Required Report - public distribution

**Date:** 6/10/2004

**GAIN Report Number:** RP4032

RP4032

**Philippines**

**Planting Seeds**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)David C. Miller

FAS Manila

**Prepared by:**

Perfecto G. Corpuz

**Report Highlights:**

The expanding Philippine population coupled with the country\'s
shrinking farm area compels the GRP to produce more on less land. As a
result, the GRP is aggressively promoting the use of high yielding rice
and corn seeds of which imports are likely to decline in MY03/04
relative to the previous year as local production is expected to
increase during the period. Imports of other planting seeds are also
expected to decline in MY03/04 due to weak demand and renewed weakness
of the Peso. Beyond MY03/04, investment in agriculture and imports of
high yielding planting seeds, including those derived from modern
biotechnology, are expected to increase due to the extension of tax
incentives and the mandated funding support of the GRP\'s agricultural
modernization program.

Includes PSD Changes: No

Includes Trade Matrix: No

Annual Report

Manila \[RP1\]

\[RP\]

###### Executive Summary

Overall planting seed imports in MY02/03 increased from the previous
year's level as Philippine seed production remained inadequate.
Generally favorable growing conditions and increased farmgate prices of
selected crops encouraged increased seed production and consequently
more planting activity during the year. This resulted in the decline of
planting seed exports as local consumption increased during the year.

Planting seed trade in MY03/04 is expected to contract from the MY02/03
level due to renewed weakness of the Peso as well as the tight budgetary
situation the GRP is currently facing. Utilization of high-yielding
vegetable planting seeds is expected to remain low due to the
comparatively weak demand by the average Filipino as well as the
continued entry of cheap, but smuggled or undocumented, vegetables in
MY03/04.

Although adoption by farmers of improved and high-yielding rice and corn
planting seeds, including Bt corn, is expected to be higher in MY03/04
compared to the previous year's level, rice and corn planting seed
imports are expected to decline during the period as local production is
expected to increase. Utilization of high-yielding rice and corn
planting seeds, however, would have been higher had the 2004 budget of
the Agricultural Department not been reduced.

Beyond MY03/04, the rapidly increasing Philippine population, coupled
with the diminishing number of farms and aggregate farm area, will
compel the farm sector to produce more food on less land, and Philippine
agricultural policy is adapting to that trend. The extension of tax
incentives as well as the mandated funding support of the GRP's
agricultural modernization program, will significantly enhance rice and
corn hybrid seed production, and also lead to greater commercialization
of new plant varieties, including biotech products.

###### Marketing

Last year, the National Economic and Development Authority (NEDA)
reported that Philippine GNP grew 5.5 percent, up from the previous
year's level of 5.2 percent, largely buoyed by strong dollar remittances
from overseas Filipino workers (OFWs). GDP growth, on the other hand,
slowed to 4.5 percent last year from 4.6 percent in 2002, falling within
the government's official forecast of 4.2-5.2 percent. The growth in
2003 was broad-based with most of the economic sub-sectors in services,
agriculture and industry (except public construction), growing from
their 2002 levels. Parallel to this production growth is the expansion
in private consumption which grew 5.1 percent, the highest growth posted
since 1990, driven by the double-digit increases in demand in
transportation and telecommunications (12.8 percent), utilities (5.0
percent) and food (4.7 percent).

Philippine agricultural growth in 2003 slowed to 3.8 percent from the
4.1 percent growth rate in 2002 due to the occurrence of a mild El Nino
weather disturbance early 2003, as well as a devastating typhoon in the
second half of the year. According to the Bureau of Agricultural
Statistics (BAS), crop production grew 3.0 percent led by sugarcane
production, which posted a dramatic 16 percent growth from the 2002
output level. Other notable positive gains were recorded for abaca (9.3
percent), corn (6.9 percent), tobacco (5.4 percent) and mango (5.1
percent). Average farmgate prices for agricultural commodities last year
were also generally higher than the average prices in 2002 with notable
price increases recorded for corn (6.8 percent), tomatoes (77.0
percent), coffee (18.7 percent) and eggplant (7.8 percent).

