Herd Build-Up And Carabao Development Programs · 2020. 1. 23. · Herd Build -U p and Carabao...

Herd Build-Up and Carabao Development Programs

Contents

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Letter 1 Background 4

There is only a slight increase in local milk production

due to issues with policy coherence, vagueness of the provisions of the DRM on the roles and responsibilities of key stakeholders, and insufficiency of funding for importation

8

Even with additional funding, there are issues with existing practices in management of the dairy herd and milk production, which adversely affected the attainment of the targets under the DRM

30

Existing monitoring and evaluation processes of the programs do not produce comprehensive data, which is essential in accurately assessing the impact of the programs

74

Conclusions

88

Recommendations

91

Agency Comments 94 Appendices Appendix I Objectives, Scope and Methodology 96 Appendix II Significant Provisions of NDA Dairy Animal Dispersal

Contracts/Memorandum of Agreements 98

Appendix III Significant Provisions of PCC Dairy Animal Dispersal

Contracts 100

Appendix IV COA Contacts and Acknowledgments 103 Tables Table 1: Targets vs. Actual Accomplishments on Local Milk

Production for CYs 2013-2016 9

Table 2: Target vs. Actual Accomplishment on Local Milk Production for CYs 2017-2018

10


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Table 3: Targets per DRM Against Performance Targets Set by NDA on Local Milk Production for Dairy Cattle

14

Table 4: DRM Local Milk Production Targets vs. MARC Targets for Dairy Carabao and Accomplishments for CYs 2013-2018

17

Table 5: Respective Targets of HBP Strategies under the DRMs for CYs 2013-2018

18

Table 6: Performance Targets as Agreed with GCG for CYs 2013-2018

19

Table 7: PSA Reported Dairy Animals Inventory for CYs 2012-2018

20

Table 8: Targets vs. Accomplishments on Dairy Animal Importations for CYs 2013-2018

26

Table 9: NDA Allowable Attrition or Mortality Rates 32 Table 10: Cattle Mortalities and PDOs Assigned per Department 33 Table 11: Summary of Mortalities, Rates and Estimated Values

by Adult and Calf Mortality in IH, GP and Farmer Cooperatives/Beneficiaries of PCC for CYs 2013-2018

35

Table 12: Price Ranges of Raw Carabao’s Milk 41 Table 13: Target Success Rate vs. Actual Upgraded Animals for

CYs 2013-2018 45

Table 14 Target AI Services and Calf Drop vs. Actual AI Services and Calf Drop for CYs 2013-2018

47

Table 15 No. of Trained Technicians and Active Technicians for CYs 2013-2018

48

Table 16 Semen Production, Distribution and Utilization for CYs 2013-2018

49

Table 17: PCC’s Bull Services Targets, Accomplishments and Calf Drop Efficiency for CYs 2013-2018

50

Table 18: PCC’s Status of Bull Monitoring for CYs 2013 to 2018 51 Table 19: PCC’s Status of Bulls Loaned Out to Beneficiaries from

CYs 2008 to 2013 52

Table 20: NDA Targets vs. Accomplishments on Buy-back of Upgraded Animals for CYs 2013-2018

53

Table 21: Outstanding Balance on “Palit-Baka Scheme” as of December 31, 2018

56

Table 22: Animal Repayments for the Period CYs 2015-2018 58 Table 23: Status of Type 5 Contracts as of June 30, 2019 64 Table 24: NDA Cattle Mortalities Not Insured and Requests for

Relief from Accountability 65

Table 25: NDA Status of Claims of Insured Animals 66 Table 26: NDA Animal Dispersal for Batches 13-16 69


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Table 27: Other Overdue Accounts as of December 31, 2018 71 Table 28: Manpower Complement of NDA PDOs and JOs as of

December 31, 2018 72

Table 29: NDA Targets vs. Accomplishments on Upgraded Animals

75

Table 30: NDA’s Share on NABC’s Semen Production 76 Table 31: Utilization of Semen Straws for AI 77 Table 32: Summary of Bull Breeding Services of NDA 78 Table 33: Discrepancy on Importation and Buy-back data in

NDA’s Reports 81

Table 34 Discrepancy on Animal Repayments in NDA’s Reports 81 Table 35: Comparison of PCC Bull Services per Accomplishment

Report, Annual Report and BLP Database Extracted Data for CYs 2013-2018

82

Table 36: Comparison of PCC AI Services and Calf Drop per Accomplishment Report and Annual Report for CYs 2013-2018

82

Table 37: PCC’s AI Performance for CYs 2012-2017 86 Table 38: PCC’s Existing and Filled-up Plantilla Positions and

Job Orders Involved in Monitoring 86

Figures Figure 1: Strategies Adopted to Increase Dairy Stocks and Milk

Production 7

Figure 2: Target Local Milk Sufficiency Level vs. Actual Local Milk Sufficiency Level for CYs 2013-2018

10

Figure 3: DRM Targets vs NDA Actual Accomplishments on Local Milk Production for Dairy Cattle for CYs 2013-2018

15

Figure 4: DRM Target vs PCC Accomplishment for CYs 2013-2018 for Milk Production

17

Figure 5: NDA Targets vs. Accomplishments per DRMs as of CY 2018

19

Figure 6: NDA Dairy Animals’ Annual Growth Rate 21 Figure 7: Distribution of Dairy Animals per Category 21 Figure 8: Top Causes of Cattle Mortalities 34 Figure 9: Calf Mortalities in PCC’s GP for CYs 2013-2018 36 Figure 10: Causes of Deaths of Adult Buffaloes in PCC’s IH and

GP for CYs 2012-2018 37

Figure 11: Causes of Deaths of Calves in PCC’s IH and GP for CYs 2012-2018

37


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Figure 12: Causes of Deaths of Adult Buffaloes and Calves among PCC Cooperators in NIZ for CYs 2013-2018

38

Figure 13: Number of Days Before Farmers Cooperators Separate Calf from the Mother

40

Figure 14: Milk Collection by Farmer’s Cooperators in Six Carabao Centers

42

Figure 15: ItMB Dispersed to DBMF in San Jose, Nueva Ecija 43 Figure 16: Distribution of Carabaos Dispersed under the Buy-back

Program per Center 55

Figure 17: Collection Rate of NDA on Repayment of Animals for the Period CYs 2015-2018

57

Figure 18: Transferred Carabao in Magdalena, Laguna 60 Figure 19: Comparison Between Optimum Herd and Actual

Inventory by PCC as of September 2018 62

Figure 20: Total Inventory of Dairy Animals by Type Philippine, as of January 1, 2015-2016

84

Figure 21: Total Inventory and Female Breeders by Animal Type, Selected Provinces: as of November 2016

84


Acronyms

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AI Artificial Insemination

AQM Audit Query Memorandum

BAC Bids and Awards Committee

BAI Bureau of Animal Industry

BLP Bull Loan Program

CDA Cooperative Development Authority CDP Carabao Development Program

CLSU Central Luzon State University

CMU Central Mindanao University

COA Commission on Audit CSU Cagayan State University

CY Calendar Year DA Department of Agriculture

DBAP Dairy Bull Assistance Program

DBM Department of Budget and Management DBMF Dairy Buffalo Multiplier Farm

DDP Dairy Development Plan

DEPS Dairy Enterprise Profiling Survey

DIB Dairy Industry Board DMF Dairy Multiplier Farm

DMMMSU Don Mariano Marcos Memorial State University

DRM Dairy Road Map

DTRI Dairy Training and Research Institute

FMD Foot and Mouth Disease

GAA General Appropriation Act GAO Government Accountability Office

GCG Governance Commission on Government-Owned or Controlled Corporations

GP Gene Pool HBP Herd Build-Up Program

IH Institutional Herd

IRR Implementing Rules and Regulations

ISSP Information System Strategic Plan

ItMB Italian Mediterranean Buffalo IT Information Technology

LCSF La Carlota Stock Farm

LDF Listing of Dairy Farms

LGU Local Government Unit LME Liquid Milk Equivalent MFO Major Final Output MLPC Mindanao Livestock Production Complex


Acronyms

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MMSU Mariano Marcos State University MOA Memorandum of Agreement MYDAP Multi-Year Dairy Animal Procurement

Program NABC National Artificial Breeding Center NBCRDC National Beef Cattle Research and

Development Center NDA National Dairy Authority NFP National Feeding Program NGAs National Government Agencies NIZ National Impact Zone NMD Northern Mindanao Department PCC Philippine Carabao Center PCC-AB Philippine Carabao Center-Advisory Board PCIC Philippine Crop Insurance Corporation PD Presidential Decree PDO Project Development Officer PES Performance Evaluation Scorecard PMC Program Management Committee PMR Procurement Monitoring Report PNZDP Philippines-New Zealand Dairy Project PSA Philippine Statistics Authority RA Republic Act RTD Ready-to-Drink SDG Sustainable Development Goals SMD Southern Mindanao Department STAIRS Sanitation, Traffic Control, Assessment,

Isolation, Resistance and Security UPLB University of the Philippines at Los Baños

Laguna USF Ubay Stock Farm USM University of Southern Mindanao VB Village Based VSU Visayas State University WVSU West Visayas State University

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Republic of the Philippines

COMMISSION ON AUDIT Commonwealth Avenue, Quezon City

January 16, 2020 WILLIAM D. DAR Secretary Department of Agriculture ATTENTION: MARILYN B. MABALE Administrator

National Dairy Authority

DR. ARNEL N. DEL BARRIO Executive Director Philippine Carabao Center

Dear Secretary Dar: In line with its vision to become an enabling partner of the government in ensuring a better life for every Filipino, the Commission on Audit (COA) conducted performance audits to help government agencies better perform their mandate and achieve program goals and objectives more efficiently, economically, and effectively. It has identified for audit two comparable government programs under the Department of Agriculture, which are geared towards the improvement of the local dairy industry: 1) the Herd Build-Up Program (HBP) of the National Dairy Authority (NDA); and 2) the Carabao Development Program (CDP) of the Philippine Carabao Center (PCC). In CY 2012, the local dairy industry was dominated by dairy importers and processors supplying 99 percent or 1,955.41 thousand metric tons in Liquid Milk Equivalent (LME) of the country’s total annual dairy requirement. The country had barely 39,069 heads of dairy animals, 10,632 or 27 percent of which are milking animals producing only 1 percent of the annual milk requirement of the Philippines. The government spent an amount of ₱815 million from CYs 2013-2018 for the NDA’s HBP Program and ₱1.31 billion for PCC’s CDP or a total of ₱2.12 billion out of the total budget of ₱2.85 billion to increase the national dairy requirement from 1 percent to 2.8 percent.

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For CY 2018, the total milk demand in the Philippines has reached 1.77 billion liters. The NDA’s share in the local milk production was only at 15.25 million liters while the PCC was only at 3.15 million liters or a total of 18.40 million liters contributing only 1.04 percent of the country’s total dairy requirement for CY 2018. Including the local milk production of other private dairy farms not monitored either by NDA and PCC, the total local milk production has reached 1.3 percent of the country’s total annual dairy requirement in CY 2018, pursuant to the report of the Philippine Statistics Authority (PSA). Due to the historical performance of the dairy industry, there had been attempts to merge the NDA and the PCC through the filing of Senate Bill No. 142 and Senate Bill No. 1758 during the 17th Congress of the Republic of the Philippines.1 Since these bills did not pass during the 17th Congress, Senate Bill No. 139 was introduced on July 2, 2019 to continue the planned merger in the 18th Congress.2 The main purpose of the merger is to provide greater focus on the accelerated development of the dairy industry and to increase production of dairy animals in the Philippines. The two agencies, however, viewed that there is no compelling need or pressing reason for their merger. According to them, such a drastic move would only delay if not derail the programs already in place and focus for the industry’s development as a natural consequence of any administrative reorganization. On the part of the DA, it posited that the reform should be more on an institutional change rather than structural change. The audit intends to identify the key reasons behind the gaps between the programs’ respective targets and the corresponding accomplishments and aims to assess: (1) the extent to which the HBP and the CDP attained the respective target increases in the local dairy stocks and volume of milk production taking into consideration the objectives of the Dairy Road Map (DRM); and (2) the extent the NDA and the PCC ensured proper administration of the programs. We conducted this audit from April to August 2019 in accordance with the Standard for Performance Auditing as embodied in the International Standards of Supreme Audit Institutions (ISSAI) 3000 – Standard for Performance Auditing. The standard requires that we plan and perform the audit to obtain sufficient and appropriate evidence to provide a

1 Senate Bill No. 142 of the 17th Congress of the Republic of the Philippines. 2 Senate Bill No. 139 of the 18th Congress of the Republic of the Philippines.

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reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.


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These programs are aligned with the three Sustainable Development Goals (SDGs)8 of the global indicator framework particularly SDG No. 1: No Poverty, which aims to end poverty in all its forms everywhere; SDG No. 2: Zero Hunger, which aims to end hunger, achieve food security and improved nutrition and promote sustainable agriculture; and SDG No. 3: Good Health and Well-being, which aims to ensure healthy lives and promote well-being for all at all ages.

The HBP is the base component of the dairy development.9 It aims to ensure and accelerate the increase in both local dairy stocks and local milk production. Increase in local dairy herd may be realized through the importation of genetic materials like dairy animals and dairy breeding materials, upgrading of existing local animals to dairy breed, production of replacement stocks thru dairy breeding programs like Artificial Insemination (AI) programs and multiplier farm establishment, and the preservation of existing stocks. Increasing the milking animals will significantly affect overall local milk production in the country.10 The CDP, on the other hand, aims to increase income and nutritional status of farming communities through increasing genetic potential of the native carabaos as sources of meat, milk and draft, and developing buffalo-based and related enterprises.11 CDP consists of three major components: Genetic Improvement Program (GIP), Research and Development (R&D), and Carabao-Based Enterprise Development (CBED).12 The GIP aimed to produce animals with improved productivity for milk and meat, without disregard to draft power.13 R&D efforts help address technology and policy gaps. Essentially, it seeks to overcome the constraints in building more efficient and profitable buffalo-based enterprises14 while CBED emphasizes entrepreneurship above that of subsistence system which would allow millions of rural

8 The Philippine Government together with other 192 Member States of the United Nations jointly committed to the 2030 Agenda for Sustainable Development that includes 17 SDGs. 9 NDA, supra note 5, pp. 10-14. 10Herd Build Up, available at http://nda.da.gov.ph/index.php/en/programs/herd-build-up (last accessed July 24, 2019). 11 PCC Strategic Plan 2011-2025 Propelling PCC Towards a Dynamic Carabao Sector, p. 44. 12 PCC Resolution No. 1, s. 2014, p.1. 13 PCC Service Guide 2018, Bull loan program, p. 10. 14

PCC mandates, available at http://www.pcc.gov.ph/mandatevisionmission (last accessed July 23, 2019).


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families to improve their income and ameliorate their economic conditions15.

There are four common strategies adopted by the two programs to increase the local dairy stocks and consequently, the volume of milk production: 1) Importation – dairy animal importations continue as a fast-track mechanism to increase the dairy base herd16; 2) Upgrading17 activities – local upgrading thru AI and bull breeding18; 3) Buy-back Program – the offsprings (island-born) produced out of upgrading activities are procured by the NDA and the PCC and the same are redistributed to other farmers19; and 4) Animal Repayments – the Palit-baka scheme in the case of the NDA and the Paiwi scheme in the case of the PCC whereby the respective agencies distribute potential dairy animals to new but eligible and qualified beneficiaries who in a certain period of time, would resort to a payment-in- kind.20

15 PCC Carabao Development Program, available at http://www.pcc.gov.ph/enterprise-development/ (last accessed May 31, 2019). 16 NDA, supra note 5, p. 14, 1st par. 4th sentence. 17 Upgrading refers to the process when a native animal is injected with imported pure and high-yielding dairy semen producing a “better” breed offspring. 18 NDA, supra note 5, p. 14, 2nd par. 19 NDA 2013 Annual Report, p. 8, item 3 and MOA No. 201711 between NDA and PCC, § I-II, pp. 1 and 2. 20 HBP available at http://nda.da.gov.ph/index.php/en/programs/herd-build-up & https://www.pcc.gov.ph/provision-of-superior-breeding-animals/ (last accessed June 28, 2019).


