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No Free Lunch

Dealing with scale

/ 04:05 AM October 08, 2019

I know a small entrepreneur who has a pleasant problem: He has just received much more orders for his product than he thinks he can handle. It’s part of the usual elevated demand for Christmas gifts, and his product appears to hold much appeal for that purpose. But he says his current production capacity can only go so far, and he may reluctantly have to turn down some orders.

Years ago, a friend running a small manufacturing enterprise told me of a similar experience when he found himself facing an order from overseas for a container-load of his firm’s product, which he could not possibly serve on his own within the time allotted. It would have been his break to get into export. So he tried to approach his known competitors to invite them to pool together to respond to this bulk order. Sadly, none of them was willing to team up and take advantage of the great opportunity; all preferred to go kanya-kanya (individually). It all ended up being a missed opportunity, not only for my friend’s firm, but for our small enterprise sector and economy as a whole.

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The same predicament plagues much of our country’s farm products. There are tremendous export opportunities for many of our agricultural products, in fresh or processed form. Just look at how Thailand has been earning more than $50 billion a year from agricultural exports, which also fetch about $40 billion for Malaysia, $36 billion for Indonesia and $15 billion for Vietnam. But we’re making a measly $5 billion a year from our own agricultural exports. In fact, Thailand’s farm export earnings alone already nearly equal what we earn from all our exports combined. So it’s not for lack of opportunities to export more, as the demands are out there. But I’ve heard far too many stories where inquiries for big export orders for a Philippine farm product ended up being declined, for inability to meet the required volumes in a sustained way.

We don’t even need to look at export markets. I keep hearing of large institutional buyers like restaurant chains having to resort to importing farm products produced domestically because there’s just not enough reliable local supply of the needed product at standardized quality. This results from having numerous disparate fragmented farms, with little if any initiatives to coordinate them toward a more consolidated business operation and gain economies of scale in mechanization or other productivity-enhancing inputs. We need not blame agrarian reform per se for this, but more our longstanding failure to get agrarian reform beneficiaries to form collectives and cooperatives for more efficient consolidated business operations.

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Bamboo is yet another case in point. Lately, I’ve been involved with a multisectoral group spearheaded by the Committee on Sustainable Development of the Management Association of the Philippines, which is looking to tap tremendous opportunities in the bamboo industry. Represented in the group are major investors; practitioners in the production of various bamboo-based commodities, including food, textiles, construction materials, household fixtures and even bicycles; technical experts in bamboo production and processing; relevant former and present government policymakers and regulators, and other stakeholders. The plea we are constantly hearing is for sufficient and sustained supplies of the raw material, bamboo plants/ trees themselves. The group needs to identify areas and communities prepared to grow bamboo, and in large quantities.

Our perennial problem is scale. Malaysia has long shown how nucleus-farming schemes can gather smallholder farms around a large unit that incorporates processing, into large areas farmed in an organized and efficient way. Thailand has applied contract growing schemes, long used here in broiler chicken production, to many other farm products. Our cooperatives need to be upscaled and upgraded to adjust to the modern economy’s new business models. It’s ironic that we have so much of the land and labor to meet the needs of our people and well beyond—but we need to shed kanya-kanya, and get organized much better, as there’s so much demand out there just waiting to be filled.

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TAGS: Cielito F. Habito, entrepreneurs, export opportunities, No Free Lunch, scale, scaling up
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