The NEDA expects the domestic economy this year to grow from 4.9-5.8
percent, driven by electronics and agricultural exports as the global
economy improves. The International Monetary Fund (IMF), on the other
hand, projects GDP growth at 4.0-4.5 percent, but expects the country to
be at the tail end among Asia\'s emerging economies. The Asian
Development Bank (ADB), meanwhile, expects Philippine GDP at 5.0 percent
in both 2004 and 2005 due to higher consumer spending, improved weather
conditions and improved overseas demand, particularly for electronics.
Both the IMF and the ADB, however, have expressed serious concern over
the country\'s fiscal performance and increasing debt levels. Total
public debt is currently estimated at \$100 billion, and debt servicing
is the dominant expenditure of the GRP.

Agricultural performance in the first quarter of the year has been
encouraging with the sector posting a strong year-on-year growth of 8.16
percent, the highest growth rate in the last 15 years. The 2003 fourth
quarter growth was 5.6 percent while expansion during the same period
last year was 3.4 percent. The fisheries sector posted a dramatic 20.8
percent growth, followed by the crops, poultry and the livestock sectors
with growth rates of 6.2 percent, 3.4 percent and 3.3 percent,
respectively.

Rice production reached a record 3.4 MMT in the first quarter of this
year, up 13 percent from 3.0 MMT last year. Corn production likewise
improved reaching 1.5 MMT during the period from 1.4 MMT in the first
three months of 2003. The increase in output was attributed to a larger
area harvested and higher yields. Rice and corn production represent
roughly 18 and 5 percent of the total value of Philippine agricultural
production, respectively. Rice is at the core of the GRP's food security
program, popularly interpreted as rice self-sufficiency. Agriculture
Secretary Luis P. Lorenzo, Jr. attributes the improved rice and corn
productivity to the increased use of certified and hybrid seeds.

Data on planting seed production and utilization is not readily
available. The increased use of high-yielding rice and corn planting
seeds in 2003 indicates higher levels of seed production and consumption
in MY02/03. Production and use of improved rice and corn seeds is likely
to increase again in MY03/04.

In 2003, hybrid rice seed was produced on about 2,857 hectares, up from
the 2,000 hectares in 2002. The area devoted to production of hybrid
rice seed this year is expected to reach 5,040 hectares. At present,
there are four firms that grow/distribute hybrid rice seed, but their
production thus far cannot supply domestic demand. These are: Monsanto
Philippines, Bayer Crop Science, Philippines, the Philippine Rice
Research Institute, and SL Agritech Corp. The hybrid rice seed
technology the DA is aggressively promoting originated from China, and
reportedly is capable of increasing rice yields to 9 MT per hectare from
the current 3 MT per hectare using ordinary open-pollinated rice seeds
and 4.5 MT per hectare using certified seeds. Developed by Chinese
scientist, Dr. Yuan Long Ping, the DA has been subsidizing half the
price of hybrid rice seed which is sold for P2,400 (\$43.63) per 20-kg.
bag.

For corn, it is estimated that a little over 20 percent of the total
corn area was planted with hybrids last year. Corn seeds are distributed
by 8 seed companies, namely: Pioneer Hi-Bred Philippines, Inc.,
Monsanto, Syngenta, BioSeed, Asian Hybrid Inc., Fortune Seeds Inc., ACM
Hybrid and Corn World. Like rice, the DA, however, is pushing hybrid
corn developed in China. Seeds of 29 varieties of a Chinese hybrid corn
from the Jilin Province Haoyu Seed Industrial Co. Ltd. (Haoyu) were
reportedly tested at 3 different sites from December 2003 to April this
year. According to DA Secretary Luis P. Lorenzo, Jr., many of the
Chinese hybrids performed better than commercial hybrids from the seed
companies in the Philippines, with respect to yield and their ability to
cope with disease and insect pests. The highest yield recorded was at an
experimental farm in Bohol where the ZF24 variety from Haoyu produced
10.82 MT per hectare. China has increasingly been supportive of the
GRP's hybrid rice and corn program and will be donating 10 MT of the
best performing hybrids based on these field trials for the October 2004
planting season.