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Source: COA Analysis of NDA and PCC Strategies

On June 20, 2018, Republic Act (RA) No. 11037 has been institutionalized for a National Feeding Program (NFP) that will address hunger and undernutrition among Filipino children. A Milk Feeding Program, which is one of the program components of the law, requires the National Government Agencies (NGAs) to coordinate with the DA, NDA, PCC and the Cooperative Development Authority (CDA) for the incorporation of fresh milk and fresh milk-based food products in the fortified meals and cycle menu21 utilizing locally produced milk in order to enhance its nutritional content and, at the same time, help boost livelihood opportunities for local dairy farmers and the local dairy industry.22

21 Cycle Menu refers to standardized menus prepared by the NGAs, in coordination with the National Nutrition Council and the Food and Nutrition Research Institute, which shall be contextualized and drawn up, among others, according to age range, location and/or type of school, and local cultural and/or religious eating preferences: Provided that such menus shall have as many varieties and selections as maybe necessary taking into account its availability in the place or locality where the day care center or school kids located. 22 An Act Institutionalizing a National Feeding Program for Undernourished Children in Public Day Care, Kindergarten and Elementary Schools to

Figure 1: Strategies Adopted to Increase Dairy Stocks and Milk Production


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There is only a slight increase in local milk production due to issues with policy coherence, vagueness of the provisions of the DRM on the roles and responsibilities of key stakeholders, and insufficiency of funding for importation

Local milk sufficiency remained at almost the same level for six years from CYs 2013-2018; consistently missing its yearly target. Under the DRM 2017-2022, local milk production should have reached 2.8 percent of the total dairy needs of the Philippines by CY 2018. However, based on NDA and PCC data, the local dairy market share remained at 1.2 percent from CYs 2013-2016 and 1.3 percent in CYs 2017-2018. The following factors adversely affected the attainment of the DRM targets: 1) issues with policy coherence; 2) vagueness of the provision of the DRM on roles and responsibilities of key stakeholders; and 3) insufficiency of funding for importation.

In the mid of CY 2017, the Philippines DRM Executive Briefer 2017-2022 was crafted by the NDA as a reference for a comprehensive and responsive delivery of services for the present and future needs of the dairy industry sector.23 The goal of the DRM as per marching order of the then DA Secretary24, is to speed up the development of the local dairy industry by hitting the 10 percent local milk sufficiency target where the 333 percent Ready-to-Drink (RTD) milk sufficiency will be satisfied by CY 2022. At this desired level, the industry will have to achieve an average of 2 percent point hike each year reaching 2.8 percent sufficiency level by CY 2018.25 Historical data revealed that RTD milk production has not hit its target since CY 2010. Under the DDP 2007-2010, the RTD

Combat Hunger and Undernutrition Among Filipino Children and Appropriating Funds Therefor, [Masustansyang Pagkain Para sa Batang

Pilipino Act],(2017) RA 11037 § 4, c. pp. 3-4. 23 NDA, supra note 7, “Foreword” §, last sentence, p.1. 24 Ibid, 1st par., 2nd sentence, p. 3. 25 Ibid, “Sufficiency Targets” 1st-2nd par, p.3.

Local milk sufficiency level remained at a little over 1 percent in view of slight annual increase in volume of milk production and sufficiency level in the RTD milk was not attained from CYs 2013-2018


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milk target is 37 percent. Agency reports revealed that the DDP achieved only a 20 percent sufficiency in RTD milk in CY 2010.

Under the DRM CYs 2010-2016, the RTD milk target is to increase the 20 percent level in CY 2010 to more than 43 percent by CY 2016.26 For the period covered by the audit, available data revealed that the dairy industry posted RTD milk sufficiency level of 21 percent in CY 2013 and 19 percent in CY 2016 (Table 1). The deficits between the accomplishment and the target sufficiency level ranged from 14 to 24 percent.

Table 1: Targets vs. Actual Accomplishments on Local Milk Production for CYs 2013-2016

Indicators Target

Actual Dairy Industry Accomplishment

2013 2014 2015 2016 2013 2014 2015 2016

Local Milk Sufficiency (% of Total Demand)

- - - - 1.2% 1.2% 1.2% 1.2%

RTD Local Milk Sufficiency (% of RTD Demand)

35% 38% 40% 43% 21% 20% 20% 19%

Total Milk Demand (in million liters)

1,870 1,900 1,940 1,970 1,660 1,690 1,690 1,717

RTD Demand (in million liters)

92.57 98.02 103.73 109.68 92.57 98.02 103.73 109.68

Local Milk Production (MLME)

32.51 37.02 41.90 47.16 19.53 19.73 20.39 21.16

Daily Milk Output (Ton) 90.31 102.83 116.39 131.00 54.25 54.81 56.64 58.78

Source: DRM CY 2010-2016; PSA Dairy Industry Performance Report CY 2015; PSA Livestock and Poultry Subsector Statistics CY 2017

The slight increase in annual local milk production from 19.53 Million Liters of Liquid Milk Equivalent (MLME) in CY 2013 to 21.16 MLME in CY 2016 did not impact in the local milk sufficiency level as the rate remained at 1.2 percent level for the same period. Likewise, agency data show that the dairy industry sector achieved a 1.3 percent local milk sufficiency to total market or 1.5 percent below the desired level of 2.8 percent at the end of 2018 (Table 2). Out of the 94 percent target, only 44 percent was attained on the RTD milk sufficiency in CY 2018. Further analysis of the local milk production in CY 2018 revealed that of the 23.69 million liters total production for the industry translated to 1.3 percent local milk sufficiency, only 18.40 million liters could be accounted from the reports/data of the NDA and PCC. The local milk production contributed by NDA

26 NDA, supra note 5, p.3, 3rd par.


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was 15.25 million liters while PCC had 3.15 million liters which could be translated to 1.04 percent of local milk sufficiency level.

Table 2: Targets vs. Actual Accomplishments on Local Milk Production for CYs 2017-2018

Indicators Target

Actual Dairy Industry Accomplishment

2017 2018 2017 2018

Local Milk Sufficiency (% of Total Demand)

1.3% 2.8% 1.3% 1.3%

RTD Local Milk Sufficiency (% of RTD Demand)

43% 94% 43% 44%

Total Milk Demand (in million liters)

1,763.62 1,785.94 1,746.10 1,774.74

RTD Demand (in million liters)

52.91 53.58 - -

Local Milk Production (MLME)

22.60 50.37 22.76 23.69

Source: DRM CY 2017-2022; PSA Livestock and Poultry Subsector Statistics CY 2017; PSA Performance of Philippine Agriculture October to December 2018

As a whole, data shows that the dairy industry has not really progressed in its objective of attaining a higher level of sufficiency as the rates remained at 1.2 percent to 1.3 percent (Figure 2). Figure 2: Target Local Milk Sufficiency Level vs. Actual

Local Milk Sufficiency Level for CYs 2013-2018

Source: DRM 2010-2016; DRM 2017-2022; and COA Analysis of Accomplishment Reports


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The PCC management commented that Philippine total milk sufficiency of 1 percent has not changed over the years because the average growth rate in dairy products importation of 5.69 percent from CYs 2010-2017 is almost the same as the average growth rate in domestic milk production of 5.88 percent. It added that the role of the government is to provide the needed environment for the private sector to respond, essentially through appropriate investment in dairy industry. However, the response of the private sector during the last many years has been lukewarm despite efforts of NDA, PCC and other related entities to promote dairying due to inconsistencies in policies that impact on the issues of competitiveness, profitability, and sustainability. The private investors have been discouraged by the pro-consumer Free Trade Agreement entered into by the government which cut the tariff on dairy imported products from 18 to 3 percent and will be totally erased in CY 2019. The RA 11037 – “Masustansyang Pagkain para sa Batang Pilipino Act” and RA 11148 - “Kalusugan at Nutrisyon ng Magnanay Act” came in only lately and to be implemented in CY 2020. The PCC also pointed out that if the government will seriously pursue the objectives of these legislations, and ensuring that the milk for the program comes only from the local producers, and that funding support will be sustained and expanded, these can attract substantial private sector investments in dairy production. The PCC management further commented that 10 percent sufficiency target is just a wishful target and was articulated as soon as former Sec. Piñol assumed office at the DA. His pronouncement was to bring the current 1 percent self-sufficiency to 10 percent by the end of CY 2022. It was added that the government took almost two decades to reach the 1 percent self-sufficiency level. That, in order to reach 10 percent sufficiency target, current female dairy inventory should grow by 10 folds. The PCC management further explained that local milk production has a niche market, the fresh milk market which is only 3.1 percent of the total milk demand. To target for 10 percent self-sufficiency would mean domestic production has to be fitted in 3.1 percent market of liquid milk. In order to have the additional 6.9 percent market, it is tempting to consider cheese and butter market, all together representing 14.1 percent. The NDA affirmed during the exit conference that the target set in the DRM was ambitiously set and confirmed that they are bargaining with the Governance Commission on


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Government-Owned or Controlled Corporations (GCG) to set more realistic and achievable target. It further admitted that it was their mistake on not updating the DRM. It added that they have a long-term CYs 2010-2030 DRM from where they lifted-out the DRM of each Administration. However, no copy of the said DRM was provided to the audit team. It should be noted that the 10 percent milk sufficiency level was a medium term plan’s target, which could have been modified accordingly after an assessment of progress on the attainment of the desired target and issues on policy coherence have been raised and addressed. RA 11037 was issued on June 20, 2018 to establish a NFP by the Department of Social Welfare and Development (DSWD) and the Department of Education (DepEd) in coordination with various agencies including PCC, NDA and CDA. Its Milk Feeding Program component particularly, promotes the utilization of locally produced fresh milk and fresh milk-based products in addition to fortified meals that will be provided for at least 120 days. The implementation of the program would not only address malnutrition but would provide livelihood opportunity to farmer beneficiaries involved in the dairy industry sector. It was noted that based on the series of consultations with agencies involved in the crafting of the Implementing Rules and Regulations (IRR) of RA 11037, there is a need for 600,000 liters of milk a day nationwide to help alleviate undernutrition among daycare and elementary schoolchildren.27 Thus, for the duration of the NFP about 72 million liters of milk will be required. It is in this light that local milk production need to be increased to cover the requirement of the feeding program in addition to the existing market. As the suppliers of fresh milk and fresh milk – based products of the program need to comply with certain standards, the PCC has already designed activities to prepare stakeholders in their engagement in the program implementation.

27 Jasper Y. Arcalas, Feeding Program to boost milk demand PCC, available

at https://businessmirror.com.ph/2019/10/21/feeding-program-to-boost-milk-demand-pcc/ (last accessed October 25, 2019).

Implementation of NFP under RA 11037 to bring additional demand for locally produced milk


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The existing condition and practices in the implementation of the government dairy program by the NDA and PCC under the direction of the DA do not lend well in creating an enabling environment that enhances the attainment of the objectives of the DRMs. By disregarding or reducing the targets provided in the blueprint, the dairy industry will not attain its targets towards local milk production sufficiency in the period covered by the DRM. As discussed earlier, the accomplishment of both agencies would just contribute to a little over one percent local milk sufficiency. If the objective is to attain higher sufficiency level as envisioned in the DRM, more aggressive and productive program implementation is necessary. It should be noted that the projected increase in demand through the NFP if not accompanied with increase in local milk production will result in further increase in the volume of milk importation requiring utilization of foreign currencies.

The PCC management commented that previous milk feeding programs, which did not stimulate private sector investment and lack of funding support were not sustainable. It pointed out that milk feeding program effectively stimulated domestic growth in Thailand. In CY 2015, for example, Thailand fed 8.3 million children for 365 days and invested in the amount equivalent to about ₱33 billion. On the other hand, the Philippines fed 13,000 children only for 120 days. The implementation of the NFP is expected to increase the demand of the locally produced milk. This could be the opportune time to encourage private sector to invest in the dairy industry to be able to supplement the existing level of local milk production. Likewise, it warranted the additional funding from the government aimed at increasing the dairy herd and milk production.


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The following are the major factors, which adversely affected the attainment of the DRM targets:

1) issues with policy coherence, 2) vagueness of the provision of the DRM on roles and

responsibilities of key stakeholders, and 3) insufficiency of funding for importation.

Issues with policy coherence The NDA shall be in-charged of the Dairy Cattle, PCC on Dairy Carabao/Buffalo, and BAI on the Dairy Goats. The share allocations in achieving the targets in the DRMs are: 64 percent for cattle; 33 percent for carabao; and 3 percent for goats. NDA did not recognize the target in the DRM in terms of dairy cattle required to significantly increase local milk supply to suffice the increasing demand year-by-year. The share of NDA in achieving the DRM’s milk production targets for dairy cattle is 64 percent. Instead, NDA set its own yearly targets based on the Performance Agreement with the GCG as shown in Table 3. These targets were far-off from targets set in the DRM. Understandably, NDA is tied up with the available budget to be distributed to priority areas of the program. As a result, attainment of the targets in the DRM was adversely affected.

Table 3: Targets per DRM Against Performance Targets Set by NDA on Local Milk Production for Dairy Cattle (in million liters)

Source: DRM; NDA Targets vs. Accomplishment Reports 2013-2018

Consequently, it was noted that the actual milk production from cattle for CYs 2013-2018 was only 80.41 million liters (Figure 3) or a gap of 67.79 million liters from the DRM targets.

Year Target per DRM (64% share) Target per NDA

2013 20.81 13.76

2014 23.69 13.23

2015 26.82 13.59

2016 30.18 13.46

2017 14.46 14.40

2018 32.24 19.02

Total 148.20 87.46

Setting of lower local milk sufficiency targets or non-adoption of targets under the DRM resulted in gaps in the milk production targets and accomplishments for CYs 2013-2018

Major causes for the non-attainment of the DRM targets


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Figure 3: DRM Targets vs NDA Actual Accomplishments on Local

Milk Production for Dairy Cattle (in million liters) for CYs 2013-2018

Source: DRMs and NDA Accomplishment Reports for CYs 2013-2018

The NDA management commented that there are other dairy programs aside from HBP that contributed to the attainment of dairy development program and the local milk production in particular. Notwithstanding the contribution of the other programs such as Dairy Business Enhancement, Milk Quality Assurance and Milk Feeding Program, still HBP is the base component of the dairy development program. While these programs may contribute in increasing the milk production, the main strategy to increase production is to increase dairy herd. On the other hand, PCC formulated its CDP Strategic Plan 2011-2025 based on the DDP 2007-2010. Management pointed out that the Strategic Plan would have served as guide in annual planning but unfortunately, the strategies and targets were not fully funded. PCC further explained that its Strategic

Plan was operationally translated into 3 phases: Phase 1 – CDP Strategic Shift, 2011-2014; Phase 2 – iREB, 2015-2019

Intensified Research-Based Enterprise Build-Up; and Phase 3

– iREB 2.0, 2020-2025 Client Orientedness with Renewed

Efforts on Value Creation for Improved Productivity and Profitability. Comparison of the Phases 1 and 2 of the Operational Plans with the DRM 2010-2016 revealed that DRM’s annual targets


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related to carabao’s milk production were not adopted by the PCC. In Phase 1, the strategic priority of the program shifted from research and development to research for development.28 It was noted that only in Phase 2 – iREB where milk production target was indicated to produce 25 million liters of milk valued at ₱120 million.29 Likewise, the target milk volume per Strategic Plan is measured in liters while Annual Major Final Output (MFO) Accountability Report Card target volume of milk is reported in kilograms. Upon inquiry, it was pointed out that buffaloes’ milk are presented in kilograms due to its composition, buffalo milk can be processed into a product of high value, it is much richer than cow’s milk in terms of nutrients, it has higher fat, protein and total solids content30. The PCC commented that the thorough implementation of targets of the Strategic Plan did not materialize due to absence of support for infusion (importation) that would trigger continuing build-up of elite herd. The parallelism of the current accomplishment vis-à-vis targets in the Strategic Plan was not achieved due to limitations in budgetary and absorptive capacity. Any major unfunded intervention created a domino effects on the targets. It should also be noted that since the PCC did not adopt or align its targets with the published targets in the DRM for carabao local milk production, an annual gap of 4.49 to 13.38 million liters for a total of about 55 million liters in local milk production from CYs 2013–2018 was not included in the annual targets for the period (Table 4).

28 PCC, CDP Strategic Shift iREB Intensified Research-Based Enterprise Build-Up 2013-2018, p.9. 29 PCC, CDP Island Cluster Planning #MFOShare2Clients dated November 5-9 and 15-17, 2017, p. 30. 30 PCC, Dairy Buffalo Production Handbook, Chap. 9 Milk Production, p. 230.


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stocks.32 Performance indicators and targets of the DRM are shown in Table 5.

Table 5: Respective Targets of HBP Strategies under the DRMs for CYs 2013-2018

Source: DRMs for CYs 2010-2016 and CYs 2017-2022

It was noted that there were deficiencies in the DRM making it difficult to assess actual accomplishments against targets. On the target dairy animal infusion of 11,880, there was no specific number of dairy cattle and goat to be imported for the period by the NDA to assess the accomplishment or contribution in the DRM. In addition, available resources were not fully considered in setting up the targets as pointed out during the discussion with the NDA that the targets for DRM 2017-2022 were ambitious.

As per Performance Agreement with the GCG33, however, the NDA had programmed only ₱237.93 million (Table 6) in total funds or short by 89 percent of the total funding requirement of ₱2.24 billion (Table 5). Programmed funds could only cover the importation of 2,895 cattle, upgrading of 38,441 local animals, and setting up of a Buy-back Fund of ₱162.93 million for CYs 2013-2018.

32 Herd build up available at http://nda.da.gov.ph/index.php/en/programs/herd-build-up, 1st par. 2nd sentence. 33 Performance Agreements has been executed pursuant to the Performance Evaluation System for the GOCC Sector (GCG MC No. 2013-02) between the GCG and the NDA.

