ABACA INDUSTRY SITUATIONER REPORT b

THE FIBER known worldwide as Manila Hemp from leafsheath of plant Musa textilis nee indigenous to the Philippines; similar to banana plant strongest among natural fibers, with fiber length from 3 to 9 feet or more USES / APPLICATIONS Cordage, ropes and twines Pulp and specialty paper •S2 grade - electrolytic (condenser) paper, high grade decorative paper, Bible paper, dissolving pulp •JK grade - tea bag, coffee, filter, meat and sausage casings, special art paper, cable insulation paper, adhesive tape paper, lens tissue, mimeograph stencil base tissue, carbonizing tissue •Y2 grade - currency paper, checks, cigarette paper, vacuum cleaner bag, abrasive base paper, weather-proof Bristol, map, chart, diploma paper •All grades - handmade paper • S2, I, G, JK grades - nonwovens Fibercrafts Textiles.fabrics back to top INDUSTRY SECTORS (1998) Farmers 63,030 Traders 739 GBE/exporters 8 Cordage firms 7 Pulp manufacturers 4 Fibercraft processors (FIDA-licensed) 94 back to top MARKET PROSPECTS & OPPORTUNITIES Despite global economic problems, demand for abaca is expected to remain strong and stable with a conservative growth rate of 3% per year indicated by major foreign buyers support this observation/projection The Japanese market which has not been so active due to recession is expected to improve in the latter part of 1999 CELESA, a pulpmaking company is Spain is now developing tie-ups with local suppliers of abaca; the company is buying from Ecuador but wants to expand usage of Philippine abaca As reported by a local abaca pulp mill, a European buyer is seeking supply of 50,000 m.t. of abaca pulp per year (current industry capacity: 13,000 m.t.) Central Bank has advised manufacturers of base paper for the Philippine peso to use abaca pulp as component material; if approved by the Monetary Board, printing is expected to materialize by CY 2001 (projected additional demand: 200-250 m.t. abaca pulp per year) Abaca pulp can substitute for coniferous pulp in most paper products on the ratio of 4 to 1; majority of the world's pulp and paper companies uses wood pulp with global demand estimated to be 200 million m.t. in the year 2000; this is equivalent to about 50 million m.t. of abaca pulp back to top THREATS Serious and aggressive moves by Indonesia to massively produce abaca under the government's reforestation program Available cheaper substitutes (e.g., sisal, Ecuadorian abaca) Cheaper sources of similar materials (e.g., China, India) Technological advances and breakthroughs which make possible production of cheaper substitutes, whether from natural or synthetic-based materials back to top INDUSTRY STRUCTURE / SECTORS The abaca industry is made up of five major sectors: farming, stripping, trading, fiber exporting and processing. Farming Sector The country has a total abaca area of 106,146 hectares cultivated by 63,030 abaca farmers. The abaca farmer has small landholdings of two hectares, on the average. The national average production is 850 kgs./hectare, which is low compared with the potential annual production of 2,000 kgs./hectare. The low production is due to the prevalence of diseases, typhoons and drought, the existence of plantations planted to low-yielding varieties and low or lack of entrepreneurial skills of farmers in the efficient management of farms. Stripping Sector Stripping is done either by hand or mechanical means. About 80% of the abaca fiber in the country are hand stripped. This type of stripping is practiced mainly in Bicol and some parts of Leyte and Samar provinces. The rest of 20% of the fiber is produced through spindle stripping and is employed principally in Mindanao and the Leyte provinces. Included in the stripping work are harvesting of stalks, tuxying and drying of fibers. The strippers are paid either in cash or by share. Under the sharing system, strippers receive 50, 60 or 70% of the harvest depending on the prevailing practice agreed upon. Trading Sector Trading is done at different levels depending on the location of the farmers and where the accumulation of fiber is done. Hence, there are traders in the barrio, town, province, city and region. In each level, the pricing system includes mark-up attributable to the service provided by the trader. There are a total of 739 traders at various levels of trading. Fiber Exporting Sector The fiber exporters, also known as grading and baling establishments (GBEs), operate in major abaca regions and usually maintain liaison offices in Metro Manila. The establishments employ classifiers who ensure that the classified fibers are in accordance with government standards. They likewise operate pressing machines for baling of fibers intended for trading in both domestic and international markets. The standard bale of fiber is equivalent to 125 kgs. And measures about 100 cm. X 55 cm. X 60 cm. back to top PROCESSING SECTOR A. Pulp Mills There are four abaca pulp companies operating in the Philippines, one in Laguna, two in Bicol and one in Mindanao which have combined rated capacities of 16,180 