The Philippine Seed Industry Association, Inc. (PSIA), on the other
hand, is the local planting seed industry association and is composed of
19 members (18 private seed companies and the UPLB Seed Technology
Programme of the Department of Horticulture, University of the
Philippines at Los Banos). PSIA members produce and distribute planting
seeds of vegetables, flowers and ornamental plants, citrus, etc. The
association notes that while the GRP's food security program is focused
on rice, vegetables are necessary for proper nutrition. Local per capita
vegetable consumption, however, is very low (38-40 kg./annum) and this
discourages increased vegetable planting seed production. Data on seed
produced by the PSIA is also not readily available, but output is likely
to be low relative to rice and corn planting seed production.

The good first quarter agricultural performance has raised expectations
that Philippine agriculture would surpass the GRP's growth target of 4.0
percent, although a cut in the DA's proposed budget this year is
worrisome. The Philippine Congress approved a P15.4 billion (\$280
million) budget for the DA this year, 26 percent lower than the DA's
P20.9 billion (\$380 million) budget request. The approved amount is 8
percent lower than the department's P16.8 billion budget (\$305.45
million) in 2003 and 35 percent lower than what the Agriculture and
Fisheries Modernization Act of 1997 (AFMA) had provided for. Besides
favorable weather conditions, appropriate budget support is considered
the most important factor in increasing agricultural production.

The lack of investment in rural areas over the years continues to take
its toll. Poor agricultural infrastructure and consequently low farm
productivity, have contributed to the gradual decline over the years in
two vital structural elements of Philippine agriculture: land and labor.
Preliminary results of the Census of Agriculture of the National
Statistics Office (CA-NSO) show that the number of farms in the country
went down to 4.5 million in 2002 from 4.6 million in 1991. During the
same period, the number of farms declined by an annual average rate of
0.21 percent - equivalent to a loss of 9,900 farms per year. Aggregate
farm area also declined to 9.185 million hectares from 9.975 million
hectares in 1991 with the average area per farm declining to 2.04
hectares in 2002 from 2.16 hectares in 1991. The number of farms, total
farm area as well as average area per farm is likely to continue
declining through 2004 and beyond stressing the need to produce more
food on less land.

Parallel to the decline in agricultural land is the rural-to-urban
migration of farm workers. According to the NSO, from January 1999 to
January 2004, the labor force increased (13.6 percent) from 31.2 million
to 35.4 million with the number of employed persons also rising (11.1
percent) from 28.4 million to 31.5 million. Filipinos engaged in
agriculture, fisheries and forestry, however, shrank 1.4 percent to
11.15 million from 11.31 million during the five-year period.

The share of farm workers to the overall labor force also decreased to
35 percent in January 2004 from 37 percent during the same month in
2003, and nearly 40 percent five years ago. In January 1997, it was 42
percent. Workers engaged in agriculture and forestry were estimated at
30.9 percent while those in the fishery sector were recorded at 4.4
percent in January 2004.

While the kind of work the farmers shifted to is unknown, there was a
noticeable increase in the following job categories: service workers,
shop and market sales workers, and laborers and unskilled workers. This
increasing trend has become evident over the past five years when the
national labor force grew by more than 10 percent, but the number of
those employed in the agriculture sector dropped.

###### Policy

# General

In an effort to encourage increased investment in the agricultural
sector, President Gloria Macapagal-Arroyo on March 30, 2004, enacted
Republic Act No. 9281 (RA 9281) or "An Act to Strengthen Agriculture and
Fisheries Modernization in the Philippines by Extending the Effectivity
of Tax Incentives and its Mandated Funding Support, Amending for this
Purpose Sections 109 and 112 of Republic Act No. 8435."

As noted in GAIN RP9001, RA 8435 or the AFMA was envisioned to provide
the framework to address the longstanding problems of Philippine
agriculture. The AFMA was noteworthy for its thoroughness and
comprehensive approach; its commitment to a market approach to
increasing production; its support for liberalization and privatization
within the agricultural sector; and, its goal of globalization and
support for the Philippines' WTO commitments. Implementation of the
AFMA, however, was not adequately funded and its impact hardly felt.

Section 109, as amended by RA 9281 reads as follows:

*"SEC. 109. All enterprises engaged in agriculture and fisheries as duly
certified by the Department in consultation with the Department of
Finance and the Board of Investment, shall, up to the year 2015, be
exempted from the payment of tariff and duties for the importation of
all types of agriculture and fisheries inputs, equipment and machinery
such as, but not limited to, fertilizer, insecticide, pesticide,
tractor, trailers, trucks, farm implements and machinery, harvesters,
threshers, hybrid seeds, genetic materials, sprayers, packaging
machinery and materials, bulk-handling facilities such as conveyors and
mini loaders, weighing scales, harvesting equipment, spare parts of all
agricultural equipment, fishing equipment and parts thereof,
refrigeration equipment, and renewable energy systems such as solar
panels. Provided, however, that the imported agricultural and fishery
inputs, equipment and machinery shall be for the exclusive use of the
importing enterprise.*

> *The Department, in consultation with the Department of Finance and
> the Board of Investment, shall, within ninety (90) days from the
> effectivity of this act, formulate the Implementing Rules and
> Regulations governing the importation of agriculture and fishery
> inputs, equipment and machinery."*

Following is Section 112 of RA 8435, as amended by RA9281:

> "SEC 112. Continuing Appropriation. - The Department of Budget and
> Management (DBM) is hereby mandated to include annually up to the year
> 2015, in the President\'s program of expenditures for submission to
> Congress, and release, an amount not less than Seventeen billion Pesos
> (P17,000,000,000.00) for the implementation of this Act. Such amount
> shall be in addition to the annual budget of the Department of
> Agriculture and shall not be subjected to any mandatory reserves that
> shall be imposed by the executive department.

With the continuous implementation of the funding support for
agriculture and fisheries modernization, the Department of Agriculture
shall formulate, develop, and implement programs and services towards
the improvement of the quality of life of the farmers, fisherfolks and
their families and the people who are directly or indirectly dependent
on agriculture for their livelihood.

> *Additional funds over and above congressional appropriations of the
> Department shall be sourced from twenty percent (20%) of the proceeds
> of the securitization of government assets, including the Subic, Clark
> and other special economic zones.*

*Other sources of funds shall be from the following:*

a.  Fifty Percent (50%) of the net earnings of the Public Estates
    Authority;

> *b. Loans, grants, bequest, or donations, whether from local or
> foreign sources;*
>
> *c. Forty Percent (40%) of the TESDA Skills Development Fund;*
>
> *d. Net proceeds from the privatization of the Food Terminal, Inc.
> (FTI), the Bureau of Animal Industry (BAI), the Bureau of Plant
> Industry (BPI), and other assets of the Department that will be
> identified by the DA Secretary and recommended to the President for
> privatization;*
>
> *e. Proceeds from the Minimum Access Volume (MAV) in accordance with
> the provisions of R.A. 8178;*
>
> *f. A portion of the proceeds from the countervailing, anti-dumping
> and special safeguards duties collected from agricultural imports
> pursuant to Republic Act Nos. 8571 and 8752, both series of 1999 and
> Republic Act 8800, series of 2000; and*
>
> *g. Fifty Percent (50%) of the Support Facilities and Services Fund
> under R.A. 6657."*

The DOF, in a position paper, reported that the approval of RA 9281
would not only cost the government around P17 billion annually through
2015, but likewise would lose huge potential revenues from the excessive
tax exemptions given to the farm sector. It reported that around P2.12
billion (\$38.5 million) in potential revenues has been lost since 1999
when the tax incentives were implemented.

Planting seeds imports, however, are already levied minimal tariffs
(ranging from 1 to 3 percent) through 2005, and may even be brought in
at zero tariff if imported from specified ASEAN-member countries. The
Common Effective Preferential Tariff (CEPT) rates under the ASEAN Free
Trade Agreement (AFTA), are, in general terms, lower than the MFN rates
and therefore favor more intra-ASEAN trade. Both MFN and CEPT rates for
2004 and 2005 are provided below.

  ------------ ------------------------------- ------ ------ -- ------ ---------------
  2004-2005                                                            
  Philippine                                                           
  Tariff                                                               
  Schedule                                                             

  Seeds,                                                               
  Fruits and                                                           
  Spores, of a                                                         
  kind used                                                            
  for Sowing                                                           

                                                      Rate             ASEAN
                                                      of               
                                                      Duty             

                                                      (%)              Countries with

  Tariff Code  Description                     Year   MFN       CEPT   Concessions\*

                                                                       

  1209.10.00   Sugar beet seed.                2004   3         0      All.

                                               2005   3         0      All.

               Seeds of forage plants:                                 

  1209.21.00   Lucerne (alfalfa) seed.         2004   1         0      All.

                                               2005   1         0      All.

                                                                       

  1209.22.00   Clover (*Trifolium spp.*) seed. 2004   1         0      All.

                                               2005   1         0      All.

                                                                       

  1209.23.00   Fescue seed.                    2004   1         0      All.

                                               2005   1         0      All.

                                                                       

  1209.24.00   Kentucky blue grass (*Poa       2004   1         0      All.
               pratensis L.*)                                          

               seed.                           2005   1         0      All.

                                                                       

                                                                       

  1209.25.00   Rye grass (*Lolium multiflorum  2004   1         0      Except Laos.
               Lam*.,                                                  

               *Lolium perenne L*.) seed.      2005   1         0      Except Laos.

                                                                       

  1209.26.00   Timothy grass seed.             2004   1         0      Except Laos.

                                               2005   1         0      Except Laos.

                                                                       

  1209.29.00   Other                           2004   3         0      Except Laos.

                                               2005   3         0      Except Laos.

                                                                       

  1209.30.00   Seeds of herbaceous plants      2004   1         0      Except Laos.
               cultivated                                              

               principally for their flowers.  2005   1         0      Except Laos.

                                                                       

               Other:                                                  

  1209.91.00   Vegetable seeds.                2004   1         0      All.

                                               2005   1         0      All.

                                                                       

  1209.99      Other:                                                  

  1209.99.10   Rubber seeds, kenaf seeds.      2004   1         0      Except Burma.

                                               2005   1         0      Except Burma.

                                                                       

  1209.99.90   Other.                          2004   1         0      Except Burma.

                                               2005   1         0      Except Burma.
  ------------ ------------------------------- ------ ------ -- ------ ---------------

\*All = All member countries can avail of the concession or MFN rate
will apply if MFN is lower than the CEPT rate.

Source: Philippine Tariff Commission

# Biotechnology

Since 2002, the National Committee on Biosafety of the Philippines
(NCBP), the agency responsible for the approval and issuance of
guidelines for GM crop testing, has approved 6 greenhouse (contained)
trials. Two contained trials, one by Monsanto and another by Pioneer
Hi-Bred, were conducted in 2002. Monsanto initiated another contained
trial while Syngenta undertook 2 contained tests last year. The more
recent test of the 2 trials by Syngenta, however, had to be terminated
due to technical problems. Prior to commercial production, a GM crop has
to successfully undergo contained trials and field tests, according to
the NCBP guidelines.

Three multi-location field tests, on the other hand, starting June 2000
to January of this year, have been completed. These include:

> 1\. Multi-Location Field Bioefficacy Verification Trial of YieldGard
> Corn Against
>
> Asiatic Corn Borer, Monsanto
>
> June-November 2000 (Wet season) = 5.4 hectares in 9 sites
>
> December 2001-April 2002 (Dry season) = 6.0 hectares in 10 sites
>
> 2\. Multi-Locational Field Trials of Bt Transgenic YieldGard Corn
> Against Asiatic
>
> Corn Borer, Pioneer Hi-Bred.
>
> June-December 2002 (Wet season) = 3.0 hectares in 5 sites
>
> December 2002-July 2003 (Dry season) = 4.2 hectares in 7 sites
>
> 3\. Pest Management Under Conservation Tillage Systems in the
>
> Uplands: Performance Evaluation of Glyphosate Tolerant Corn (NK603)
>
> Hybrids/Lines Under Field Conditions, Monsanto

September 2003-January 2004 = 8.5 hectares in 5 sites

Other sites in the wet season trials by Monsanto during the September
2003-January 2004 period were terminated due to a strong typhoon last
year. The initial yield evaluations of the successful field trials,
however, indicate improved yields compared to the conventional corn
varieties. Currently, multi-location trials by Monsanto, Pioneer Hi-Bred
and Syngenta are on-going all over the country.

In its first year of commercial production, Bt corn was planted on less
than 20,000 hectares, according to the International Service for the
Acquisition of Agri-Biotech Applications (ISAAA). ISAAA projects that
the total area devoted to Bt corn production in the Philippines will
expand to 50,000 hectares in 2004 after the Bureau of Plant Industry
(BPI) approved in December 2003, the application by Pioneer Hi-Bred for
the commercial production of Bt corn. The high cost of Bt corn seeds,
however, is expected to dampen initial adoption by Filipino farmers. An
18 kg. bag of Bt corn seed (sufficient for one hectare) is sold for
P4,500 (\$81.81). Adoption of Bt corn technology will be made more
difficult as the DA's budget is expected to limit the extension of farm
credit.

Administrative Order (AO) No. 8 of the DA, issued early April 2002 and
effective July 2003, contains the guidelines for GM commercial
production and importation. Under AO 8, all GE plant varieties of
"regulated articles" must be assessed for food, feed and environmental
safety by a third party panel of Philippine scientists, prior to
entering the Philippines. If the seeds are pest-protected plants, the
transformation event (TE) has to be registered with the Fertilizer and
Pesticide Authority, an agency under the supervision of the Agriculture
department. Approvals for sale and use of biotech seeds and planting
materials are valid for five years. Currently two US-based seed
companies are selling Bt corn seed commercially in the Philippines.

Application for imports for direct use as food, feed or further
processing (also valid for five years) can be considered only if the
product has been authorized for commercial distribution as food or feed
in the country of origin, and documentation to show that these products
will not pose significant risks to human and animal health are provided
by the applicant. The products approved under this regulatory process
are included in the registry for direct use maintained by the BPI. If a
biotech product is listed in this registry, an applicant will no longer
be required to secure an import permit for his succeeding shipments.
However, a notification of a shipment to the BPI is required upon its
arrival at a Philippine port.

As noted in GAIN RP 3034, AO 8 provided a transitory period (May 14,
2002 until June 30, 2003). During this period, the BPI was tasked to
review available scientific risk assessment data and information on
biotech products likely to be imported into the Philippines, and develop
an approval registry for direct use. The DA subsequently issued
Memorandum Circulars Nos. 8 (issued on May 15, 2003), 11 and 12 (both
issued August 15, 2003). MC Nos. 8 and 11, require that a declaration of
GM-content be issued by the country of origin, or by an accredited
laboratory, or by the shipper or importer, and shall accompany all
incoming imports which may contain GM commodities. MC No. 12 further
clarified the import rules for biotech products for direct use as seed,
food, feed, or for further processing and contained the approval
registries for propagation, and direct use as food and feed.

Since plants and plant products fall under the jurisdiction of the BPI,
an agency under the DA, it has the overall regulatory supervision in the
conduct of field trials, commercial propagation, and imports for
experimental and direct use as seed, food, feed, or for further
processing. Applications are referred to other agencies such as the
Bureau of Agriculture and Fisheries Product Standards (BAFPS) to
determine compliance with food safety standards; the Bureau of Animal
Industry (BAI) to determine compliance with feed safety standards; and
the Fertilizer and Pesticide Authority (FPA) for pest-protected plants.

As of February 2004, the BPI had approved 17 TEs of GM crops for
commercial use as food, feed or processing materials in the Philippines
(refer to GAIN RP 4016). This includes all GM plant varieties grown in
the United States with export potential to the Philippines.

Late last year, the Department of Environment and Natural Resources
(DENR) introduced a draft National Biosafety Framework (NBF), intended
as an interim mechanism for implementing the Cartagena Protocol on
Biosafety of the Convention on Biological Diversity (CBD). As the lead
on CBD matters, the DENR, was able to secure \$175,000 in funding
support from the United Nations Environmental Program\'s Global
Environment Facility (UNEP-GEF) for the development of the draft
framework.

The draft framework adopts the concept of the precautionary principle in
decision-making, particularly in risk assessment and management, similar
to the framework of the Cartagena Protocol. Socio-economic, ethical,
religious and cultural considerations would be taken into account in
biosafety decisions as provided by the draft framework. Under the draft
NBF, an environmental impact assessment (EIA) on biotechnology
activities, which the DENR has determined as environmentally critical,
is required. The DENR intends to issue its own biotech guidelines,
making the EIA an integral part of the biosafety decision-making
process.

Regional workshops on the draft NBF were conducted and then subjected to
an expert and peer review in March 2004 at a national workshop.
Currently, the NBF draft is undergoing consolidation by the National
Coordinating Committee (NCC) whose output would be a draft Executive
Order (EO) establishing the NBF of the Philippines. Local users and
producers of biotech products have expressed concern about the draft NBF
and its potential impact on biotech plant varieties already approved
under DA's risk assessment and commercialization rules per AO8. The
draft EO put forward by the NCC will take into account regulations
currently in place in the Philippines, such as AO8.

The NBF draft contains provisions that call for the labeling of GM
products which remains a contentious issue. A comprehensive study
entitled "The Cost Implications of GM Food Labeling in the Philippines"
prepared for the Bureau of Food and Drugs (BFAD) by a team headed by a
former president of one of the country's largest food manufacturers and
distributors, concluded the following:

-   Mandatory labeling requires the adoption of a system of product
    differentiation, in particular identity preservation (IP), from the
    farm to the factory and finally to the retail level. The IP system
    runs counter to the principle of economies of scale and results in
    costs being incurred in each and every step of the entire food
    supply and distribution system.

-   Based on the *Food Manufacturing Model* of this study, it was found
    that mandatory GM labeling would increase manufacturing costs by 11
    to 12 percent.

-   The willingness of Filipino food manufacturers to absorb this
    additional cost will be limited because of its adverse effect on the
    company's viability. A detailed study of the financial strength of
    some 70 selected food companies reveals that, in general, their
    gross margin of profit will not be able to absorb an increase in raw
    material and manufacturing costs.

-   With the additional cost, manufacturers will be compelled to pass
    the additional cost on to consumers (in terms of higher retail price
    of the finished food products) and/or farmers (in terms of lower
    buying price for the commodities used as raw ingredients).

The report stated "There is an imperative need to assess the GM labeling
options available to the Philippines -- one that carefully considers the
'consumer's right to know' on one hand, and the cost implications of GM
labeling to affected sectors on the other." There are about 2,000 corn,
soybean and tomato-based food preparations registered with the BFAD that
contain bio-engineered ingredients, according to the report.

# Plant Variety Protection

No significant change from GAIN RP3017.

###### Trade

The following trade matrices cover Tariff Heading 12.09 or Seeds, fruits
and spores, of a kind used for sowing. It does not include corn (HS
1005.10.00) or rice seeds for sowing (1006.10.10) and cover mainly
sugar, forage, herbaceous and other seeds including those for ornamental
plants, vegetables, etc.

According to preliminary data from the National Statistics Office (NSO),
planting seeds imports in MY02/03 increased 40 percent compared to the
previous year's level. Although the DA expected another El Nino weather
disturbance, it was very mild and generally favorable weather conditions
in most parts of the country prevailed. This encouraged more planting
activity. In terms of value, however, global seed imports declined 32
percent from the \$3.84 million in the previous year to \$2.60 million
in MY02/03. Although trade data from the NSO does not spell out the
specific kinds of planting seed traded, vegetable seeds were the
dominant planting seed imported in MY02/03. India retained its position
as the dominant source of planting seed imports in MY02/03.

Planting seed imports in MY03/04 will dramatically decline from the
MY02/03 level as indicated by the import statistics for the July to
December 2003 column. Although seed imports are likely to pick up and
increase in the second half of MY03/04, renewed weakness of the Peso is
expected to dampen any increase in seed imports. The Peso depreciated to
its lowest level against the U.S. dollar (P57) in the first quarter of
2004, but NEDA expects the Peso to stabilize at an average P54-P56
against the U.S. dollar in 2004. Some private analysts though, predict a
higher annual average rate at P56-P57. Likewise, expected to have a
dampening effect on seed imports, is the continued entry of undocumented
or smuggled vegetables, the dominant planting seed imported. Likely to
be major sources of planting seed imports in MY03/04 are the United
States and China.

  ---------------- ------------- ------------- --------- ------------- ---------
  Import Trade     (Kgs)                                               
  Matrix                                                               

  Country          Philippines                                         

  Commodity        Planting                                            
                   Seeds                                               

  Time period      Jul-Jun       Time period   Jul-Jun                 Jul-Dec

                   2001/2                      2002/03                 2003

  U.S.             115,581       U.S.          52,827    U.S.          39

                                                                       

  India            174,939       India         256,107   New Zealand   35

  South Africa     45,012        South Africa  229,366   Indonesia     25

  Indonesia        41,532        China         102,153   Japan         25

  Hong Kong        39,837        Indonesia     39,799    China         24

  Japan            38,322        Hong Kong     32,562    South Africa  23

  New Zealand      28,963        Japan         29,158    Hong Kong     21

  Thailand         22,476        New Zealand   22,441    India         19

  Singapore        20,100        Canada        21,319    Netherlands   13

  Korea            16,110        Thailand      10,516    Korea         6

  China            14,750        Korea         6,586     Australia     1

                                                                       

  Total for Others 442,041                     750,007                 192

  Others not       33,501                      26,895                  18
  Listed                                                               

  Grand Total      591,123                     829,729                 249
  ---------------- ------------- ------------- --------- ------------- ---------

Source: National Statistics Office

In 2003, approximately 300 MT of paddy rice suitable for sowing was
imported, up from the 101 MT the year before. There were no rice seeds
imported in 2001. India was the origin of the rice seeds imported in
both years, according to the NSO. The reported hybrid rice seeds
imported last year from China do not appear on NSO trade data and were
likely misclassified as commercial rice. Imports of planting rice seeds
are expected to decline in 2004 as local production is expected to
increase during the year.

Overall corn planting seed imports, on the other hand, reached 48,000 MT
in 2003, up from 39,000 MT in 2002. Imports of corn seed for sowing were
7,000 MT in 2001. NSO data does not segregate hybrid seed from
open-pollinated seed or GM corn seed although data from the BPI reveal
that last year, around 12,710 MT of Bt corn seed was imported while
about 2,365 MT of hybrid corn seed were brought in. About 4,705 MT of
open-pollinated corn seeds were also imported in 2003 for a total of
19,780 MT of corn planting seed imports. The discrepancy between NSO and
BPI data, like rice seeds, is also likely due to misclassification.
Overall corn seed imports are expected to decline in MY03/04 as local
production is expected to increase during the year.

Philippine exports of planting seeds in MY02/03, on the other hand,
declined 69 percent from the previous year's level. The majority of the
planting seeds exported during the year were destined for Malaysia.
About 48 percent of the planting seeds exported, according to the NSO
were described as "Other seeds, fruits and spores, used for sowing, with
authorization of BPI for Agricultural Development." Exports of vegetable
seeds, on the other hand, accounted for 46 percent of overall seed
exports in MY02/03. Overall planting seed exports during the year were
valued at \$0.54 million, down from \$1.13 million the previous year.

Like seed imports, exports of planting seeds in MY03/04 will decline
from the MY02/03 level with the majority bound for Malaysia. The
Philippine Maize Federation Inc. (PhilMaize), the largest organization
of corn growers in the country, reportedly plans to export 5,000 to
10,000 metric tons of corn to Malaysia in September this year. The
exports, according to PhilMaize, aims to address a possible lack of
available storage during the September 2004 harvest season.

  ---------------- ------------- ------------- --------- ------------- ---------
  Export Trade     (kgs)                                               
  Matrix                                                               

  Country          Philippines                                         

  Commodity        Planting                                            
                   Seeds                                               

  Time period      Jul-Jun       Time period   Jul-Jun                 Jul-Dec

                   2001/2                      2002/03                 2003

  U.S.             800           U.S.          0         U.S.          0

                                                                       

  Malaysia         263,720       Malaysia      133,503   Malaysia      70

  Singapore        108,040       Sabah         20,000    Thailand      13

  China            101,150       Japan         17,114    Netherlands   13

  Hong Kong        70,110        Thailand      10,515    Japan         9

  Japan            30,597        Germany       10,360    Vietnam       4

  Taiwan           21,000        Peru          630                     

  Belgium          20,000        Hong Kong     475                     

  Thailand         7,456         Indonesia     234                     

  Indonesia        1,350         Singapore     25                      

  India            292           TTP           19                      

                                                                       

  Total for Others 623,715                     192,875                 109

  Others not       212                         8                       1
  Listed                                                               

  Grand Total      624,727                     192,883                 110
  ---------------- ------------- ------------- --------- ------------- ---------

Source: National Statistics Office