Particulars Basis 2013 2014 2015 2016 2017 2018

Total (Value in Million Pesos)

Dairy Animal Infusion

Imported Animals

1,100 1,100 1,100 1,100 0 7,480 11,880

@₱0.130M/head ₱143 ₱143 ₱143 ₱143 ₱0 ₱972 ₱1,544

Local Animals Upgrading

Animals Upgraded

10,000 10,000 10,000 5,000 0 0 35,000

@₱5T/head ₱50.00 ₱50.00 ₱50.00 ₱25.00 ₱0 ₱0 ₱175

Buy-Back

@20% harvest rate

2,000 2,000 2,000 1,000 0 0 7,000

@₱75T/head ₱150 ₱150 ₱150 ₱75 ₱0 ₱0 ₱525

Dairy Herd 50,836 52,513 53,974 55,218 0 0 0

Total Value in Million Pesos ₱343 ₱343 ₱343 ₱243 ₱0 ₱972 ₱2,244


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Table 6: Performance Targets as Agreed with GCG for CYs 2013-2018

Particulars Basis 2013 2014 2015 2016 2017 2018

Total (Value in Million Pesos)

Importation

Imported Cattle

0 0 1,415 300 680 500 2,895

Amount ₱0 ₱0 ₱0 ₱0 ₱45.00 ₱30.00 ₱75.00

Produced Locally*

Animals Upgraded

6,936 8,000 6,700 6,800 4,714 5,291 38,441

Amount ₱0 ₱0 ₱0 ₱0 ₱0 ₱0 ₱0

Buy-Back

No. of Animals

0 0 0 0 0 0 0

Amount ₱162.93 ₱0 ₱0 ₱0 0 ₱162.93

Dairy Herd 0 0 36,641 42,124 49,706 54,513 54,513

Total Value in Million Pesos ₱162.93 ₱0 ₱0 ₱45.00 ₱30.00 ₱237.93

*Calves born from breeding and upgrading activities Source: NDA Performance Agreements with GCG and Performance Evaluation Scorecard (PES) for CYs 2013-2018

As can be inferred from the table above, targets agreed upon by the NDA and the GCG were not representatives of those targets set in the DRM as some of the details were missed out in crafting the strategies. The 38,441 target animals to be upgraded has no alloted budget to meet the target. On the other hand, NDA managed to set-up an amount of ₱162.93 million for the Buy-back fund but failed to quantify the number of dairy animals it targeted to buy-back for the given period. As a result, attainment of the required number of dairy stocks (Figure 5) needed to match the desired increase in milk production is adversely affected. Figure 5: NDA Targets vs. Accomplishments per DRMs as of CY

2018

Sources: DRMs 2010-2016 and 2017-2022; Performance Agreements with GCG and Accomplishment Reports for CYs 2013-2018


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The target dairy herd of 55,218 per DRM 2010-2016 was not attained as reported dairy herd was only 46,900 in CY 2016 or only 85 percent of the target per PSA data. No annual dairy herd targets were set for the DRM 2017-2022 but it was expected that the dairy herd would reach 485,378 at the end of the term. Given this figure, total dairy inventory is projected to reach 198,977 heads by the end of CY 2018. However, as of this date, reported dairy herd was only 47,600 or only 24 percent of the target with an annual average growth rate of three percent (Table 7). This low level of dairy stocks was attributed to non-reporting by the PSA in its annual reports the dairy goats reported by the NDA for the same period. Hence, total dairy inventory reported by the PSA is lower compared to the one reported by NDA. Table 7: PSA Reported Dairy Animals Inventory for CYs 2012-

2018 Particulars Cattle Carabao Goat Total

2012 21,067 16,364 1,638 39,069

2013 21,605 16,829 1,888 40,322

2014 22,498 17,299 1,984 41,781

2015 24,512 17,802 2,118 44,432

2016 25,700 18,800 2,400 46,900

2017 26,100 18,900 2,600 47,600

2018 26,000 19,000 2,600 47,600

Annual Average Growth Rate

4% 3% 8% 3%

Sources: PSA Dairy Industry Performance Reports and Selected Statistics on Agriculture

In contrast, from CYs 2013-2018, NDA’s total dairy herd’s annual growth rate had an average of 11 percent with cattle at 3 percent, carabao at 25 percent and goat at 30 percent (Figure 6). The reported total dairy herd inventory of 52,188 heads as of December 31, 2018, however, was low as it represented only 26 percent of the projected target. The low level of dairy stocks was attributed mainly to failed biddings in importation, low success rate on upgrading activities, low buy-back of dairy animals, slow animal repayments, and high mortality rate. As a result, required number of dairy stocks that would increase milk production to desired level was not sufficient.


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Figure 6: NDA Dairy Animals’ Annual Growth Rate

Source: NDA Accomplishment Reports for CYs 2013-2018 Figure 7 shows the distribution per category of dairy animals as reported by NDA. Out of the 52,188 dairy inventory, only 24,153 or 46 percent are dams while 6,723 or 13 percent are heifers. These constitute a total of 30,876 female cattle or 59 percent only of the total dairy herd used as available inputs in the milk production.

Figure 7: Distribution of Dairy Animals per Category

Source: NDA Summary of Accomplishment for CYs 2013-2018


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While PCC’s main strategy is to increase the number of dairy animals through carabao upgrading program complemented with importation of dairy buffaloes, no target on dairy herd inventory was made under the three operational phases of the Carabao Development Strategic Plan for 2011-2025. Likewise, the DRM was not considered in developing the said Strategic Plan, hence, support to the attainment of DRM targets was not ensured. Without setting the target, it could not be assessed whether the reported herd inventory in its Annual Report would be enough to meet the target milk production from carabao. Vagueness of the provision of the DRM on roles and responsibilities of key stakeholders To attain the objectives and targets indicated in the DRM, one of the strategies was through unified efforts of government and non-government agencies. Government agencies such as NDA as the leading agency, Livestock Development Council, PCC, BAI and Dairy Training and Research Institute (DTRI) will join resources in developing the local dairy industry in collaboration with the Dairy Confederation of the Philippines, Philippine Chamber of Commerce & Industries, and social-civic groups.34 To achieve the objectives stated under RA 7884, NDA which shall, for the purpose of policy and program coordination, be attached to the DA. As set forth in Sec. 4 of RA 7884, the NDA shall be the central policy determining and directing body tasked to ensure the accelerated development of the Philippine dairy industry. In this regard, the NDA could have collaborated with PCC for a coordinated effort in the implementation of the DRM 2010-2016. On the other hand, the PCC crafted its own Strategic Plan 2011-2025 which were operationalized in three Phases and did not match with the DRM period. The PCC’s plans, strategies and targets for carabao upgrading and milk production were not particularly aligned with the DRM. The Strategic Plan had higher targets than the DRM for the same period but could not be adopted by the PCC due to absence of infusion of dairy buffaloes. With the deviations from the targets set in the Strategic Plan, the PCC still did not adopt/align the targets in the DRM. It was also noted that the NDA and PCC do not have clear protocols on data sharing. On the part of the NDA, it focuses

34 NDA, supra note 5, p. 7, 7th par.

Poor coordination among concerned agencies resulted in fragmented efforts in carrying out the dairy program


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only on providing services and reporting on dairy cattle and those other dairy animals (buffaloes and goats) that are within the NDA areas of operation. Data on accomplishment of PCC on milk production, inventory of dairy carabaos and results of upgrading of carabaos were not shared by PCC to form part of the progress in the attainment of targets in the DRM. Mortality rate thresholds for carabao set by PCC and NDA were different. The inventory of dairy carabaos and goats as well as milk production reported by the NDA were not completely captured in the national data on the total inventory of dairy animals by classification, milk production by animal type and by source, and total supply of total milk reported by PSA. In spite of this, the NDA relies on the data coming from PSA to be incorporated in its annual reporting to present the dairy industry situation in terms of total inventory of dairy animals and milk production. Accordingly, the PCC claimed that the data for carabao did not originate from them. The only visible partnership endeavour of the two agencies was through a Memorandum of Agreement (MOA) entered into on December 13, 2017 when they agreed to collaborate for carabao buy-back program through their two respective programs namely NDA’s buy-back program and PCC’s carabao dispersal for milk production35. Formal and permanent linkage between the two agencies for continuous collaboration and coordination in order to achieve their common goal was not established. The NDA’s Dairy Industry Board (DIB)36 does not include PCC representative nor Philippine Carabao Center-Advisory Board (PCC-AB)37 includes NDA representative. It was noted that during the 17th and 18th PCC-AB Meetings conducted on April 19, 2012 and January 7, 2014, respectively, the NDA Administrator was present, but on the succeeding meetings, said Administrator or representative was no longer part of it. No authority from the DA was found for the representative of the NDA to attend PCC-AB meetings nor the PCC’s representative to sit during DIB meetings. As DA sits in both Boards, linkage between the two agencies can be facilitated as it has oversight control and authority over the two agencies.

35 Memorandum of Agreement (MOA) between NDA and PCC dated December 13, 2017, p. 1-2. 36 National Dairy Development Act of 1995, § 6 Powers and Functions, pp. 2-3. 37 An Act Creating the PCC to Propagate and Promote the Philippine Carabao and for other purposes, [Philippine Carabao Act of 1992], RA 7307, § 7, p.3.


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Section 13 of RA 7884 states that NDA, in coordination with other related agencies, shall undertake vigorously the dairy research and development including but not limited to, breeds and breeding, herd improvement, indigenous and agri-waste feed sourcing, product development, herbal veterinary drugs and biologics, dairy facilities fabrication, and others. DTRI, on the other hand, is mandated to conduct research for the local dairy industry and it is part of the DIB. However, there is lack of continuous comprehensive research and documentation anchored on the needs of dairy industry which include but not limited to genetics evaluation and forage evaluation, especially on the right/desired breed acclimatized in the country for build-up. According to DTRI, it is still developing a study/research on the desired breed adaptable to tropical condition. In view of this, the NDA took the initiative in the assessment of the Holstein Jersey crosses as an adoptable breed in Philippine setting, provided that there is proper management on the right quality and volume of feed, right breeding plan, and appropriate infrastructure. Nonetheless, DTRI continues to be a resource for the dairy industry through training program for the NDA for its field personnel and for the farmers and the cooperatives it supported. Within 20 years, the farmers, the dairy processing plant staff, the cooperatives and all others involved in dairy in these areas had undergone several training courses in the different aspects of dairy operation and cooperative management38. Lastly, BAI is mandated to promote the development of the livestock industry and investigate the causes of dangerous communicable diseases from animals so their spread could be prevented. However, there is lack of information provided to the NDA to prevent the recurring diseases caused by deaths of the dairy animals. The preparation of the DRM itself was not a sole work of the NDA but the work of the DA, NDA, PCC and BAI. The DRM contains the commitment of the agencies in achieving targets.

It was noted, however, that the DRM does not contain a well-defined roles and responsibilities of the NDA as the lead implementing agency in cooperation with the attached DA agencies and stakeholders to include the private sector. In view of specific functions of these key stakeholders there is a

38 Capacity Building for NDA personnel, available at https://dtri.cafs.uplb.edu.ph/19-feature/817-capacity-building-for-nda-personnel-kicks-off-at-dtri (last accessed October 07, 2019).


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need for coordination to ensure coordinated efforts in the implementation of the dairy program. The DA commented during the exit conference that the NDA should exercise due diligence in working with the DRM. It added that collaboration between the NDA, PCC, BAI and DA-Livestock Division is a must, since it is the only way for the dairy development to scale-up. Based on the foregoing, the NDA and PCC have not maximized collaboration and cooperation among stakeholders resulting in fragmented efforts in the implementation of the dairy program. Insufficiency of funding for importation NDA imported only 3,060 dairy animals or 70 percent of the target 4,400 heads for CYs 2013-2016 under the DRM 2010-2016 due to funding limitations. Out of the target 7,480 heads for importation in CY 2018 under DRM 2017-2022, a total of 2,555 was programmed for procurement but bidding failed due to absence of suppliers and lack of dairy stocks from source market due to Foot-and-Mouth Disease (FMD) issue. Dairy animal importations continue as a fast-track mechanism to increase the dairy base herd.39 Per DRM 2010-2016, the NDA set target of 60,000 dairy animal infusion through importation of 10,000 heads of live dairy animals and the production of 50,000 genetically upgraded dairy cattle out of the more than three million beef cattle in the country at the end of CY 201640. On the other hand, DRM 2017-2022 target of hitting 10 percent milk sufficiency by CY 2022 means, the industry needs to infuse some 105,000 heads of milking animals along with increasing the industry’s current dairy herd to 485,378 heads by CY 202241. Based on the DRM 2010-2016, the target importation for CYs 2013-2016 was 4,400 heads of dairy animals with a projected cost of ₱572 million while DRM 2017-2022 targeted 7,480 imported dairy animals in CY 2018 with a projected cost of ₱972.40 million with no target importation in CY 2017. Target importation for CYs 2013-2018, therefore, totalled 11,880 dairy

39 NDA, supra note 5, p. 14, 1st par. 4th sentence. 40 Ibid, p. 2, 4th par. 41 Ibid, p. 4, 2nd par. last part.

Programmed/ planned importations by NDA and PCC did not fully materialize due to lack of funding support and failed biddings


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animals with a total projected cost of ₱1.54 billion. Table 8 shows the targeted importations vis-à-vis the actual accomplishments for the corresponding period.

Table 8: Targets vs. Accomplishments on Dairy Animal Importations for CYs 2013-2018 Year DRM Target

(a) Programmed in PMR*

(b) Actual Importations

(c) Unfunded Importations

(d=a-b or c)

Quantity Amount** Quantity Amount** Quantity Amount** Quantity Amount**

2013 1,100 ₱ 143.00 0 ₱ 0.00 0 ₱ 0.00 1,100 ₱ 143.00

2014 1,100 143.00 0 0.00 860 112.85 240 30.15

2015 1,100 143.00 0 0.00 1,415 184.04 (315) (41.04)

2016 1,100 143.00 500 70.00 785 107.94 315 35.06

Sub-total

4,400 ₱ 572.00 500 ₱ 70.00 3,060 ₱ 404.83 1,340 ₱ 167.17

2017 0 ₱ 0.00 680 ₱ 90.05 0 ₱ 0.00 (680) (₱ 90.05)

2018 7,480 972.40 1,875 300.00 0 0.00 5,605 672.40

Sub-total

7,480 ₱ 972.00 2,555 ₱ 390.05 0 ₱ 0.00 4,925 ₱ 582.35

Grand Total

11,880 ₱1,544.40 3,055 ₱ 460.05 3,060 ₱ 404.83 6,265 ₱ 749.52

*Procurement Monitoring Report (PMR) **in million pesos Sources: DRMs 2010-2016 and 2017-2022; PMRs 2016-2018 and Accomplishment Reports for CYs 2013-2018

In CY 2014, through the Multi-Year Dairy Animal Procurement and Breeding Program (MYDAP)42, the NDA procured 860 pregnant Holstein-Sahiwal breed dairy cattle from New Zealand with a total cost of ₱112.85 million. The following year, the NDA imported 1,415 heads of the same breed and source with total value of ₱184.04 million43. This number of heads was agreed upon by the NDA and the GCG for the same period. In CY 2016, the NDA was able to import 500 heads of pregnant Holstein Friesian-Sahiwal heifer crosses from New Zealand with a total cost of ₱67.74 million44 but were subsequently sold to Universal Harvester Dairy Farm, Inc. (UHDFI), one of the NDA-assisted Dairy Multiplier Farms (DMF). As reported in the Commission on Audit (COA) Annual Audit Report (AAR) for CY 2016, the National Government was deprived of ₱10.21 million in revenues from customs duties and taxes when the NDA sold 500 heads of cattle to

42 The MYDAP to Upscale Heifer Production for the Local Dairy Industry is mainly a government-private sector partnership in the establishment of dairy animal production systems. It aims to capacitate the government and the dairy sector to procure dairy animals through negotiated multi-year procurement contract. The project aims to develop dairy farming on a large scale that will eventually help the small hold dairy farmers. 43 Supply Contract for 1,415 Heads of Imported Pregnant Holstein-Sahiwal Heifer-Crosses. 44 NDA Bids and Awards Committee (BAC) Resolution dated 26 January 2016.


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UHDFI. This amount could have been earned by the government and used for program implementation. Meanwhile, under the PNZDP45, an additional of 285 pregnant Kiwi cross heifers46 with an approved budget of ₱40.20 million47 were imported from New Zealand, adding up to the existing dairy herd in the country. With actual importation of 3,060 heads for CYs 2013-2016 and no importation for CYs 2017-2018, only 26 percent of the targeted 11,880 was accomplished for CYs 2013-2018 or a gap of 8,820 heads of dairy animals from importation impacting on the attainment of the target increase in the dairy stocks. It was noted that the NDA could not pursue all importations due to the following reasons: 1) Failed Biddings involving a total of 2,555 cattle – Programmed importations of 680 cattle in CY 2017 did not materialize due to absence of suppliers48 and 1,875 cattle in CY 2018 due to unavailability of Girolando stocks49 and the country source was experiencing an FMD on its dairy animals. 2) Unfunded importations – To import the 11,880 cattle for CYs 2013-2018, the NDA needed ₱1.54 billion in total funds. Available data revealed that the NDA received only an allocation of ₱460.05 million for the 3,055 dairy cattle programmed for CYs 2016-2018. No data was provided to the audit team for CYs 2013-2015 as there were no available records for the Annual Procurement Plan (APP) and PMR for the period. No actual importation happened in CY 2013. Comparing the target importation per DRM with the programmed and actual importations for CYs 2013-2018 revealed that importation of about 6,265 heads in the amount of ₱749.52 million was unfunded, which is equivalent to 49 percent of the total funding requirement. The DRM targets and funding requirements on animal infusion, animal upgrading and buyback, and the Dairy Development Fund of ₱140 million were not fully considered in the budget proposal. The NDA explained that the strategies’

45 The PNZDP is a five (5) year collaborative program between the Philippines and New Zealand which aims to assist in the development of a profitable, equitable and sustainable Philippine dairy industry. 46 Supply Contract for 285 Heads of Imported, Pregnant Kiwi Cross Heifers PNZDP In-Calf Cross Heifer Supply 2016. 47 NDA Invitation to Offer a Bid. 48 NDA Validated PES 2017, SO 4, SM 6, item a. 49 NDA PMR 2018.


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targets and budget were originally considered in budget proposal but were adjusted accordingly as a result of series of technical and budget consultations and deliberations with the Department of Budget and Management (DBM). The primary reason for the major adjustments is the available government subsidy/expenditure support that can be allocated for dairy development. For PCC, under Phase I of the Strategic Plan covering CYs 2011-2015, the PCC planned to infuse 7,000 heads of purebred dairy buffaloes as source of superior genetic material for breeding. For Phase II (2016-2020), the PCC would infuse 6,000 heads or 2,000 each for CYs 2017-2019 to be sourced from grants, loans and other sources. Clarification from Management regarding importation of buffaloes revealed that no importation was made under the Strategic Plan in the absence of funding support from the DA. However, it was noted that the PCC imported a total of 2,509 heads of Italian Mediterranean Buffaloes (ItMB) from Italy which were delivered in CYs 2013 and 2014. The importation process started in CY 2010 under DDP 2007-2010. According to DA, the main problem in the implementation of the DRM is funding. With an estimated funding requirement of ₱6.5 billion annually for this purpose, the Department’s total budget for NDA, BAI, PCC and National Livestock Program did not even get close to this figure in CYs 2017, 2018 and 2019 with an average total of around ₱2.3 billion per year for all regular and special programs. Simply, despite the yearly proposal, the agencies did not get allocation even at the DBM level. This is because the Department as a whole is always measured in financial performance and is affected by a limited fiscal space of the whole government. The meager budget allocations had not made possible the provisions of the DRM, especially herd build-up. With a very small dairy population, there is no way to increase production output without increasing the number of our dairy animals. Therefore, failure to obtain full funding adversely affects the ability of the NDA to meet the operational requirements of the HBP. The total annual budget needed to increase both local dairy stocks and milk production for the period CYs 2013-2018 is ₱4.10 billion. Out of this, only 51 percent or ₱2.11 billion were provided for the HBP and CDP.

Unutilized funds attributed to failed importations


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The available budget programmed/allotted for the HBP was ₱1.44 billion from CYs 2013-2018. This includes ₱1.24 billion provided in the General Appropriations Act (GAA), and Trust Fund of ₱200 million from other government agencies. This amount excluded the US$847,705 grant from Philippines-New Zealand Dairy Project (PNZDP) for the importation of 285 heads Holstein Friesian x Jersey breed dairy cattle. Moreover, based on the Actual Uses of Funds by Expense Class Report, the NDA failed to utilize the amount of ₱485.33 million as of December 31, 2018. Interview with NDA Management disclosed that, any unexpended funds from GAA for the year was part of the corporate funds of the NDA. On the other hand, the PCC was allotted with a total budget of ₱1.42 billion for the implementation of the CDP and utilized ₱1.31 billion or 92 percent for CYs 2013-2018 out of the allotted budget.


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Even with additional funding, there are issues with existing practices in management of the dairy herd and milk production, which adversely affected the attainment of the targets under the DRM

Even in the event that the programs receive additional funding for importation and other operational needs, there are still operational issues that, if not addressed, would adversely affect the attainment of the desired increase of the dairy herd and milk production. As of December 31, 2018, the NDA reported that the number of dairy animals increased by an annual average growth rate of 11 percent from 28,014 in CY 2012 to 52,188 in CY 2018. This enabled local producers to contribute 23.69 million liters of milk, which covered 1.3 percent of the national dairy requirement of 1.77 billion liters. However, these accomplishments are still below the desired projections under the DRM; the number of dairy animals is 74 percent short of the 198,977 target while milk production is 54 percent short of its 2.8 percent target. Based on available data, the following factors impeded the increase of milk production and dairy herd: 1) high mortality rate; 2) existing issues with practices related to milk production, and 3) existing issues with practices in managing the dairy herd. As discussed in the earlier portions of this report, HBP is the key in increasing the local milk production. Under the DRM, in order to reach the 2.8 percent target, the dairy herd should have reached 198,977 by CY 2018. As of this writing, there were only 52,188 dairy animals. The NDA and PCC explained that in order to exponentially increase the number of the dairy herd, there is a need to focus on the same. However, there is not much fiscal space to accommodate massive importation. Hence, there is a need for alternative sources of funding. One option is to increase involvement of the private sector. However, even if the NDA and PCC receive additional funding

Dairy herd is 74 percent short from the target under the DRM


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for importation, the audit team found that there are existing operational issues, which adversely affect the attainment of the desired increase of the dairy herd. The following factors impeded the increase of milk production and dairy herd:

1) high mortality rate; 2) existing issues with practices related to milk production,

and 3) existing issues with practices in managing the dairy

herd. High mortality rate A total of 2,614 mortalities of dairy cattle was recorded in CYs 2013-2018 or an annual average of 436 deaths primarily due to inadequate provision of proper animal healthcare services. The total cost was estimated at ₱346.35 million. Data on mortality was not completely monitored and uniformly reported for decision making with the mortality threshold set up by the NDA only in CY 2018. In view of the NDA’s various modes or schemes of dairy animal distribution, the DIB issued a resolution on the modification of all the NDA’s animal distribution contracts into a unified MOA whereby the NDA lends dairy animals to eligible and qualified farmer beneficiaries by which, within a certain period of time, would resort to a payment in kind50. The NDA shall deliver to the said beneficiary the dairy animals in good physical condition, free from diseases and fit for the purpose for which they are intended. For imported animals, the NDA provides the beneficiary a 15-day observation period before acceptance of the said animals. The NDA is also obliged to insure the animals during the first year of the agreement.51 The farmer beneficiary, on the other hand, shall manage the dairy animals according to the prescribed standards of sound dairy production and husbandry management practices to ensure technical and financial viability of its business. As per Agreed Parameters in Herd Projection during the 2018 Mid-Year Assessment and 2019 Planning, the NDA had

50 MOA between the NDA and Catmon Multi-purpose Cooperative. 51 Ibid, item 4.1.

Need to further reduce mortalities in dairy animals to help attain objective of increasing dairy herd

Major causes for the non-attainment of the DRM targets


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adopted respective attrition rates or allowable mortality rates for cattle, carabao and goat as shown in Table 9. However, the said mortality rates adopted were only for dams and calves without considering the overall dairy herd population which also includes heifers and bulls, among others.

Table 9: NDA Allowable Attrition or Mortality Rates

Attrition Cattle Carabao Goat

Dams 2% 2% 20%

Calves 10% 10% 30% Sources: NDA 2018 Mid-Year Assessment and 2019 Planning

Results of our regional fieldwork revealed that a total of 2,614 dairy cattle deaths for CYs 2013-2018 were recorded in 4 out of 5 NDA departments with an estimated total cost of ₱346.35 million52. It was noted that at least 25 percent of the dairy animals imported and distributed under batches 13, 14, and 15 had died (see details on the discussion of animal repayments). Details of cattle mortalities per department are shown in Table 10. Among the NDA departments, North Luzon had the most number of dairy cattle deaths reported at 1,253 or 48 percent of the total dairy cattle mortalities followed by Visayas and South Luzon departments at 26 and 15 percent, respectively. According to the Assistant Manager of the North Mindanao Department (NMD), the Southern Mindanao Department (SMD) was previously part of NMD until 2016, therefore, SMD’s reports on mortality for CYs 2013-2016 were part of the reports of the NMD for the same period. However, reports on cattle mortality by the SMD for CYs 2017-2018 could not be provided by the NDA Central Office preventing complete data analysis. The total number of dairy cattle deaths constituted 10 percent of the total dairy cattle inventory of 25,481 and a higher figure for mortality could have been reported had complete data been obtained.

52 The price of one pregnant Holstein-Sahiwal in 2012 is ₱140,000 while a pregnant Holstein-Jersey is priced at ₱125,000 (MYDAP Terminal Report, p. 17). Average cost, therefore, of one cattle is at ₱132,500.


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Table 10: Cattle Mortalities and PDOs Assigned per Department

Department

Mortalities PDOs Assigned

No. of Deaths

(a)

Estimated Cost (b)

% Share of Deaths

(c)

No. of PDOs

(d)

No. of Farms Served

(e)

Average Farm Served per PDO

(f=e/d)

South Luzon 408 ₱54.06 15% 12 97 8

North Luzon 1,253 166.02 48% 9 88 10

Visayas 672 89.04 26% 14 118 8

Northern Mindanao

281 37.23 11% 10 80 8

Southern Mindanao*

Incomplete data

Incomplete data

0% 6 125 21

Total 2,614 ₱346.35 100% 51 508 10

*part of Northern Mindanao Department (NMD) until 2016. Sources: NDA Departments’ Mortality Reports and List of PDO per Area

Incomplete information and absence of uniform format for reporting data on the number of dairy cattle mortalities impact on the assessment of program implementation effectiveness and decision-making. While mortality threshold was set by NDA for dams and calves, only one of the four reports on mortality provided to the audit team categorized data into dams and calves. Varying reporting formats indicated fragmented style of reporting and would cause difficulty in consolidation. Consequently, the NDA Central Office data on mortalities were incomplete with only 648 adult cattle and 170 calves for a total of 818 for the same period or only 31 percent dairy cattle mortalities reported by the Regional Departments. As a result, the audit team could not assess the extent of mortality against threshold which was set only in 2018 implying that no assessment on cattle mortality was made in 2017 and earlier. It was noted that the top three common causes of death were pneumonia at 847 or 32 percent, downer at 283 or 11 percent and septicemia at 6 percent (Figure 8). Other causes of death for 675 cattle or 26 percent include hardware disease, snake bite, poisoning, and dystocia, among others. Result of our survey revealed that these mortalities occurred mainly due to non-provision of proper animal health care services by farmer beneficiaries coupled with insufficient number of Project Development Officer (PDO) personnel. The PDOs covered on the average10 farms each (Table 10) impacting on their availability when needed by the farmer beneficiaries. It was noted that the mitigations being done by the NDA do not address totally the causes of death of the dairy animals. The animal health services provided by the Authority were


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vaccinations for hemosep, deworming and zoonotic testing like tuberculosis and brucellosis testing. With no proper assistance on medication for pneumonia as the primary cause of death, problem will persist and will greatly affect the objective of increasing the local dairy. Figure 8: Top Causes of Cattle Mortalities

Source: NDA Departments’ Mortality Reports

Diseases affecting carabao can have a devastating impact on animal reproduction, its produce such as milk, meat and other products that can be derived from the animals and even to human health. Mortality on carabao is inevitable which could occur on every farm. Allowable or acceptable mortality rate was set-up to be used as monitoring tool to timely and effectively prevent, control and eradicate a certain carabao epidemic. Management used mortality rate at 5 percent for adult and 10 percent for calf based on international acceptable mortality rate53. PCC computes annual mortality rate by using the following formula:

Mortality Rate = Number of mortality in adult or calf Ending Inventory of adult or calf

To prevent and control diseases in buffaloes, PCC recommends that every farm should observe the biosecurity measures such as Sanitation, Traffic Control, Assessment,

53 Methicillin resistant staphylococci associated with bovine mastitis and their zoonotic importance, available at http://www.veterinaryworld.org/Vol.7/June-2014/12.pdf, p 331 (last accessed October 25, 2019).

PCC incurred ₱471 million losses due to 3,284 deaths or annual average of 548 deaths of carabaos for CYs 2013-2018 maintained in the IH, GP and Farmer Cooperatives


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Isolation, Resistance and Security (STAIRS)54. To protect animals dispersed to farmer recipients, the PCC provided in the contract agreement under Paiwi scheme that, the recipient is obliged to provide a housing facility for the carabao as one of its duties and obligations. Housing facility will help farmers to maximize milk production, provide comfort to animals and convenience in handling farming activities55. For CYs 2013-2018, PCC recorded deaths totaling 3,284 heads (Adult 2,696 and Calf 588) with estimated value of ₱471 million. A total of 894 carabao with estimated value of ₱60.58 million died in the Institutional Herd (IH) and Gene Pool (GP) of PCC while 2,390 carabaos amounting ₱410.84 million died in the possession of farmer cooperatives/beneficiaries. Overall, recorded mortality rates within PCC’s IH and GP as well as in farmer cooperatives and beneficiaries were noted to be within the adopted threshold for mortality rates of 5 percent for adult carabaos and 10 percent for calves (Table 11).

Table 11: Summary of Mortalities, Rates and Estimated Values by Adult and Calf Mortality in IH, GP and Farmer Cooperatives/Beneficiaries of PCC for CYs 2013-2018

PARAMETERS 2013 2014 2015 2016 2017 2018 TOTAL

Institutional Herd and Gene Pool

Adult Mortality 60 89 72 72 63 71 427

Inventory, End 1,868 1,795 1,640 1,856 1,981 2,155

Mortality Rate 3.21% 4.96% 4.39% 3.88% 3.18% 3.29%

Estimated Value (‘000) ₱7,200 10,680 8,640 8,640 7,560 8,520 ₱51,240

Calf Mortality 73 88 81 77 46 102 467

Inventory, End 1,120 1,070 1,016 1,068 1,064 1,035

Mortality Rate 6.52% 8.22% 7.97% 7.21% 4.32% 9.86%

Estimated Value (‘000) ₱1,460 1,760 1,620 1,540 920 2,040 ₱9,340

Total Mortality (Adult + Calf)

133 177 153 149 109 173 894

Total Estimated Value (‘000)

₱8,660 12,440 10,260 10,180 8,480 10,560 ₱60,580

Farmer Cooperatives/Farmers

Adult Mortality 370 471 434 350 310 334 2,269

Inventory, End 7,423 10,019 10,651 12,116 12,547 15,911

Mortality Rate 4.98% 4.70% 4.07% 2.89% 2.47% 2.10%

Estimated Value (‘000) ₱66,600 84,780 78,120 63,000 55,800 60,120 ₱408,420

Calf Mortality 17 28 19 19 21 17 121

Inventory, End 1,312 1,119 992 1,177 1,207 753

Mortality Rate 1.30% 2.50% 1.92% 1.61% 1.74% 2.26%

Estimated Value (‘000) ₱340 560 380 380 420 340 ₱2,420

Total Mortality (Adult + Calf)

387 499 453 369 331 351 2,390

54 PCC, supra note 30, Biosecurity, p. 140 55 Bagong Kasunduan sa Pagpapahiram ng Gatasang Kalabaw, Type 3, Artikulo 2.3.2, p. 3.


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Figure 11: Causes of Deaths of Calves in PCC’s IH and GP for CYs 2012-2018

PCC-PMC minutes of meeting, are shown in Figures 10 and 11:

To minimize mortality rate within PCC’s IH and GP, Management crafted the following measures:

1. Close monitoring on the proper implementation of the Animal Health Program in GP;

2. Close coordination with the assigned veterinarian in GP regarding Animal Health concerns;

3. Prepare protocols on common problems such as respiratory and reproductive problems;

4. Strengthen the best management practices for calves (sharing best practices from good performing centers);

5. Ensure that appropriate staff are placed in managing the calves and capacitate the staff that manage the calves; and

6. Had series of meetings with the GP Coordinator and his staff in planning to reduce mortality of calves, by:

Reinforcement in managing GP staff;

Remove/replace with appropriate staff;

Apply best practices for calf production; and

Frequent monitoring of veterinarians especially on calves.

As a requirement for Paiwi Scheme, the dairy buffalo can only be released to the farmer beneficiary only when the former received a sufficient social and technical training. Seminars and trainings include animal health and management with

Accident36%,

72 hds.

Respiratory Infection

34%, 68 hds.

Bloat/ Surra/ Reproductive

Problems 23%, 46 hds.

Others 6%

Diarrhea32%, 82 hds.

Digestive Problems

28%, 70 hds.

Pneumonia 24%, 62 hds.

Others 16%

Figure 10: Causes of Deaths of Adult Buffaloes in PCC’s IH and GP for CYs 2012-2018

Source: PCC-PMC Minutes of Meeting for CYs 2013-2018


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Source: PCC-PMC Minutes of Meeting for CYs 2013-2018

emphasis on dairy buffaloes. Also, training and field coaching and technical services were extended directly to farmer recipients, in addition to the regular technical and extension services of PCC. Review of PCC-PMC Minutes of Meeting from CYs 2013-2018 revealed that of the 403 deaths the top three leading causes as shown in Figure 12 are Fasciolosis57 52%, Foreign Body Syndrome58 25%, Bloat/ Surra/ Reproductive Problems 23% and Respiratory Infection 1%.

To prevent liverfluke infestation PCC recommended that farmers should: a) practice zero grazing; b) avoid feeding roughage from snail-infected and waterlogged areas; and c) treat the animal regularly with any available flukecide especially during the start of rainy season59.

It should be noted from the responses of the farmer beneficiaries from the survey that 40 percent or 176 of 441 respondents did not provide cage or housing for their carabaos contrary to the terms in contract agreement on the provisions of housing facility for the carabao60. Without housing facility, farmers feed their animals through free grazing as validated in

57 Liverfluke infestation or Fasciolosis is considered as one of the most widespread and destructive parasitic diseases in water buffaloes. 58 Foreign Body Syndrome (FBS) or Hardware disease happens when pieces of metal or sharp objects were eaten resulting to perforation of the reticulum and other adjacent organs such as liver, lungs and heart. 59 PCC, supra note 30, Common Diseases, p. 161. 60 Kasunduan sa Pagpapamahagi ng Puhunang Gatasang Kalabaw, Form No. PCC- PQMF-20, p.3.

Fasciolosis52%, 218 hds.

Foreign Body Syndrome

25%, 103 hds.

Bloat/ Surra/ Reproductive

Problems 23%102 hds.

Figure 12: Causes of Deaths of Adult Buffaloes and Calves among PCC Cooperators in NIZ for CYs 2013-2018


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the results of the survey that 54 percent or 265 of 493 respondents have chosen free grazing to feed their carabaos. Consequently, these carabaos are exposed to higher risk of acquiring Fasciolosis and FBS. To control mortality rate among buffaloes in cooperatives and farmer beneficiaries, the PCC adopted the following measures: 1. Promote effective farm management practices through

information campaign to minimize the cases of foreign body, bloat, pneumonia and fasciola cases; and

2. Continued research collaboration in utilizing ultrasound machine for early detection and removal of foreign body in the rumen of buffaloes and confirmation of fasciola infection.

The tripartite agreement between the PCC, cooperative and the farmer-beneficiary, provides that the latter is required to provide housing facility for the carabao. Dairy buffaloes should be provided with housing facility to maximize milk production, comfort to animals and convenience to farmers61. During field validation and survey of farmer beneficiaries, it was noted that the provision of housing facility to animal dispersed under the Paiwi scheme was not strictly complied. Based on the survey conducted, 176 or 40 percent of 441 respondents did not provide for cage or housing for their carabao. This information was corroborated with the results of the survey that 265 or 54 percent of 493 surveyed respondents choose free grazing to feed their carabao. Farmers without housing facility tend to feed their animals through free grazing resulting in deaths of carabao through Fasciolosis and FBS. Existing issues with practices related to milk production Milk production was not maximized due to non-observance of the recommended PCC milking practices by the farmer beneficiaries. PCC emphasized that colostrum is important within the first five days of a newly-born calf for the following benefits:

61 PCC, supra note 55, Artikulo 2.3.2, p. 3.

Calves were not promptly separated from the mother buffaloes

Contract provision on housing facility for dispersed dairy animals not strictly observed by farmer-beneficiaries under Paiwi scheme


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that could be collected from the buffaloes held by these farmers were not fully maximized. To ensure the capacity of the farmer beneficiaries to effectively carry out the CDP, before the buffalo is released to the farmer beneficiary, a series of orientation, seminars and trainings are conducted to ensure that the animals are appropriately taken care of. These seminars include “Milk Collection and Handling”. To maximize the potential milk produce, PCC recommended that carabao should be milked regularly early in the morning and late in the afternoon with 10-12 hours milking interval.63 Carabao’s milk can be sold in the Philippines from ₱60 to ₱8064. However, in six carabao centers the team had validated, raw carabao’s milk price averaged at ₱56, details are shown below:

Table 12: Price Ranges of Raw Carabao’s Milk

Parameters NIZ CLSU CSU UPLB USF CMU AVE.

Lowest ₱56.38 58.18 54.89 61.40 49.37 59.44 ₱55.36

Highest 61.02 58.41 56.72 62.51 49.59 59.44 56.88

Average ₱58.70 58.30 55.81 61.96 49.48 59.44 ₱56.12

Source: COA survey results conducted on from April to June 2019

It was observed during validation that milk collected in the morning in some areas were bought by farmer cooperatives near the area or by the PCC itself. These cooperatives were used as a tool for the dispersal program and through the help of PCC, they ventured into milk processing. Members of small cooperatives who do not have a milk processing plant or their location is far from PCC, would sell their milk produce by themselves. Usually, the milk produce in the afternoon, need to be refrigerated to avoid spoilage. Most of the farmers do not have their own refrigerators to store the milk unlike big cooperatives and those with existing partnership with Shared Service Facility of the Department of Trade and Industry. It is understandable that farmers without access to the storage facilities will milk their carabaos only once or not at all.

Survey results revealed that out of 493 respondents, 314 or 64 percent milked their carabaos. Of the 314 respondents, 13

63 PCC, supra note 30, Milk Production, p. 236. 64 PCC Roundup, Volume 2, Number 4, October-December 2017, p. 2.

Farmers not fully maximizing potential milk produce from their dairy stocks


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the same fund67. Instead of Murrah-based buffalo specifications it was agreed to be changed to ItMB priced at ₱317,000 per head68. As this unit cost was higher compared to the cost of the originally planned procurement, lesser number of heads was instead procured. PCC disclosed that only Italy had the capacity to supply buffaloes needed for the infusion of superior breed although there were 67 countries with FMD-Free without vaccination status where it would be safe to import buffaloes. Figure 15: ItMB Dispersed to DBMF in San Jose, Nueva Ecija

Source: COA Site Inspection Photographs According to the Chief of Research and Development Division, there are constraints and negative effects of cross breeding ItMB breed to the native carabao (a swamp type) and riverine type buffaloes such as Bulgarian and Murrah Buffalo (BMB) and Brazilian Murrah Buffalo (BrMB). It was cited that three different ItMBs bred by a BMB bull had a weak/unhealthy/defective calves. Until such time that a good breeding program has been established and has shown considerable progress through selection of island born animals for the ItMB, crossbreeding should be discouraged or done with caution.

The PCC management further commented that scientific basis for crossing the swamp type and riverine type has been long

67Amendments to the Supply Contract of Dairy Buffaloes from Brazil, Ref. No.00-22-2013. 68 Bidding Documents, Annex A, Costing and Number of Animals to be Delivered.


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established. It added that the focus of PCC’s breeding program is to keep ItMB breed intact to maintain breed purity for the long-term plan of developing mozzarella cheese derived from the milk of pure ItMB breed.

The audit team agreed with the PCC management that maintaining the breed purity of the ItMB is essential for long term-plan. The restrictions in PCC’s breeding strategy involving more than 2,500 heads of ItMB, however, does not fully support the objectives of DRM to fast track increase in the Philippine dairy stock and milk production. The PCC management can still preserve the purity of the ItMB breed though maintaining a defined number of ItMB in their IH and GP which is the same strategy done with other Murrah breeds.

With usual calving interval of two years and the ItMBs were already pregnant when imported, it can be estimated conservatively that calves produced would have been doubled the number of the imported buffaloes. Analysis of the number of island born calves out of 2,509 imported ItMBs revealed that only 1,964 calves were born more than five years after importation. Thus, the restrictions in cross breeding affected production efficiency in breeding of ItMB impacting on the desired increase in dairy stocks.

As a result of the gap in the importation of superior breed dairy buffaloes, the dispersal of dairy buffaloes to potential farmer beneficiaries was sourced from limited local sources such as PCC’s current dairy stocks maintained in the IH and GP, animals acquired from buy-back program in collaboration with NDA and animals collected from repayments under Paiwi Scheme.

The audit team concurred with the PCC management’s comment that to increase local milk production, live animal infusion is the shortest mode but expensive and is mainly carried out by the government. The PCC management further explained that Philippine native carabao has small genetic potential for milk, on the average of 1-2 liters per day for a lactation period of 180 days, a milk production level only sufficient to feed the newly born calf. For this reason, only a very small percentage of the carabao population are milked by farmers, and due to limited supply, carabao’s milk is readily consumed in the rural households and never reached the super markets. In order to increase liquid milk supply, there is a need to introduce dairy genetics in the form of live animal infusion, importation of frozen semen of dairy breeds, and importation of frozen embryos. Participation of the private


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sector in this undertaking is negligible, owing to the perceived low suitability for investment. Under this condition, availability of public fund dictates the magnitude and rate of herd build-up through stock infusion. For CYs 2013-2018, animals bred and inseminated with dairy genetics totalled 88,617 while calves produced totalled 37,200 resulting in low success rates ranging from 37 to 50 percent or an average of 42 percent as compared to the target of 60 percent success rate as agreed with the GCG. While the actual success rate seemed to be relatively low, actual animals bred from CYs 2015 - 2018 averaged 73 percent of the targets for the same period – that is, 84 percent in 2015, 45 percent in 2016, 79 percent in 2017, and 84 percent in 2018 (Table 13). It could be gleaned from the table that the NDA did not set targets for animals bred for CYs 2013 and 2014.

Table 13: Target Success Rate vs. Actual Upgraded Animals for CYs 2013-2018

Year

Targets as Agreed with GCG

Actual Upgraded Animals Target vs.

Accomplishment

Animals Bred (a)

Calves Produced

(b)

Animals Bred (c)

Calves Produced

(d)

Success Rate

(e=d/c)

Animals Bred

(f=c/a)

Calves Produced

(g=d/b)

2013 0 6,936 14,582 5,565 38% n/a 80%

2014 0 8,000 18,099 6,832 38% n/a 85%

2015 20,000* 6,700 16,876 8,403 50% 84% 125%

2016 30,000 6,800 13,593 6,832 50% 45% 100%

2017 14,785 4,714 11,697 4,539 39% 79% 96%

2018 16,437* 5,291 13,770 5,029 37% 84% 95%

Total (Ave)

81,222 38,441 88,617 37,200 42% 73% 97%

*with 60% success rate Sources: Performance Agreements with GCG and Accomplishment Reports for CYs 2013-2018

In calves produced, the accomplishment was 97 percent since the target was not correctly computed using the 60 percent success rate on animals bred. For example, the targeted 20,000 animals bred in CY 2015 should have a target calves produced of 12,000 instead of 6,700 while targeted calves produced for CY 2018 should be at 9,862 instead of 5,291. Also, the success rate does not consider the number of services rendered by the bulls in regular/natural breeding and semen straws used in AI. In the absence of implementing guidelines detailing the planning and reporting for the respective strategies, the reported combined results and success rates would not point out which strategy between AI

NDA’s success rate of calves produced was only 42 percent compared to 60 percent target, while targets were not correctly computed.


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and bull breeding has been implemented effectively and efficiently. The AI Program under the GIP of PCC aims to upgrade the genetic compositions of the carabao in the country through crossbreeding and application of quality semen straws to upgrade the potentials of the carabao which in the past was primarily use for draft purposes. The strategy is to cross the native swamp buffaloes with the dairy breed following a sustained backcrossing to at least four generations to produce animals with milk and meat producing potentials equivalent to the purebred dairy parents.69 This technological intervention provides more economical benefits from our Philippine carabao to include meat and milk products. Although AI service has lower success rate compared to bull breeding it can compensate with the quantity of AI semen doses that can be spread out to areas/community. A bull can service a maximum of 50 female carabaos per year while it can produce 5,000 doses of semen per year which can serve about 2500-3500 female carabaos. AI also uses quality semen straws which gives above average genes extracted from of the best bulls.

Based on MFO Accountability Report Card (MARC), PCC was not able to achieve the annual targets of AI services posting an average of 68.80 percent for the period or 31 percent of the target was not served (Table 14).

69 PCC AI, available at http://www.pcc.gov.ph/artificial-insemination-2 (last accessed October 24, 2019).

PCC’s overall success rate was only 22 percent compared to the 35 percent target due to insufficient technicians and low monitoring rate


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Table 14: Target AI Services and Calf Drop vs. Actual AI Services and Calf Drop for CYs 2013-2018

Year

Artificial Insemination Services Calf Drop

Target Actual Difference % Actual To

Target

Target (35% Of

Actual Ai Services)

Actual

Deviation From The

Target Calf Drop

Efficiency Rate

2013 88,006 74,019 13,987 84.11 25,906 13,583 12,323 18%

2014 101,000 73,843 27,157 73.11 25,845 14,863 10,982 20%

2015 106,000 67,885 38,115 64.04 23,762 13,310 10,452 20%

2016 106,625 69,233 37,392 64.93 24,236 15,437 8,799 22%

2017 106,523 70,683 35,840 67.35 25,096 17,287 7,809 24%

2018 108,037 67,212 40,825 62.21 23,524 18,963 4,561 28%

Total 616,191 422,875 193,316 68.62 148,370 93,443 54,927 22%

Source: PCC accomplishment reports and MARC for CYs 2013-2018

Analysis of accomplishments against target AI services revealed that an average of 31 percent of the annual targets was not accomplished. As there was oversupply of semen straws, the primary reason for not attaining the targets was the insufficient number of AI technicians.

Based on the Strategic Plan 2011-2025, the target production efficiency was set at 35 percent of the AI services performed. Given the total actual AI services rendered of 423,915 for CYs 2013-2018, the target number of calf drop70 should have been 148,370 calves. However, only 93,443 calf drop were produced for the same period resulting in 22 percent efficiency or 13 percent below the target production efficiency. Had the target been achieved, additional 54,927 calves could have been added to the dairy herd. PCC informed the audit team that the implementation of AI program was hampered by insufficient number of trained AI technicians to cover the area of responsibility and the number of breedable animals in the area. While continuous trainings of prospective AI technicians were undertaken, it was noted that on the average 52 percent of the trained technicians became inactive at end of the year (Table 15). The reasons gathered for being inactive technicians include, among others: a) to find a greener pasture/ better job opportunity: b) busy with other job; c) assigned to other task by LGU; and d) resignation as PCC AI technicians. Not even incentives provided by PCC could prevent AI technicians from continuing their work at

70 Calf Drop means a new born calf/offspring of an animal.


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PCC. The insufficient number of technicians was also the main reason for the low monitoring rate of the AI services resulting in low production efficiency rates.

Table 15: No. of Trained Technicians and Active Technicians for

CYs 2013-2018

Year No of trained Technicians

No. of Active AI

Technicians

No. of Inactive AI

Technicians

2013 1,754 979 775

2014 1,884 980 904

2015 2,012 921 1,091

2016 2,133 911 1,222

2017 2,253 972 1281

2018 1,989 993 996

Total 12,025 5,756 6,269

Percentage to Total 100% 48 % 52 %

Source: PCC reply to audit query dated August 14, 2019

PCC admitted that there were challenges relating to production efficiency and that the production efficiency indicators continue to remain as an operational issue. It was added that PCC imposed a 5 percent increase in the calf production per year as a technical reference for semen production and distribution and the conduct of massive AI throughout the country. The target indicators would be embeded in the annual committment of Regional Centers and are not set by the AI technician. Of the total semen straws produced, 1,299,243 semen straws or 70 percent were distributed to PCC at Central Luzon State University (CLSU), PCC at University of the Philippines–Los Baños (UPLB) and PCC at Office of the Executive Director, Genebank (Table16). The semen straws were ultimately given to AI technicians for AI services to various farmer beneficiaries and the unutilized semen straws kept in the semen banks for later use.


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Table 16: Semen Production, Distribution and Utilization for CYs 2013-2018

Year

Production Distribution Utilization

Semen Production Center Semen Distribution by Center Semen Utilization by

Technician Type

PCC at CLSU

PCC at UPLB

Total Production

PCC at CLSU

PCC at UPLB

PCC at OED

Genebank

Total semen

Distributed LGU PCC VBAIT Total

2018 205,474 80,887 286,361 32,926 14,563 125,391 172,880 35398 13,832 60,736 109,966

2017 159,814 73,015 232,829 38,523 22,112 174,097 234,732 33982 11,961 63,674 109,617

2016 204,585 82,358 286,943 35,041 16,219 149,121 200,381 37101 14,647 52,631 104,379

2015 284,482 83,439 367,921 30,042 17,601 216,353 263,996 36517 10,590 54,574 101,681

2014 271,933 47,240 319,173 34,425 23,625 130,881 188,931 41618 11,069 58,293 110,980

2013 320,225 47,240 367,465 27,371 12,979 197,493 237,843 41401 8,273 65,938 115,612

TOTAL 1,860,692 1,299,243 226,017 70,372 355,846 652,235

Percentage to Total Production 70% 35%

Percent to Total Distribution 50%

Source: PCC accomlishment reports for CYs 2013-2018

It was notable that the data on semen straws utilized by the AI Technicians represented only 50 percent of the straws distibuted and 35 percent of the total production. As such, there was underutilization of the semen straws produced. BLP is a complement program under the GIP since generally, the success rate of the AI services is lower than natural mating. Purebred dairy-type bulls are loaned out to qualified farmers for natural mating with purebred dairy-type buffaloes, crossbreeds, and native carabaos in areas not reached by AI.

The PCC’s strategy in selecting partner beneficiary is based on the formal request of the farmer/beneficiary followed by the evaluation of their requirements of the PCC before they are given a bull. One of the requirements is the availability of bull in the center to be distributed to the farmer and also, the number of female breedable animals in the area should be at least 25 female buffaloes to be serviced by the bull in the span of five years. The person applying for the program had to meet the requirements including training for the bull management. Bulls for loan are availed for the following purposes: (1) to service purebred dairy-type buffaloes and crossbreeds in a dairy module under the cooperative/association/dairy-buffalo multiplier farm schemes; and (2) to service native or crossbred carabaos for crossbreeding (upgrading) program in the villages.71 In the first scheme, bulls loaned will be PCC-owned and continuously replaced every three to four years to avoid

71 PCC, supra note 13, p. 10.

PCC’s BLP implementation could not be assessed in the absence of desired calf drop efficiency rate. Moreover, Bull services and calf drop continuously decreased from CY 2013 to CY 2018 despite having more bulls loaned out to farmers


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inbreeding. Under the second scheme, a junior bull (2.5 years old and below) and socialized, is considered paid in full when it has produced 25 calves. This is subject to proper proof and certification from the Municipal Agriculturist, Veterinarian or Livestock Inspector.72 Review of the actual bull services conducted in relation to the target bull services revealed that except for CYs 2013 and 2014 where actual services exceeded the target services, percentage of accomplishment ranged from 61 to 89 percent of the target services from CYs 2015 - 2018 (Table 17). It should be noted that while the number of bulls loaned out has been increasing, the number of calf drop has been decreasing. The calf drop efficiencies, which ranged from 47 to 61 percent or an average of 53 percent, could not be assessed as favorable in the absence of desired success level.

Table 17: PCC’s Bull Services Targets, Accomplishments and Calf Drop Efficiency for CYs 2013-2018

Year Target

Bull Services

Actual Bull

Services

No. of Bulls

Loaned-out

Actual Calf Drop

Bull Services

Accomplish-ment

Calf Drop Efficiency

2013 1,492 4,497 856 2,297 301% 51%

2014 2,713 4,020 825 2,284 148% 57%

2015 4,873 4,014 856 1,998 82% 50%

2016 4,306 3,694 861 1,935 86% 52%

2017 4,227 3,765 935 1,766 89% 47%

2018 4,410 2,704 1,025 1,638 61% 61%

Total 22,021 22,694 11,918 53% Source: PCC’s Answer from the 3rd query submitted on September 04, 2019

The decline in calf drop for the CYs 2013-2018 could be attributed to greater number of inactive than active bulls loaned out coupled with the decline in monitoring rate by technicians from 78 percent in CY 2013 to 54 percent in CY 2018 (Table 18). These factors impacted the efficient production of genetically improved animals through BLP.

72 PCC, supra note 13, 7th par.


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Table 18: PCC’s Status of Bull Monitoring for CYs 2013-2018

Bull Status 2013 2014 2015 2016 2017 2018

Active 430 363 365 391 402 477

Inactive 426 461 491 470 533 548

% of Active Bulls

50% 44% 43% 45% 43% 47%

Monitoring Rate

78% 74% 76% 60% 47% 54%

Monitored 718 686 699 552 439 503

Not Monitored

138 138 157 309 496 522

Source: PCC reply on 2nd audit query dated September 4, 2019

Clarification further revealed that inactive bulls were brought about by loaning out bulls which were still young (1-2 years old) and were not yet ready to mate with the female carabaos. These bulls came from the repayment of animals under the Paiwi scheme. Likewise, bulls loaned out from PCC bull farms which were accustomed to mate with male bulls and were not fully socialized to mate with female carabaos would turned out to be inactive bulls. Analysis of data relating to loaned out bulls from the database maintained by the Operations Division revealed that 830 bulls were released to beneficiaries/farmers from CYs 2008 - 2013 (Table 19). Given the five-year effectivity of the BLP contracts, it was expected that by June 30, 2019, these contracts had been completed with each bull producing at least 25 calves and the bulls awarded to beneficiaries. It should be noted, that only 76 bulls or 9 percent of the bulls released had been awarded to beneficiaries or only these bulls had produced 25 calves each.

Ensuring that bulls loaned out produced 25 calves under the BLP contract was not effectively and efficiently undertaken


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Table 19: PCC’s Status of Bulls Loaned Out to Beneficiaries from

CYs 2008 to 2013

Year

Total Number of Bulls

Released/ Loaned

Out

Status

Awarded Dead Sold Inactive Active Others/

Not Specified

2008 104 22 37 26 5 7 7

2009 154 17 53 37 6 16 25

2010 80 10 16 25 9 12 8

2011 173 10 57 12 26 41 17

2012 152 13 38 10 36 45 10

2013 167 4 32 18 63 34 11

Total 830 76 233 128 145 155 93

Percentage to Total Number of Bulls Loaned Out

9% 28% 15% 18% 19% 11%

Source: COA analysis

It was also noted in one of the PMC meetings that there were issues on overstaying loaned out bulls found at the beneficiaries’ locations. These bulls are of no service after five years of staying in the area or have completed the 25 calves but still not awarded due to incomplete/ lack of required documentations. These issues resulted from lack of adequate monitoring from PCC technicians and reporting of the farmers/beneficiaries. These bulls should have been transferred/sold/culled to avoid inbreeding in the community. Inbreeding happens when in 2 to 3 years the heifer of the bull might get impregnated by the same sire which may result to undesirable genes and possible abnormality to its offspring. Only 3,450 dairy animals valued at ₱153.73 million or 12.5 percent of the 27,632 calves produced from CYs 2013-2016 had been acquired by NDA through its buy-back program or 7.5 percent below the harvest rate of 20 percent target in the DRM 2011-2016. No targets were set for the buy-back program for CYs 2017-2018 but NDA procured 703 heads valued at ₱29.42 million out of 9,568 calves produced or 7.3 percent harvest rate.

The Buy-Back scheme was introduced to enable NDA to procure and redistribute to other farmers the offspring (island-born) produced by the upgraded animals.73 One of the

73 NDA, supra note 19, p. 8, item 3.

Harvest rate below the target set and slow fund utilization under the Buy-back Program


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objectives of this scheme under the DRM 2010-2016 is to facilitate the procurement of the upgraded dairy animals and local dairy crossbreds in support to massive upgrading/crossbreeding program74. A target of 20 percent harvest rate of the animals upgraded will be subjected to for buy-back at an average cost of ₱75,000 per head. For CYs 2017 and 2018, no targets were set for this particular scheme based on the current DRM. NDA had programmed a Buy-back Fund of ₱176.20 million for CYs 2013 to 2016, which represented only 33.6 percent of the required funding requirement of ₱525 million under the DRM. Actual procurement amounted to ₱153.73 million. The average actual harvest rate was 12.5 percent in the buy-back of 3,450 heads from the 27,632 animals upgraded for CYs 2013-2016, or below 7.5 percent from the target 20 percent harvest rate under the DRM. For 2017-2018, a total of 703 heads were procured or 7.3 percent of the 9,568 upgraded animals for the period. The allotted amounts were not fully utilized contributing to the low harvest rate for the buy-back program. Table 20 shows the details of the actual accomplishments vis-à-vis targets and allotted funds for CYs 2013-2018. The low attainment against the target harvest rate deprived prospective farmer beneficiaries of the opportunity of immediately engaging in dairy farming.

Table 20: NDA Targets vs. Accomplishments on Buy-back of Upgraded Animals for CYs 2013-2018

Particulars

Targets per DRM Allotted Funds

Actual Buy-back Accomplishment

No. of Animals

Upgraded

No. of Harvested Animals*

Budget** Buy-back

Fund**

No. of Animals

Upgraded (a)

No. of Harvested Animals

(b)

Amount**

Harvest Rate

(c=a/b)

2013 10,000 2,000 ₱150.00 ₱ 162.20 5,565 1,011 ₱14.51 18%

2014 10,000 2,000 150.00 6,832 1,749 112.46 26%

2015 10,000 2,000 150.00 0.00 8,403 554 18.64 7%

2016 5,000 1,000 75.00 14.00 6,832 136 8.12 2%

Subtotal 2013-2016

35,000 7,000 525.00 176.20 27,632 3,450 153.73 12.5%

2017 - - - 14.00 4,539 586 21.05 13%

2018 - - - 0.00 5,029 117 8.37 2%

Subtotal 2017-2018

- - - 14.00 9,568 703 29.42 7.3%

Total 35,000 7,000 ₱525.00 ₱ 190.20 37,200 4,153 ₱183.15 11%

*@20% harvest rate at ₱75k per head. **in million pesos

Review of available documents revealed that the NDA has no written specific operational guidelines or policy on the efficient

74 NDA, supra note 5, p. 4, item f.


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and economical implementation of the buy-back scheme. For instance, it has not documented the following provisions: (a) procedures on the buy-back scheme; (b) procedures on the dispersal of the harvested (bought - back) animals; (c) arrangements made with the farmer beneficiaries to give priority right to NDA to buy the offspring produced through AI and Bull Breeding services; (d) personnel who will be in-charged in the implementation, monitoring and reporting of the said scheme, and (e) roles of the responsible officials/personnel. It was noted that cost of the procured harvested animals ranged from ₱30,000 to ₱50,000 but had no documentations whether the assessment of PDOs followed a pre-determined criteria identifying conditions/specifications of the animals to be subjected to buy-back. Hence, without a written operational policy/guidelines, it could not be ascertained whether the implemented buy-back scheme was economically and efficiently undertaken. A MOA dated December 13, 2017 was entered into by and between the NDA and PCC to collaborate through their respective programs, namely the NDA’s Buy-Back Program and the PCC’s carabao dispersal for milk production. Upon execution of the MOA, NDA transferred ₱9 million to PCC for the Buy-Back Program for carabaos. The program aims to purchase genetically improved buffaloes from among PCC’s partner farmers and disperse the same to other farmer beneficiaries. It was noted that the MOA did not indicate the period within which to implement the Agreement. Based on the Progress Report submitted by PCC to NDA, it was stated that the expected date of completion of the MOA was December 31, 2018 and the ₱9 million was the budget for one year. Verification of the status of implementation of the buy-back program revealed that the fund was not yet fully expended as of July 2019. The PCC had bought back 152 carabaos with total value of ₱6.23 million and dispersed them to 111 farmer beneficiaries at National Impact Zone (NIZ) and areas covered by the PCC regional centers. Figure 16 shows the percentage distribution of carabaos dispersed by center. It was noted that PCC had been restricted by the government procurement regulation in buying genetically improved female carabao through alternative method of procurement. Under RA 9184, suppliers for alternative method of procurement through

Slow fund utilization for carabao Buy-Back Program by PCC and procurement practice hindered efficient program implementation


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Shopping are required to submit Mayor’s Permit and should be PhilGeps registered.75 These requirements posed as a challenge on the part of the small hold farmers who are the usual source of carabao for the buy-back program. Due to said limitations, farmers who are in dire need of cash have been forced to sell their genetically improved carabao to any interested buyers. There is a big chance that the dairy stocks may end up as meat if the PCC could not secure the carabao through buy-back program. It is noteworthy to mention that PCC Management was able to mitigate this concern by buying from registered carabao traders,76 although the income of the small farmers, who are the primary source of buy-back animals will be reduced due to the presence of middlemen.

Slow utilization of the fund deprived other prospective beneficiaries of the opportunity to engage in the dairy program and defeated the objective of efficient buy-back program implementation. As a result, contribution of buy-back program to the target increase in dairy stock and its consequent support to milk sufficiency target was not fully maximized. PCC pointed out as a way forward, the remaining ₱2.77 million of the Buy-Back Fund will be utilized to purchase at least 55 heads of dairy carabaos for interested farmer beneficiaries.

75 The 2016 Revised IRR – Annex H, p. 169. 76 PCC Sample Invitation to Bid ITB No. 6368311

USF11%, 16

hds.

DMMMSU15%, 23 hds.

MLPC11%, 17 hds.

NIZ8%, 12

hds.

USM13%, 20 hds.

WVSU27%, 41

hds.

2%

MMSU13%, 20 hds.

Figure 16. Distribution of Carabao Dispersed under the Buy-back Program per Center


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Only 664 heads valued at ₱44.29 million or about 37 percent of the 1,797 due animal repayments on Palit-Baka Scheme were collected leaving an overdue balance of ₱128.41 million or equivalent to 1,133 heads. Low collection efficiency was brought about by the following factors: a) low percentage of female calf drop; b) loose enforcement of payment terms as agreed in the MOA; c) leniency in the enforcement of animal repossession for delinquent beneficiaries; d) mortality of dairy animals; and e) inadequate monitoring on animal repayment/collection. One of the strategies to increase the dairy animals is through “Palit-Baka Scheme” of Dairy Animal Distribution whereby NDA distributes potential dairy animals to new but eligible and qualified participants who in a certain period of time, would resort to a payment-in-kind by way of female dairy animals.77 To implement this strategy, DMFs78 were identified by the NDA to pass on their animal harvests to new dairy farmers as payment for the original animals distributed. These animals will be distributed to other qualified local dairy farmers who shall also serve as future suppliers of dairy stock.79 The terms of payment stated in the MOA between NDA and farmer beneficiaries varied depending on schemes adopted (Appendix II for details). Animal repayments on “Palit-Baka Scheme” submitted by the NDA totalled only to 664 heads valued at ₱44.28 million out of the total 3,506 heads with book value of ₱331.50 million distributed to farmer beneficiaries (Table 21).

Table 21: Outstanding Balance on “Palit-Baka Scheme” as of December 31, 2018 (in thousand pesos)

Area

Animal Distributed Animal Repayment Outstanding Balance

No. of Heads

Amount No. of Heads Amount No. of Heads Amount

NLD 840 ₱114,139 269 ₱19,697 571 ₱94,441

NMD 710 47,534 76 5,309 634 42,224

SLD 987 122,358 171 12,658 816 109,700

SMD 146 10,104 22 2,014 124 8,090

VFO 823 37,362 126 4,608 697 32,754

Total 3,506 ₱331,496.82 664 ₱44,286.96 2,842 ₱287,209.86

Source: NDA consolidated report on animal repayments on palit-baka scheme for the period CY 2013-2018

77 HBP, available at http://nda.da.gov.ph/index.php/en/programs (last accessed July 24, 2019) 78 DMFs are those farm owners who have the investment or the capital to fund the infrastructure and equipment that will augment government’s insufficient budget allocation for dairy activities. 79 NDA Annual Report CY 2016, p. 37, 1st and 2nd par.

Low repayment under Palit-Baka Scheme impacting on the objective of increasing the dairy herd


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Table 22: Animal Repayments for the Period CYs 2015-2018 (in thousand pesos)

Year Total

Collections Due Actual

Collections Balance

2015 ₱60,579 ₱65,716 ₱ (5,137)

2016 108,141 16,337 91,804

2017 123,194 3,232 119,962

2018 169,920 41,509 128,411 Source: GCG Validated Performance Scorecard of NDA for CY 2015-2017 and NDA PES for 2018

The balance of ₱128 million from collections due represented about 1,133 heads out of the 1,797 heads due as of end of CY 2018 using the average value per head of dispersed animal at ₱94,550.

Low animal repayment resulted from the following key factors hindering the efficient and effective implementation of the Palit-Baka Scheme and impacting on the target of increasing the number of dairy herd:

1. Lower percentage of female calf drop. As of

December 31, 2018, inventory of calves shows that 55 percent or 6,085 heads were female and 45 percent or 4,987 heads were male. Further, validation in selected NDA-assisted farmer beneficiaries from 6 regions disclosed that mortality and male calf drop are the two major reasons for the farmers inability to pay their obligations within the prescribed period;

2. Loose enforcement of MOA. NDA is lax in the enforcement of animal repayment terms/settlement of liabilities within the contract period as well as in imposition of penalties to farmer beneficiaries in case of failure to settle their outstanding obligations on time as agreed in the MOA;

3. Repossession is not being imposed. NDA cannot exercise their right to repossess the dairy animals in case the farmer beneficiaries fail to comply with the conditions in the MOA. NDA has limited farm lot to pasture animals to be subjected to repossession because NDA has only 2 farms nationwide located at Ubay, Bohol and Davao City, Davao Del Sur;

4. High mortality. In South Luzon, Visayas and NMD areas, 23 percent or 654 out of 2,794 distributed dairy cattle died from importations under Batches 13, 14 and


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15. Out of the 548 mortalities reported in South Luzon and NMD, 416 died within the year the animals were distributed to farmers; and

5. Laxity in monitoring the animal repayment/palit-baka scheme. Currently, NDA has 24 PDOs and 27 Job Order personnel deployed to provide technical services to 510 farms nationwide and at the same time monitor the animal loans. Details will be discussed in the separate finding.

In line with its powers and functions, the PCC shall enable the farmers, particularly smallholder farmers and Comprehensive Agrarian Reform Program beneficiaries to avail themselves of good quality carabao stocks at all times and at reasonable prices through an organized program of production, breeding, training and dispersal81. Under the assumptions that animals are available and farmer recipient’s requirements are complete, the animals will be awarded within 33 days from the date of receipt of request from farmer for dairy module or bull loan82. As planned importation of superior breeding animals for infusion did not materialize, availability of dairy stocks is limited that the dispersal of animal is done only on a case to case basis and on a first come, first serve only83. Without the infusion of superior breeding animals from importation, the primary source of PCC’s dispersal program are animals from PCC IH and GP, Animal Buy-back Program and Repayment from Paiwi Scheme. Inquiry from PCC Management on carabao dispersed from IH and GP revealed that carabaos below the set performance standards are dispersed to farmer beneficiaries. Management explained that for a successful breeding program, an “Open Nucleus Herd” shall kept female offspring of exceptionally good cows from the villages or other farms while candidate young sires will be selected on the basis of their pedigree, dam’s (mother) milk production record, own growth record as well as conformation. Only top 2.5 percent will be selected

81 Philippine Carabao Act of 1992, Powers and Functions, §. 5.b. 82 Dairy Buffalo Module, available at https://www.pcc.gov.ph/dairy-buffalo-modules (last accessed August 16, 2019). 83 Provision of superior breeding animals, available at, https://www.pcc.gov.ph/provision-of-superior-breeding-animals (last accessed September 19, 2019).

Performance of dispersed buffaloes are not guaranteed due to limited dairy stocks and non-rehabilitation of returned and repossessed animals before transferring to other farmer beneficiaries


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after undergoing training for semen collection and evaluation. And consequently, only the top 1.5 percent will be selected after evaluation of genetic merit based on first lactation performance of daughters for bulls undergoing progeny testing. Proven bulls will be used for breeding on purebred herds while other sires not included in the top 1.5 percent may be used for Carabao Upgrading Program such as BLP for bulls and Paiwi Scheme for heifers. Consequently, the quality of the animals coming from PCC’s IH and GP may not be guaranteed. As discussed earlier, Animal Buy-back Program was implemented only in CY 2018 in partnership with the NDA. On the other hand, animals from repayment under Paiwi Scheme could become a source for dispersal when farmer recipient opted to sell his/her 50 percent share to PCC. Due to PCC’s concern on additional maintenance cost and optimum herd, PCC has directly dispersed animals to other farmer recipients. It was noted that the age of animal for repayment is 12 months and the first calving of carabao is at the age of 3.5 years84. Consequently, the farmer has to take care of the carabao for about 30 months before calving.

Source: COA Site Inspection Photographs

Furthermore, the audit team observed that repossessed and/ or returned animals with health problems were transferred directly to other qualified farmer recipient without rehabilitation. Hence, the burden of rehabilitation costs of these animals were also transferred to recipient farmers. Consequently, this practice contributed to farmers’ difficulty in repayment.

84 PCC, supra note 30, Reproduction p.31.

Figure 18: Transferred Carabao in

Magdalena, Laguna


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The PCC estimated that annual maintenance cost of adult carabao is ₱25,488.2085. With budget limitations, it could not afford to provide for the rehabilitation costs of carabaos with health problems. Hence, PCC provides the following preventive measures:

1. Identify good farm practices that can be subjected to

formal research to be cascaded to other PC Centers,

such as:

Heating of milk to 40°C prior to feeding to calf;

and

Drying of forage prior to feeding to calf.

2. For CY 2019, PCC planned to conduct the following

Animal Health Activities:

Vet Refresher Course/Strengthening the Animal

Health Program; and

Animal Health Monitoring.

Aside from the concern on rehabilitation costs, PCC could not accommodate repossessed and/or returned animals from dispersal subject to rehabilitation due to current level of PCC’s optimum herd. It was noted that 76 percent or 10 out of 13 carabao centers including IH and GP are maintaining dairy stock more than the capacity of the farms. Comparison of PCC’s optimum herd and the actual inventory per carabao center is presented in Figure 19.

85 PCC Kalabajuan Business Portfolio, Dairy Buffalo Business Series Number 1, p. 17.


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Presidential Decree (PD) 1445, Chapter 5, Section 102 states that the head of any agency of the government is immediately and primarily responsible for all government funds and property pertaining to his agency; and persons entrusted with the possession or custody of the funds or property under the agency head shall be immediately responsible to him, without prejudice to the liability of either party to the government87. In addition, Section 105 states that every officer accountable for government property shall be liable for its money value in case of improper or unauthorized use or misapplication thereof, by himself or any person for whose acts he may be responsible. He shall likewise be liable for all losses, damages, or deterioration occasioned by negligence in the keeping or use of the property whether or not it be at the time in his actual custody.88 Contracts on animal dispersal had been revised several times from Type 3 to 3A to 4 and lastly to 5 (Appendix III). In Type 3 contract the ownership of the original animal dispersed remained with the PCC and the animal should be returned if it is not useful anymore,89 but for Type 3A and 4 contracts, the ownership of the original animal dispersed was transferred by PCC to the farmer beneficiary with conditional clause that the PCC can withdraw the said animal if proven that farmer beneficiary violates the agreements provisions90. For Type 5 contract, the ownership of the original animal dispersed was already transferred by PCC to farmer beneficiary without conditional clause attached91. It was noted that PCC issued Resolution No. 1, s. 2014 to authorize the transfer of the accountability of animals to Dairy Buffalo-Trustees under the Modified Paiwi system and DBMF upon receipt of animals from PCC. The issuance of the said resolution was in response to the growing concern among accountable officers for liability when they have no full control over the property and a contracting party has already assumed legal responsibility over it.92

87 PD No. 1445 Ordaining and Instituting a Government Auditing Code of the

Philippines, Chapter 5, § 102, p. 25. 88 Ibid, Chapter 5, § 105, pp. 25-26. 89 PCC, supra note 55, Artikulo 3. Paraan ng Pagbabahagi, 3.1, p.5. 90 Type 3A and 4 Kasunduan sa pagpapamahagi Ng puhunang gatasang kalabaw, Artikulo 3. Paraan ng Pagbabahagi, 3.1, p.7. 91 Type 5 Kasunduan sa pagpapamahagi Ng puhunang gatasang kalabaw, Artikulo 2. Paraan ng Pagbabahagi, 2.1, p.2. 92 PCC PMC Resolution No. 1, s. 2014, resolution to transfer the accountability of animals to Dairy Buffalo-Trustees under the Modified “PAIWI” system and DBMF upon receipt of animals from the PCC.

Automatic transfer of ownership and accountability of Carabao dispersed upon signing of the contract without fulfilment yet of the conditions is prejudicial to the interest of the government


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This new contract agreement resulted in the transfer of ownership and accountability of the dispersed animal to the buffalo trustees upon acceptance even without fulfilment of the contract conditions. As of June 30, 2019, Type 5 contracts entered into by PCC and the cooperative/farmer beneficiaries reached 704 for the dispersal of 886 buffaloes with estimated total value of ₱62.8 million (Table 23). The value of the dairy animals upon transfer/award is derecognized in the PCC’s accounts as capital asset and inventory in view of the automatic transfer of accountability and ownership from PCC although these animals are expected to provide future economic benefits to PCC. As a consequence, PCC at UPLB had also requested for relief from accountability for 119 heads of dairy animals dispersed to beneficiaries amounting to ₱5 million. Table 23: Status of Type 5 Contracts as of June 30, 2019

Name of PCC/RIZ

No. of Type 5 Contract/

Agreement signed and

issued

No. of Dairy Animals

Dispersed

Book Value of Dairy Animal @ Dispersal

PCC at CLSU 40 40 1,852,480

PCC at CSU 47 47 1,387,562

PCC at MMSU 11 14 177,650

PCC at DMMMSU

148 148 6,631,675

PCC at UPLB 111 111 4,725,875

PCC at WVSU

PCC at LCSF 7 7 254,498

PCC at CMU 6 26 48,750

PCC at USM 27 27 800,000

PCC at MLPC 9 9 366,000

PCC at VSU 16 16 22,750

PCC at USF 60 219 39,850,000

NIZ 222 222 6,660,000

Total 704 886 62,777,240

Source: PCC reply to AQM 2019-002 dated September 04, 2019

On the other hand, NDA is also dispersing animals to farmer beneficiaries but does not transfer accountability and ownership as Accounts Receivable is recognized by NDA from the beneficiary. According to PCC, the modifications in the provisions of contracts were based on their learning experiences and were done to ensure program sustainability and reduced risk of loss. However, the outright transfer of accountability and ownership


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to farmer beneficiaries without yet fulfilling the conditions in the contract run counter to the relevant provisions of the PD 1445. Clarification on the appropriate accounting treatment was already requested from the Government Accounting Sector, COA

It was provided in the MOA between NDA and the farmer beneficiary that the NDA shall be responsible for the insurance of the dairy animals during the first year of the agreement while the farmer beneficiary assumes the insurance cost for the following year until such time the subject animals are fully paid. In cases where deaths were due to natural causes and not due to negligence or mismanagement, the beneficiary shall assist the NDA in facilitating the processing of Relief from Animal/Property Accountability from COA.

From the available data and information gathered during fieldwork, insurance coverage of cattle during the effectivity of the MOA was not strictly enforced. It was noted that at least 126 cattle dispersed to farmer beneficiaries included in the report on mortalities were not covered by insurance (Table 24). It appeared that causes of deaths of these dairy animals were not due to natural causes but due to negligence or mismanagement by beneficiaries, otherwise, they would have requested for relief from accountability. With the death of the dairy animals, farmer beneficiaries would find it difficult to repay in cash or could not repay NDA in kind anymore. Had these animals been insured, costs could have been recovered from insurance proceeds. As such NDA is exposed to the risk of non-recovery of the cost of dairy animal or non-collection of Receivables from the beneficiaries.

Table 24: NDA Cattle Mortalities Not Insured and Requests for Relief from Accountability

Department Not Insured Requested for Relief from Accountability

No. of Heads Book Value* No. of Heads Status of Request

South Luzon 66 ₱8.43 12 No data

North Luzon No data No data 17 1-granted (6%); 2-denied (12%);

14-pending (82%)

Visayas 19 No data 125 68-granted (54%); 57-pending

(46%)

Northern Mindanao

41 5.35 44 No data

Total 126 ₱13.78 198 69-granted (49%); 2-denied

(1%); 71-pending (50%)

*in million pesos Source: NDA Departments’ Mortality Reports

Need to enforce provisions of contracts/ agreements to ensure effective, economical and efficient program administration


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As regards to the status of the Requests for Relief from Accountability, two departments namely the South Luzon and Northern Mindanao failed to disclose any information in their respective mortality reports. From the available information regarding the 142 requests from the North Luzon and Visayas departments, 69 requests or 49 percent were granted, 71 requests or 50 percent were pending while 2 requests or 1 percent had been denied. Only 2 out of 4 departments surveyed namely the South Luzon and North Mindanao submitted their status on insurance claims with the Philippine Crop Insurance Corporation (PCIC), as shown in Table 25. Of the 299 insurance claims, 251 claims or 84 percent had been paid with a total of P18.88 million. While three claims were pending and still under investigation, 45 claims or 15 percent were denied due to PCIC’s evaluation that beneficiaries were negligent on the proper care of animals.

Table 25: NDA Status of Claims of Insured Animals

Department No. of Cattle Mortalities

Insured

Book Value/ Amount Insured

Status of Claim

Amount Claimed

Status

South Luzon 65 No data ₱4.42 65-Claimed (100%)

North Luzon No data No data No data No data

Visayas No data No data No data No data

Northern Mindanao

234 Incomplete data

14.46 186-claimed (79%); 45-denied (19%); 3-pending (1%)

Total 299 Incomplete data

₱18.88 251-claimed (84%); 45-denied (15%); 3-pending (1%)

Source: NDA Departments’ Mortality Reports

The equivalent value of dead dairy cattle not covered by insurance or had been denied insurance claims could result in a permanent loss to the government unless NDA could still collect them from the farmer beneficiaries. Contracts under the Paiwi scheme include provisions on insurance/guarantee fund. Farmer beneficiary shall pay to the cooperative/association ₱1,000 per head for the annual guarantee fund during the effectivity of the contract (five or ten years). Non-payment of the guarantee fund by the farmer

Provisions relating to Guarantee Fund in Type 5 Contract of PCC were incomplete


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beneficiary is a ground for PCC to repossess the dairy animal.93 The cooperative has the obligation to pay PCC the amount equivalent to the book value of the animal dispersed from the collected guarantee fund if the cause of animal’s death was due to negligence of the farmer beneficiaries or the dairy animal was sold or stolen. The collection of PCC from the Guarantee Fund or if the fund is not sufficient will not preclude PCC from filing a case against the farmer and accomplice. The PCC shall then recover the book value of the dairy animal and offspring as well as damages due to fraud and negligence and blacklist them as beneficiaries of the program.94 Unlike in previous contracts, the responsibilities and obligations of cooperatives on maintaining the guarantee fund and paying PCC in case of animal’s death, loss or stolen due to negligence of farmers, among others, were not specified in Type 5 contract.95

PCC explained that the Mortuary Fund/Guarantee Fund was conceived as a counter mechanism of dole-out mentality among farmers towards PCC-Paiwi programs. The Mortuary Fund is viewed in two ways. First, it will encourage a “bantayan” system in which each member will take collective concern in ensuring good animal management practices among the members of the cooperative/association. The “bantayan” feature of the Paiwi contract will facilitate the critical awareness of the need for each member to consciously be reminded of participatory actions against mediocrity. More importantly, it will provide the immediate sense of project co-ownership by way of investing funds and a co-operative system of averting risks. It was also designed as an alternative for insurance, wherein the farmer will be paying less compared to the cost of animal insurance. The total amount contributed to the cooperative will be returned to the farmers if no animal died due to negligence.

93 PCC, supra note 55, Artikulo 2. Tungkulin ng Bawat Panig, 2.2.4 and 2.3.1, p.3. 94 PCC, supra note 90, Artikulo 2. Tungkulin ng Bawat Panig, 2.2.5 and 2.3.1, p.4-5 and p. 3-4 respectively. 95 PCC, supra note 91, Artikulo 3. Terminasyon ng Kasunduan at Pagbawi sa Kalabaw, 3.3, p.3.


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Increase in local dairy herd may be realized through the importation of genetic materials like dairy animals and dairy breeding materials, upgrading of existing local animals to dairy breed, production of replacement stocks thru dairy breeding programs like AI programs and multiplier farm establishment, and the preservation of existing stocks. Increasing the milking animals will significantly affect overall local milk production in the country.96 This condition still remains to be a challenge because there are no specific implementing guidelines for the implementation of the strategies such as importation of dairy stocks, buy-back program, AI and BLP, as well as prioritization and distribution of dairy animals. The absence of the said guidelines/document was attributed to deficiencies identified in each strategies as discussed in the earlier findings. The NDA management admitted that NDA guidelines were not reduced in writing, and explained that the program took heed from the board resolutions issued periodically as well as from the NDA practices that evolved in the years of implementation. These have all been formally transformed into processes under the NDA’s ISO 9001:2018 Certification and in its Quality Management System. As stated in the GAA, the NDA shall ensure that implementation of the program shall directly benefit small farmers registered under the Registry System for Basic Sectors in Agriculture, with priority given to the provinces or regions where the absolute number of poor farmers and the incidence of poverty are high as identified in the latest official poverty statistics of the PSA. However, audit verification disclosed that imported dairy animals were dispersed mostly to DMFs/private farms with 3,015 heads as against the 1,039 heads dispersed animals to cooperatives composed of small farmers and 89 heads dispersed to LGUs for small farmers within the community (Table 26). Further verification disclosed that 21 DMFs/private farms received imported dairy cattle from different batches even though they still have outstanding obligations. Thus, payables of these beneficiaries have accumulated. As a result, other qualified beneficiaries were not given opportunity to benefit from the program.

96 NDA, supra note 10.

Lack of specific guidelines for each strategy implemented by NDA


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Table 26: NDA Animal Dispersal for Batches 13-16

Batch

Animal dispersed to DMFs/private

farms

Animal Dispersed to Cooperatives

Animal Dispersed to LGU

Animal Dispersed to Universities, DA,

NABC and NDA stock farms

Total

No. of imported animals

dispersed

No. of farmers


dispersed

No. of farmers


dispersed

No. of farmers


dispersed

No. of farmers


dispersed

No. of farmers

13 1,124 29 518 25 74 3 176 7 1,892 64

14 639 19 219 8 - - - - 858 27

15 1,133 25 136 13 15 1 100 4 1,384 43

16 119 16 166 25 - - - - 285 41

TOTAL 3,015 - 1,039 - 89 - 276 - 4,146 -

Source: NDA data

The NDA management agreed and stated that priority has always been the small farmers not only in HBP but in other areas as well. However, DMFs are those owners who have the investment or the capital to fund the infrastructure and equipment that will augment government’s insufficient budget allocation for dairy activities. As a matter of fact, DMFs were intended to be partners of the government in the production of dairy animals and were not meant to grab opportunities from small farmers since these small farmers will be recipients of whatever number of dairy animals the DMFs will repay or trade in the future. The audit team took note of the comments particularly on small farmers being recipients of the repayments by the DMFs in the future. Still, the intention of the GAA is for the NDA to ensure that program implementation directly benefits small and poor farmers. According to the Succession and Contingency Plans and Preparation under the Standard for Internal Control in the Federal Government of the Government Accountability Office (GAO), Management should define succession and contingency plans for key roles to help the entity to continue achieving its objectives; and define succession plans for key roles, choose succession candidates, and trains succession candidates to assume the key roles.97 It was noted that Types 3A and 4 MOA/Contract for “PAIWI” and 1st and 2nd Revision of DBMF Contracts had provisions for a partner/co-maker of the farmer beneficiary. The partner/co-

97 GAO Standards for Internal Control in the Federal Government, Succession and Contingency Plans and Preparation, p. 31.

No policy guideline was established for the assessment of farmer beneficiaries’ successors (partner/co-maker) for a smooth and continuous implementation of the program


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maker also signed the contract. Specifically, the contracts stipulated that upon death of farmer beneficiary/DBMF operator the partner/co-maker shall assume the deceased farmer beneficiary/DBMF Operator’s obligations and responsibilities.98 This provision, however, did not appear in the type 5 contract for “Paiwi” and in the Proposed Dairy Buffalo Dispersal Agreement through Cooperative Conduit Scheme. It was also noted that the evaluation form for “Modified PAIWI”/Heifer Module Application contained relevant information for the farmer beneficiary but none for partner/co-maker. In the audit team’s validation, a DBMF under the PCC-UPLB was unable to sustain its operation due to the death of its manager. The co-maker was supposed to assume the obligations and responsibilities but instead he communicated with PCC for his intention to return the buffaloes. The dairy animals were repossessed and transferred to other farmer beneficiaries. Upon repossession, it was learned from the new beneficiaries during dialogue that buffaloes were unhealthy and some died during the process of transfer to new beneficiaries. The team also noted during the survey and interview of beneficiaries that a beneficiary under PCC-Central Mindanao University (CMU) had transferred the awarded animal to his brother/co-member in the cooperative because he has no child/heir to whom he can pass-on the carabao. The said verbal agreement made has no proper documentation. Query from PCC management about the issue on transfer/repossession of buffaloes from beneficiaries disclosed that co-owners are usually the spouse of the beneficiaries. Surrender of animal(s) is usually a shared decision between the husband and wife. Transfers take effect to qualified beneficiaries based on the recommendation of the assisted cooperative and assessment of PCC. Contract will also be transferred to new beneficiaries. Repossession can be traced from transferred Contract to new beneficiaries.

The absence of guidelines for the assessment of future successor (partner/co-maker) of farmer beneficiary who can continue the obligations and responsibilities of farmer beneficiary/DBMF upon death/disability, will not contribute to smooth and continuous implementation of the program.

98 DBMF Contract, 2.3.1, p. 4 and Type 3A and 4 Kasunduan sa pagpapamahagi Ng puhunang gatasang kalabaw, 2.4.1, p. 6 and 7 respectively.


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MOA with Cooperative/DMF/farmer beneficiary provides that a penalty charge of 6 to 8 percent per annum shall be imposed should the farmer fails to pay its outstanding obligation. Aside from the fact that the collection efficiency rate is low as discussed in the Animal Repayment/Palit-Baka scheme, no penalties were imposed by the NDA to its delinquent farmer beneficiaries.

Our analysis revealed that penalty charges aggregating to ₱12 million for South Luzon and ₱7.15 million (for Batch 13 only) for Mindanao dairy assisted areas were not collected by NDA as of June 2019. In addition, overdue accounts, as old as CY 1989, aggregating to ₱49.23 million and ₱64.48 million in NDA South Luzon and Mindanao Field Departments, respectively, , remained in the NDA accounts as of December 31, 2018 (Table 27). Table 27: Other Overdue Accounts as of December 31, 2018 (in

million pesos)

Batch

South Luzon Northern and Southern

Mindanao

Due date Past due amount

Due date Past due amount

1 - - September

1989 ₱0.99

2

Not available

₱1.99 March 1996 0.45

3 3.49 October 1999 7.31

4 2.54 August 2005 2.50

5 0.64 - -

6 - - August 2009 3.91

7 - - September

2011 4.83

8 Not available 6.70 - -

9 - - July 2013 3.56

10

Not available 30.88 August 2016 17.33

11 2.99 Sept. 2010 –

Oct. 2018 23.60

TOTAL ₱49.23 ₱64.48 Source: NDA data

More farmers could have benefited from the program had the NDA compelled the delinquent farmers to pay their loans. Also, if the penalty provision in the MOA is enforced, the farmers would be compelled to comply with their obligations.

Laxity in enforcing collections and imposing penalty charges by NDA against past due obligations of delinquent Cooperative/ DMF/ Farmer beneficiaries would not contribute to the attainment of program objectives


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Section 3 (b) of RA 7884 stated that NDA shall give support and assistance in the production, processing and marketing activities of all engaged in the business of producing milk, and other dairy products particularly rural-based small dairy farmers through the provision of necessary technical support systems.

The attainment of the dairy programs depends largely on its manpower/personnel complement on the ground and, ultimately for the delivery of technical services to its farmer beneficiaries nationwide.

NDA has 27 dairy zones nationwide covering 510 dairy cooperatives, DMF/private farms, and other entities. Based on its personnel complement as of December 31, 2018, 24 PDOs and 27 Job order (JO) personnel (Table 28) were deployed to various areas nationwide extending technical assistance and monitoring program including repayments from farmer beneficiaries. Table 28: Manpower Complement of NDA PDOs and JOs as of

December 31, 2018

Department Province Regular

Employee

No. of Farms Served

Job Order

No. of Farms Served

North Luzon 17 4 39 5 49

South Luzon 13 5 65 7 34

Visayas 12 4 38 10 80

Northern Mindanao

11 5 39 5 41

Sub-total 18 181 27 204

Average farm per personnel

10 farms 8 farms

Southern Mindanao

13 6 125 - -

Average farm per

personnel

21 farms -

Source: NDA data

As gleaned from the table above, each PDO assigned in North Luzon, South Luzon, Visayas, and NMD areas has an average of 10 farms to serve while a JO has 8 farms each for JO. However, in SMD area, each PDO covers an average of 21 farms without employing any Job Orders. Clarification revealed that NDA has no parameters on the ratio of PDO/Technicians-

NDA need to look into the workloads of PDOs to ensure effective and efficient monitoring of program implementation


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to-farmers needed not to mention the distance of the farms being served by the PDOs. As discussed in the previous findings, there was no reliable records and reports to show success of AI services, Dairy Bull Assistance Program (DBAP), categorization of mortalities, and Palit-baka scheme. These circumstances were brought about by the leniency in monitoring and documenting PDOs’ services/undertakings on the ground. These deficiencies in the monitoring and performance of PDOs impact on the efficient and effective program administration.


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Table 29: NDA Targets vs. Accomplishments on Upgraded Animals

Year

DRM Target

Targets as Agreed with GCG

Actual Upgraded Animals

Animals Upgraded

Produced Locally*

Cattle Carabao Goat Total Calves

Produced

2013 10,000 6,936 5,121 259 185 5,565

2014 10,000 8,000 6,420 120 292 6,832

2015 10,000 6,700 7,764 47 592 8,403

2016 5,000 6,800 6,552 43 237 6,832

Sub-total

35,000 28,436 25,857 469 1,306 27,632

2017 0 4,714 4,511 28 0 4,539

2018 0 5,291 3,991 33 1,005 5,029

Sub-total

0 10,005 8,502 61 1,005 9,568

Total 35,000 38,441 34,359 530 2,311 37,200

*calves born from AI and bull breeding Sources: DRMs 2010-2016 and 2017-2022; Performance Agreements with GCG and Accomplishment Reports for CYs 2013-2018

It was noted that there was no separate report prepared by the NDA management on the results of individual strategies for upgrading the local animals, particularly AI and bull breeding services. Instead, a consolidated data for the two (2) strategies was reported. Review of the reports revealed that there was no information as to the quality and/or type of breed of the upgraded animals. The said deficiency in reporting was due to the lack of technical know-how of the NDA personnel to identify and document which strategy (AI or natural breeding) resulted to calves produced together with its breed. Hence, the extent of the upgrading and the production efficiency for each type of strategy was not assessed. To help the local dairy industry raise its present herd inventory, upgrading and crossbreeding of existing local animals are carried out nationwide. The objective is to produce, through AI, upgraded cattle from native and non-dairy cattle on the ground. This is achieved by using pure-bred dairy semen 100 percent Holstein Freisian for large-framed cattle or 100 percent Jersey semen for small-framed cattle for non-dairy cattle.102 NDA delivers purebred and crossbred dairy bulls to DA-Regional Field Offices or other Dairy Bull project partners to be managed, trained and maintained for semen production, collection and processing purposes.103 In this regard, the NDA and the BAI agreed to jointly produce semen at National Artificial Breeding Center (NABC). NDA provided the bulls while BAI provided the expertise to produce the semen from

102 NDA 2015 Annual Report, p. 16, Crossbreeding and Upgrading. 103 NDA 2014 Annual Report, p. 8, Bull Loan Program.

The effectiveness or efficiency of AI could not be assessed from the services provided using 102,467 semen straws as no data was reported on the number of dairy animals provided with AI services by the NDA for CYs 2013-2018


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these bulls. Semen collection should be shared at 70-30 percent by NDA and BAI, respectively.104 Available data revealed that the NDA had distributed 11 dairy bulls (4 Holsteins, 3 Jerseys, 3 Holstein-Sahiwal and 1 Red Holstein)105 to NABC located in Bukidnon for semen production. Details on NDA’s share from the said production are shown in Table 30. Table 30: NDA’s Share on NABC’s Semen Production

Year

Stock on

Hand (a)

Produced (b)

Total Production

(c)

Distributed to NDA

(d)

% Share (d/c)

2013 8,639 16,580 25,219 4,076 16%

2014 7,382 21,642 29,024 2,450 8%

2015 1,469 11,147 12,616 3,026 24%

2016 8,379 19,105 27,484 3,117 11%

2017 6,241 18,178 24,419 7,277 30%

2018 1,362 14,139 15,501 11,688 75%

Total 33,472 100,791 134,263 31,634 24%

Source: NDA Dairy Bulls at National Beef Cattle Research and Development Center (NBCRDC)-BAI Bukidnon, NDA Dairy Bull Semen Stock on Hand, Production and Distribution 2013-2018

For CYs 2013-2018, the total distributed semen straws by NABC to NDA reached 31,634 or 24 percent only of the total production. This is short by 62,350 or 66 percent of the total 93,984 semen straws that should have been distributed to the NDA as its agreed 70-30 percent share. Available records show that NABC also distributed semen straws to other regions and other agencies without correctly apportioning the right share of the NDA. Adding up the 50,800 semen straws imported on the same period with a total cost of ₱28.38 million106, total semen straws distributed would only be at 82,434 (Table 31). In contrast, the reported semen straws used for the same period totalled 102,467 or a difference of 20,033 straws, which is 24 percent more than the actual semen straws available for insemination. This happened because the semen straws provided by the farmers themselves and the LGUs on the ground were captured by the PDO107 in their reports.

104 NDA, supra note 19, p. 14, item e. 105 NDA Dairy Bulls at NBCRDC-BAI Bukidnon, NDA Dairy Bull Semen Production 2013-2018. 106 NDA CAAR 2016, p. 45, item 11.2 and NDA BAC Resolution No. 1-29-2 dated 29 January 2018. 107 PDO implements all regular animal health, animal nutrition, and animal breeding management services and submit reports using the Dairy Monitoring System.


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Table 31: Utilization of Semen Straws for AI

Year

Semen Straws Available Total Semen Straws Used

(d)

Total Animals Inseminated

(e)

Actual Share from NABC

(a)

Imported Semen

(b)

Total (c=a+b)

2013 4,076 0 4,076 17,954 12,782

2014 2,450 20,000 22,450 19,312 15,835

2015 3,026 23,100 26,126 17,468 14,500

2016 3,117 0 3,117 13,876 11,259

2017 7,277 0 7,277 12,512 9,958

2018 11,688 7,700 19,388 21,345 13,000

Total 31,634 50,800 82,434 102,467 77,334

Sources: NDA Dairy Bulls at NBCRDC-BAI Bukidnon, NDA Dairy Bull Distribution 2013-2018; NDA CAAR 2016; and NDA Accomplishments for CYs 2013-2018

Moreover, our validation disclosed that there were no proofs/evidences to show that the quality of semen produced and procured were effective in the absence of reliable records and reports. For example, data on the number of pure-bred dairy semen used and the respective results thereof, particularly on the use of the Holstein-Freisian semen for large-framed cattle and the Jersey semen for small-framed cattle or non-dairy cattle should have been indicated in the reports in order to have a more comprehensive evaluation on the effectiveness of AI services. In addition, the calves produced, which could serve as the success indicator of said services includes those calves produced under bull breeding services. These circumstances provide an indication of a weak internal control in terms of monitoring and reporting on the semen utilization. In the absence of reliable records and reports, success of AI services could not be evaluated accordingly.


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Breeding services are regularly provided to maximize the reproductive capacity of dairy animals either through AI or natural (bull) breeding.108 For bull breeding, the NDA introduced the DBAP whereby the NDA delivers dairy bull/s to eligible and qualified beneficiaries and use the same for natural breeding. Bull servicing is rendered only in two (2) instances: 1) if two AI services fail, and (2) if the area is located remotely where AI servicing is not possible. The service bull shall remain the property of NDA until thirty (30) calves have been born as a result of breeding services performed by the bull. Available data revealed that the NDA had distributed 83 dairy bulls to farmer beneficiaries from CYs 2013-2018. Details on the number of animals bred from bull breeding services are shown in Table 32.

Table 32: Summary of Bull Breeding Services of NDA

Year Bull Distributed to

Beneficiaries Animals Bred/

Subjected to Mating

2013 8 1,800

2014 11 2,264

2015 36 2,376

2016 15 2,334

2017 9 1,739

2018 4 770

Total 83 11,283 Sources: Reply to COA Audit Query Memorandum (AQM) and NDA Accomplishment Reports for CYs 2013-2018

The audit team could not determine the average number of times a single bull rendered services to impregnate the breedable dairy animals due to the absence of records and reports. Additionally, data on the number of failed AIs together with the respective locations where AI services could not be served were not documented to support the bull breeding services extended to the farmer beneficiaries. It is apparent that the NDA Management is lax on the terms or period within which to meet the 30 calves requirement for each bull in the absence of stipulations in the MOA. Since there is no report on the number of calves produced for each bull distributed, it could be difficult to determine the compliance of the beneficiaries to the requirement in the MOA. Likewise, the NDA failed to hold the PDOs accountable for failure to furnish a separate report, specifically on the number of calves produced under the bull breeding services in order to have a

108 NDA, supra note 103, p. 8, Improved Breeding Efficiency.

The extent of success of bull breeding services provided by NDA could not be assessed out of the 11,283 animals bred and of the 83 bull distributed for CYs 2013-2018 in the absence of separate recording, monitoring and reporting for the DBAP


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comprehensive evaluation on the success of the bull breeding strategy. According to our interview with the focal person, there was no separate report for each strategy because they could not determine which strategy impregnated the cattle. On the other hand, person in-charge in NABC explained during a meeting that it is impossible not to determine the strategy that impregnated the cattle because there is a waiting period to confirm if the cattle was impregnated by AI or by the bull itself. This means that before the natural bull breeding is done, the farmer or the PDO in-charge should see to it that the cattle is not impregnated by AI. As mentioned earlier, the calves reported under this strategy were combined in the report of those produced under AI services constituting weaknesses in recording, monitoring and reporting controls. As stated in the MOA, upon reaching the breedable stage, all offspring’s borne out of the dairy animals provided by the NDA to farmer beneficiaries shall be properly registered in the municipality where the farm is located. However, NDA has not monitored offspring to be registered in the LGUs. Based on interview with selected farmer beneficiaries in 4 out of 5 NDA Regional Departments, offsprings borne out of the dairy animals provided by the NDA, upon reaching the breedable stage, were not registered in the LGUs. It was noted that registration of cattle is undertaken by NDA only upon the issuance of new animal contract to new recipients for those treated as animal repayments. NDA incorporated in its contract for the dispersal of dairy animals the provision requiring the beneficiary to register large cattle with the LGU. This is in line with Section 3 of PD 533 of the Anti-Cattle Rustling Law of 1974, which requires that the owner/raiser of large cattle shall, before the large cattle belonging to him shall attain age of six months, register the same with the office of the city/municipal Treasurer where such large cattle is raised. The city/municipality concerned may impose and collect fees authorized by existing laws for such registration and the issuance of a certificate of ownership

to the owner/raiser.109

109 PD 533, s. 1974, § 3. Duty of owner/raiser to register, p.2.

Registration of offspring upon reaching breedable stage was not complied by farmer beneficiaries of NDA

Mandatory registration of calf drop in LGU not part of the contract provisions under the Paiwi Scheme and BLP


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While PCC is providing ear tags for dispersed animals, it was noted that the requirement of registering the calf drop of dispersed animals was not included in the provisions of the contracts under the Paiwi Scheme and the BLP. Clarification from Management disclosed that aside from protecting the large cattle owners and raisers from cattle rustling, they support the registration of carabao for purposes of tracing and identifying it and to assist in food safety. