undersecretary Merly M. Cruz DTI-Regional Operations Devt Group 12 March 2012

OUTLINE OF PRESENTATION I Introduction (Concept, Legal Basis)

II Value Chain as a Tool III Industrial Governance Framework

IV National Industry Cluster Capacity Enhancement Project (NICCEP)

V Sample Application (Coco Coir & Peat)

 Industry Clusters are groups of competing, collaborating and interdependent businesses within a value chain. It has increasingly been recognized as an effective approach in industrial development and promotion of micro, small and medium enterprises as it encourages competitiveness. The clustering process necessitates the operation of upstream (raw material suppliers, production inputs) and downstream (logistics, value-adding, packaging and marketing) economic activities to support the whole value-chain.

CONCEPT

VALUE CHAIN
- The value-creating flow of a good from RM, production, commercialization, & ultimately delivery to end-users or consumers.

INDUSTRY CLUSTER
- A geographic concentration of interconnected businesses, suppliers, & associated institutions creating direct & indirect synergies among them.

DEFINITION

 In the Philippine Development Plan for 2011-2016, Inclusive growth and poverty reduction goal Increase productivity and efficiency of the industry and services Contribute more to economic growth and employment. The strategy towards clusters should have coordinated interventions to provide an integrated response to the needs of the industry clusters. The PDP recommends maximizing public-private partnerships (PPP) in the identification of solutions for the challenges and problems of the industry clusters.

Alignment to PDP 2011-16

Value Chain Framework

Basic Functions (chain links)
Provision of specific inputs Production Transformation Trade Final Sale

Provide - Equipment - Inputs

Grow Harvest Dry etc,

Classify Process Pack

Transport Distribute Sell

Specific consumer market

Categories of Chain Operators and their relations

Specific input providers Primary producers Logistics centers, industry Traders Final Sales point/Retailer

Source: ValueLinks Manual, gtz

Mapping the Institutional & Policy Environment

for Agro Industry
Processing Production Collection
Agro industry

Wholesale
Importer

Retail
Wholesaler

Consumption

Vendor

Distributor

Modern Retail

Consumer

Farmer

Collector

Food Services Supplier

Association

Key Institutional/Policy Factors Influencing Chain Dynamics and Actor Behavior Tenure Services Private Standards Marketing regulations Public Standards Tariffs Foreign Investment Policy Cultural Preferences

Cooperative law

Main types of industrial clusters in developing countries

Clusters of large national firms and local suppliers Clusters of Small & Medium Enterprises Subsidiaries of MNCs and local suppliers

Cluster-based Industrial Development Strategy

Advantages of Industry Clusters

Its demand-driven Requires raw material production and optimizes utilization Reduces costs of operation and encourages productivity Requires specialization of major players Provides an avenue for leveraging on anothers specialties Increases opportunities for innovation to be competitive Players pursue joint solutions to common problems They build on common labor pool, technology and infrastructure They learn collectively what it takes to be competitive Cluster-based Industrial Development Strategy

Guidelines for Cluster Development

Clear view of the goals Let the private sector lead One size does not fit all Match initiatives to the level of government

support/program Build a cluster organization Promoting and supporting , networking and co-operation
Cluster-based Industrial Development Strategy

The way forward: new forms of industrial governance

Cluster based development strategies are formulated and implemented at local/regional level through partnerships between the government, the industries and the institutions of the innovation and learning system; Support policies and joint programs focus on improving the innovation and learning system : - promoting external linkages between clusters & global partners;
developing technical and managerial skills ; enhancing technological and innovation capabilities and efforts ; supporting entrepreneurship, SMEs and networking; Improving connectivity ( road and telecom infrastructure)

Cluster-based Industrial Development Strategy

Framework on Industrial Governance

The industrial system
Global industries

Local industrial clusters

Industrial Governance Framework Macro Conditions

Source: Griffiths, Martin. A Presentation of the Flinders University

National Industry Cluster Capacity Enhancement Program (NICCEP)

Project Brief
Project Duration : 3 years (2012-2015) Implementation Date : April 2012 Target Industry Clusters Luzon (8) - Milkfish, Dairy, Coffee, Bamboo, Tourism, ICT, Health & Wellness (H&W) and Wearables & Homestyles Visayas (5) - GDH, Tourism, ICT, Seaweeds and H&W Mindanao (8) Rubber, Poultry, Tuna Oil Palm, Banana, Mango, Coconut, Seaweeds, Wood, Mining, Tourism Meeting between DTI & JICA Advisor Minoru YAMADA & and ICT
his Team on June 27, 2011 at DTI-RODG Makati.

NICCEPs overall goal is to facilitate increase in the contribution of the selected priority industry clusters to the national economy particularly in terms of o creation of jobs, o development & strengthening of SMEs, o increase in value-adding, o improvement in the business environ, more importantly impact on the poverty.

GOAL

 Enhance the capacity of selected industry clusters throughout the country to plan, implement, facilitate service delivery, evaluate projects, and improve industry competitiveness. Replicate DICCEP experience on industry clustering approach nationwide.
(Note: DICCEP ended 2010 with a recognition as the 2010 Official Development Assistance (ODA) Good Practice Award under Strategies for Achieving Outcomes category by NEDA. )

OBJECTIVES

JICA

Dispatch of the Experts Counterpart trainings in Japan Training/workshops/monitoring Local activities of target clusters

DTI Staff allocation Office space for Japanese Experts Counterpart Costs for Trainings/Workshops/Monitoring & Local Activities of the Target Clusters Others (ID for Experts, Available data & info related to the Project, etc)

INPUTS

Implementation Structure of the Project

*NPMO: National Project Management Office *SPMO: Satellite Project Management Office *DTI: Department of Trade and Industry *RODG: Regional Operations and Development Group *GDH: Gifts, Decors, House wares *H&W: Health & Wellness *W&H: Wearables & Homestyle

NPMO DTI-RODG
-National Project Director -National Project Manager -Staffs for daily operations

Secretariat

Industrial Cluster Development Unit DTI- Office of Secretary

SPMO DTI-Region III (Angeles) -Satellite Project Director -Satellite Project Manager -Staffs for daily operations

SPMO DTI-Region IV-A (Laguna) -Satellite Project Director -Satellite Project Manager -Staffs for daily operations DTIRegion IVB

SPMO DTI-Region VII (Cebu) -Satellite Project Director -Satellite Project Manager -Staffs for daily operations

SPMO DTI-Region XI (Davao) -Satellite Project Director -Satellite Project Manager -Staffs for daily operations

DTI-Region IX

DTI-CAR DTI-NCR

Rubber R9

Coffee CAR
DTI-Region II

H&W NCR Bamboo R3 Tourism R4B

H&W R7
DTI-Region VI

Dairy R2
DTI-Region I DTI-Region V

ICT R4A Milkfis h R1

ICT R6
DTI-Region VIII

W&H R5

Seaweeds R7

North Luzon

South Luzon

GDH R8

IT Wood R11 R11 Tuna Seaweeds R12 R11 Oil Palm DTI-Region XIII R13

Visayas

Mindanao

DTI-Region XII

Touris m R7

Poultry Banana DTI-Region X R10 R11 Minin Mango g R11 R11 Tourism Coconut R11 R11

Priority Industries for National Convergence

Priority Industries for National Convergence

 Practical

and sustainable operational workflows for promoting and mainstreaming the industry cluster approach are designed & practised models of industry cluster approach are established within Luzon and Visayas of upgraded industry clusters are established in Davao to provide lessons and best practices for other regions

Pilot

Models

OUTPUTS

Sample No. 1

Coconut Coir Industry (SAMPLE )

Quick Facts
Areas Planted to Coconut 3.04 M hectares 27% of total agricultural land 68 out of 79 provinces are coconut areas 1,195 coconut municipalities Coconut trees 1,195 coconut municipalities 341.3 Million bearing trees Nut Production 15.1 Billion nuts/year (average 2005-2009) 45 nuts/tree/year (average 2005-2009)
The Philippines is one of the Top 3 producers around the world Source : PCA Website

Coconut by-product: Coco Coir & Coco Peat

Coco Coir is a light, bulky, long fiber extracted from coconut husk Coco Coir Peat is the 'coir fiber pith' or 'coir dust' produced as a by-product when coconut husks are processed for the extraction of the long fibers from the husk. Coco Coir Peat is the binding material that comes from the fiber fraction of the coconut husk. Traditionally thrown away as waste material or used as fuel

When processed:
From Coco Husks

To 30% Coco Fiber

and 70% Coco Peat

Uses of Coco Coir

Widely used as bed mattresses

Other uses

Coco pots Upholstery

Rope

Car seat

Geo Textile for Soil Erosion Control

DEMAND for Coco Coir Products

1.

Mattress for China

Annual demand: 100M beds/mattresses
(4.5 kg of coco fiber to make 1 mattress)

Import of raw coco fiber in 2009 o 200,000 MT (US$ 56 M) o Phil exported 1,123 MT (0.5% only) Chinas demand increases @ 20% every year or US$11 M

Source : BETP

demand for China

2. Geo Textile-Erosion Control Materials

For Chinas Desertification project

Estimated at 270,000 sq km concentrated mostly in the Northern part, i.e., provinces of Beijing, Harbin, among others Desert areas increasing around 1.27% every year due to sandstorms occurring during the months of October to December

Uses of Coco Peat

Europe market: for cut flower (exports more than $2B/year)

Multi-purpose soil conditioner & growing medium (horticulture & Used as a filter vegetation) for water treatment Being systems (high-end but 2 exported to a very small market Japan for 3 around 0.1%) animal bedding
1

Locally: for nurseries, growouts of trees, landscaping Green houses using soil-less, hydro-phonic system

Brick Type

Block Type

Loose Form

Major Export Markets

Baled Coco Coir

Peoples Republic of China Taiwan/Hongkong Singapore Japan USA

Japan
Nets of Coir

Coco Peat

Korea Peoples Republic of China Taiwan/Hongkong Japan Singapore UK, USA & Canada

Comparative Coconut Production and Volume of Exports of Coir Products 2009

Country Area Planted (million ha.) Production (B nuts) Coir Products Exports (in MT)

Sri Lanka India Thailand Indonesia Philippines Malaysia

Source: PCA

0.395 1.895 0.239 3.850 3.402 0.100

2.853 15.7302 1.104 16.4981 15.6683 0.379

151,061 83,094 53,827 14,603 4,561 1,738 (2008

figure)

Coconut Tree Plantation (In hectares)

CAR - 281 ha I - 11,540 ha II - 13,661 ha III - 24,088 ha IV-A - 343,568 ha IV-B - 179,321 ha VI - 119,663 ha X - 300,575 ha IX - 369,013 ha ARMM 315,490 ha XII - 169,254 ha V - 447,764 ha VIII - 383,546 ha VII - 128,707 ha XIII - 219,107 ha XI - 375,952 ha

Approx. Sri Lanka

Source : PCA Website/DA-BAS, 2009

Coconut Production (In Metric Tons)

I - 38,023 MT III - 199,730 MT

CAR - 906 MT II - 71,896 MT V - 447,764 ha V - 1,257,211 MT VIII - 383,546 ha VIII - 1,776,916 MT VII - 434,589 MT XIII - 219,107 ha XIII - 985,427 MT

IV-A - 343,568 ha IV-A - 1,430,128 MT

10

Highest Productivity

IV-B - 179,321 ha IV-B - 668,361 MT VI - 478,331 MT

4 3 7

X - 300,575 ha X - 1,743,338 MT

IX - 369,013 ha IX - 1,744,738 MT XII - 169,254 ha XII - 895,086 MT

ARMM 315,490 ha ARMM 1,250,971 MT

XI - 375,952 ha 1 XI - 2,691,905 MT

Source : PCA Website/DA-BAS, 2009

Mapping of the Coco Coir/Peat Sector

Non-operational - 35 Operational 52

87

Total estimated production capacity (Philcoir) - 30,000 MT / year Total estimated installed capacity (Philcoir) 120,000 MT/year Reg 2 - (1) Cap: 360 MT/year *

Reg 3 - (1) Cap. (no data)

IV-A - 1,430,128 MT Reg 4A - [9], (2) IV-A - 343,568 ha Cap: 916.70 MT/year * Reg 6 - [2], (1) Cap: 84 MT/year * IX - 1,744,738 MT IX - 369,013 ha Reg 9 - (2) Cap. 60MT/year ARMM 1,250,971 MT ARMM 315,490 ha

Reg 5- [11], (4) V - 447,764 ha Cap: 2,300 MT/year* VIII - 1,776,916 MT Reg 8 - [5], (19) VIII - 383,546 ha Cap: 1,768 MT/year

V - 1,257,211 MT

XIII - 985,427 MT X - 1,743,338 MT Reg 13 [ 2], (3) XIII - 219,107 ha X - 300,575 ha Cap: 960 MT/year * Reg 10 - (3) 1 Cap. 84 /year XI - 2,691,905 MT Reg 11 [18], (1) Cap: 7,220 MT/year * XI - 375,952 ha Reg 12 [4], (3) XII - 895,086 MT 9 Cap: 2,910 MT/year * XII - 169,254 ha

Coco Sweetener Propagation Fertilization Production & Expansion R&D Nursery Husk Decorticators Actvated Carbon Coco Water Dessicated Coco + Oil Edible Oil/ Industrial Oil

Baled Fiber / Geotextile Producers Coco Peat Processors GTH Manufacturers

Traders / Exporters
Local Farms/Nurseries/ Commercial Gardens/ Grow Bags/etc

Distributors/Malls

M A R K E T

SUPPORT INDUSTRIES (Transport/Machineries/Ancillaries) Small Coco Farmers/Coops/Assocns/Processors/Exporters/Traders

Government Institutions: DA-PCA/CIIF/DTI/DOST/LGU

Phil Coconut Industry Cluster Team (Coir & Peat)

Growing World demand for Geotextile / coco coir and peat Potential domestic & export market demand for coco coir and peat valued-up products Readily available capacity of approx 90,000 MT Abundant supply of Coconut : 15.668 B nuts

Trading / Exporting

Low Price for Coco Peat in the export market (Production & transport cost is higher than buying price ) High cost of equipment High labor cost High cost of power (unstble suppl) High local shipping cost Underutilized capacity Unstable/limited supply of coco husks High transport cost (farm to processing sites)

Processing

Decorticating

Husk Gathering

Based on inputs from the Industry Players

VISION

Quadruple the Export Earnings Grow the Phil COIR & PEAT (ave annual growth of 25%,
2011-2016 )

Targeted Philippine Export Earnings (Coco coir products)

Year 2008 (base year) 2009 2010 2011 2012 2013 2014 2015 2016
Philippine Exports(UD$000)
(25% AAGR)

1,095 1,368 1,711 2,138 2,673 3,342 4,177 5,221 6,526

 To develop and expand domestic supply-base for coco coir To strengthen access to market information (domestic & export) To strengthen market linkage among actors within the VC

Redistribution Strategy (Upscale Community-based business model) Market Devt & Promotion (Use Anchor Firm/Exporter as Big Brother indl mkt) Productivity & Efficiency Improvement (Management of the local Supply Chain)

Urgent Action
Improve the supply of coco husk thru a nationwide drive.

MAY PERA SA BUNOT DRIVE

Develop collection and marketing system.

Plan of Action
2011 Priorities
1. Advocacy (value chain as a tool)
May Pera sa Bunot
Campaign

Capacity Building

Entrepreneurship Training

Farm to Market Roads

2. Extensive campaign for replanting and fertilization 3. Financing (ACEF, GFIs, others)

Plan of Action
2012-2013 Priorities
Technology development techno transfer Continuous Value Chain and Cluster Development Training Consultative mechanism for price rationalization

Plan of Action
2014-2016 Priorities
1 2
3 Sustained Promotion Structure for Industrial Governance Enabling Policy

Good day!