mt per year. The companies have well-established market networks for their pulp which are principally destined for the world market. B. Cordage Manufacturers There are eight cordage firms operating in Metro Manila, Cebu and Davao. They use abaca as the principal raw material for rope, cordage and twine manufacture. Belnding with other natural fibers like maguey is done depending on the specifications of the buyers. The combined rated capacities of these companies are approximately 21,350 mt per year. C. Fibercraft Manufacturers The fibercraft sector, including handmade papermaking and carpet manufacturing, is primarily characterized as cottage-based. Operating mostly in the countryside, especially in Bicol and the Visayas, the sector is a major source of livelihood especially to the womenfolk and out-of-school youth. Several of these manufacturers have successfully established their markets abroad especially through their unique, functional and creative designs. D. Textile/Fabrics The textile/fabric sector produces handwoven abaca fabrics which are used as raw material for making novelty and household items, as décor and wrapping material as well as for high fashionwear and accessories. Some abaca weaves are blended with metallic thread or polyester while others have striped and ethnic designs to suit the varying needs of the market. The industry is confined in Western Visayas, the Bicol Region and in Souther Mindanao where indigenous people are actively engaged in tinalak weaving. Production of new product lines for fashionwear and accessories and specialty/novelty items are based in Metro Manila. PRODUCTION AND MARKET SCENARIO A. Supply Situation Supply of abaca fiber is mainly provided by Eastern Visayas, the number one abaca producing region, contributing an annual average of 24,952 mt or 39% of the total. The Bicol region ranks second with an annual average of 21,225 mt or 33% while the whole of Mindanao supplies an average of 16,985 mt per annum or 27% of the total production. Production has been relatively stable during the past ten years, averaging 64,205 mt per year. back to top B. Demand Situation 1. Local Consumption Domestic processors consumed about 66% of the country's total production of abaca fiber during the period 1989-1998. A steady increase of 3.2% per year in the consumption of abaca fiber by local processors during the period resulted to more income through production of high value products and employment opportunities for the nation. The pulp sector is considered the growth are of the abaca industry due to the favorable development in the world market for its end-products such as meat casings, tea bags, cigarette papers and other specialty paper products. The pulp sector accounted for about 57% of the total local consumption for the past ten years. Consumption by this sector grew by 6.9% annually. The cordage sector, on the other hand, accounted for about 31% of the total fiber usage by the domestic manufacturers. During the ten-year period, a decreasing rate of 1.4% per year was observed largely due to stiff competition posed by synthetic cordage. 2. Export Performance Most of the processed products like pulp, cordage and fibercrafts are exported to various countries all over the world and from which, with raw fiber exports included, an average of US$77 million a year are generated. About 75% of export earnings or an average of US$57.7 million during the period 1989-1998 came from abaca manufacturers. The rest (25%) was contributed by raw fiber exports with annual average earnings of US$18.8 million. Among the abaca manufacturers, pulp contributed the highest export earnings at 39% of the annual total followed by fibercrafts at 22%. Exports of cordage and allied products contributed 14% and yarns and fabrics, 0.7%. The United States remains as the biggest market for Philippine abaca cordage while Japan and Germany absorbed the bulk of abaca pulp exports during the past ten years. Increasing quantities of pulp are also being marketed to the United States as well as the European and Asian countries like France, Taiwan, Korea and China. The major markets for fibercrafts include the United States, Germany, Japan, and Australia. An average of 18,981 MT of raw fibers were exported every year during the past ten years with 91% of the total going to the United States, the United Kingdom, and Japan. For the Past ten years, raw fiver export have been declining at the rate of 2.3% but this is offset by an increasing trend in the domestic consumption and export manufactured abaca in the forms of pulp, cordage, and fibercraft. back to top PROBLEMS Although abaca has long been an established industry, it is still plagued with problems. Areas that continue to be addressed are (1) farm productivity, and (2) fiber quality. back to top OPPORTUNITIES / PROSPECTS AND DEVELOPMENT The abaca industry is expected to continue making a stronghold in both the domestic and international markets. The growing concern for environmental protection and forest conservation the world over have further provided