We have been in a global financial crisis since 2008 and luckily, the Philippines was pretty much spared. Except for exporters to the United States, the Philippine economy in general was largely spared from the crisis unlike Europe and the US.
The Philippine economy however is hardly what you would call great. Unlike China and other countries in Asia, the poverty rate is still rising and the only people making real money are the ones who are already rich.
The majority of Filipino students wants to go into nursing or call center jobs. The hopes of going abroad has diverted a lot of students from studying to be engineers, architects or pharmacist. But because of the bad US economy, a lot of nurses are unable to go abroad and find work now.
If you look at the Philippines economy, it has gone from agriculture, to manufacturing to a service economy.
During the Ramos administration, a lot of land was sold because of a real estate bubble and most of these land was converted into subdivisions, factories and golf courses. Because of this, most farm lands was lost and people moved into cities in the hopes of finding work.
We then saw a trend where we lost a lot of manufacturing jobs to Thailand, Indonesia and China where there were hardly any unions and cheaper labor cost. It's no wonder we see Colgate made in Thailand or Vietnam now instead of in the Philippines. When the Philippines was entered into the WTO in 1995, it became cheaper to import goods than to manufacture them in the country.
Because we can no longer compete in manufacturing to export, the citizens turned to the service economy and OFW became our major export. But as you can see, even if you export people, if the cost to export or the country you're exporting to cannot afford the goods anymore, then you lose the ability to export those goods or people.
So what is the point of this rambling? I'm making a case for what I think would be the future for the Philippine economy.
To make money in investing, you should find the place where there is the lowest number of people going in, where people see no more future but there is something secular that is happening that will turn that investment around. So what is that investment? I believe it is in agriculture.
Why agriculture? Ask yourself this question, how many students do you know want to become a biologist or into agricultural engineering? How many people do you know want to become a farmer? None.
We've lost so much agricultural land to mining and golf courses, that there's very little land that can be used to grow crops.
However, if you look at the global trend, there are more and more people being born. China alone is now importing more food instead of exporting them. Thailand and Vietnam continue to export rice while the Philippines is importing rice. Almost every year we hear of a possible rice shortage.
I know that this alone is not enough to make the case for agriculture. But look at this. Our agricultural economy has been going down for more than 20 years. The economic cycle of commodities is around 20 years and you are starting to hear a lot of talk about potential shortages in food around the world.
Look at this historical chart for sugar. Around 1975, sugar prices hit over $65/lb. Then it went down for about 5 years until it hit around $45/lb. After that, sugar market was in a 20 year bear market and only started going up around 2004. Just when China was beginning to emerge as a global powerhouse.
Another interesting thing about the chart is that if you look at the green volume chart, you can see that sugar hit highs of $45 and $65 with less than 1/10th of the volume we are seeing now.
Why is that? The Chinese who are becoming more wealthy will now want to experience the joy of eating better food and luxury foods like cakes, colas, juices, candies and other fine desserts. When they were poor, they did not have the money to buy those things. This is changing now. Sugar prices now is only at $20/lb. It has a long way to go to $45 and potentially go up even higher.
Sugar alone could make a lot of farmers a lot of money in exports. We haven't even talked about rice and other agricultural products.
The Chinese have always been great farmers, but a lot of their land has been converted into highways and cities as well. There are now a lot less farm lands in China. You can be the best farmer in the world, but you can't plant anything on concrete.
I believe agriculture is one of the areas where the Philippine economy can excel and bring a lot of jobs to the people. Farming is never a glamorous job, but as they always say. People always have to eat.
Comments