limitless opportunities to natural raw materials like abaca. Being natural and considering its superior qualities over other materials, the utilization of abaca especially for industrial applications is expected to strengthen. From 1991 to 1998, total world demand averaged 73,917 MT per year, 84% of which was supplied by the Philippines. The Food and Agriculture Organization (FAO) of the United Nations projects that global consumption of abaca will increase further to about 85,000 MT by the year 2005. This translates to total global demand of at least 71,000 MT for Philippine abaca, including domestic consumption as the country is the major producer. Since 1989, the abaca pulp sector, which in terms of export volume and earnings registered a growth rate of 6.6% and 7.9 per annum, respectively, will remain strong and is expected to grow further as the technology and formulations developed and used by the specialty paper manufacturers are principally abaca based. Likewise, demand for specialty papers such as currency notes, tea bags, meat and sausage casings, cigarette papers and the like will continue to grow as economies of the major consuming countries improve and new markets open up. Abaca pulp can likewise substitute for coniferous pulp in most paper products on the ration of 4 to 1. Majority of the world's pulp and paper companies uses wood pulp with global demand estimated to be at 200 million MT in the year 2000. This is equivalent to about 50 million MT of abaca pulp. The fibercraft sector is another growth area registering a 4.4% improvement in earnings per annum from 1989 to 1998. TO sustain the increasing demand for Philippine fibercrafts, however, functional and innovative designs should continuously be introduced in the market. Growing awareness and interest on abaca fabrics for décor and wrapping purposes as well as for fashion have likewise increased demand for this product. Since 1989 until the present, export volume registered a remarkable growth rate of 121.4% per year. It is expected that demand would be long-term due to growing popularity of environment friendly materials especially in developed countries. While the market of abaca cordage, ropes, and twines would not be as promising compared with other sectors of the industry, demand will remain stable as it has specific markets to serve. Abaca cordage is highly preferred in oil dredging/exploration, navies, and merchant shipping as well as in the construction business because of its non –slippage characteristics. Abaca production is expected to improve in response to encouraging developments in both the local and world markets. The government, through the Fiber Industry Development Authority (FIDA) of the Department of Agriculture (DA) has been implementing various projects/programs geared toward affirming and strengthening further the country's position as the top producer and supplier of quality abaca worldwide.

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EXPORTS OF ABACA FIBER BY COUNTRY OF DESTINATION, 1994-1998 (in metric tons) Destination 1994 1995 1996 1997 1998 Average % Share TOTAL 18,139 19,337 17,947 17,792 17,765 18,196 100.0 NORTH AMERICA 5,359 5,541 5,519 4,431 4,146 5,000 27.5 United States 5,310 5,394 5,445 4,357 4,072 4,916 27.0 Canada 49 147 74 74 74 84 0.5 EUROPE 7,789 9,263 7,935 6,820 6,651 7,691 42.3 United Kingdom 6,643 8,072 7,890 6,759 6,492 7,171 39.4 France 1,102 1,135 - 45 45 465 2.6 Germany 3 - - - - 1 0 Belgium - - - - 1 - 0 Italy 11 - - - - 2 0 Portugal 30 56 - - - 17 0.1 Spain - - 45 16 113 35 0.2 Netherlands - - - - - - - ASIA 4,912 4,431 4,313 6,282 6,687 5,325 29.3 Japan 4,842 4,110 4,195 5,980 6,570 5,139 28.2 Korea 59 - 38 20 20 27 0.2 India 11 22 28 101 34 39 0.2 Hongkong - 76 30 14 14 27 0.1 Taiwan - - 3 - - 1 0 New Zealand - 20 - - - 4 0 China - 203 12 21 - 47 0.3 Indonesia - - 7 146 15 34 0.2 Bangladesh - - - - 23 5 0 Pakistan - - - - 11 2 0 OTHER COUNTRIES 79 102 180 259 281 180 1.0 Mozambique 11 - - - - 2 0 Egypt - 56 45 45 135 56 0.3 South Africa 68 46 135 214 146 122 0.7

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EXPORTS OF ABACA PULP BY COUNTRY OF DESTINATION, 1994-1998 (in metric tons) Destination 1994 1995 1996 1997 1998 Average % Share TOTAL 11,948 11,508 13,228 13,459 14,987 13,025 100.00 ASIA 5,378 6,057 5,359 5,858 6,372 5,804 44.56 Japan 4,959 5,503 5,018 5,394 5,725 5,320 40.84 Taiwan 117 237 56 108 178 139 1.07 South Korea 38 81 102 91 59 74 0.57 China 264 216 183 265 408 267 2.05 Israel - - - - - 0 0 Malaysia - - - - - 0 0 Singapore - 20 - - - 4 0.03 Thailand - - - - 2 0 0 EUROPE 6,028 5,033 7,121 7,151 8,064 6,679 51.3 Germany 5,942 4,744 6,191 5,967 6,610 5,891 45.2 Belgium - 16 - - - 3 0.0 Denmark 16 67 101 33 48 53 0.4 France 33 85 680 1,089 1,255 628 4.8 United Kingdom 37 118 149 61 151 103 0.8 Italy - - - - - 0 0 Poland - 3 - - - 1 0.0 Spain - - - 1 - 0 0.0 OTHER COUNTRIES 542 418 748 450 551 542 4.2 United States 537 418 748 450 550 541 4.2 Brazil 5 - - - - 1 0.0 Israel - - - - 1 0 0.0

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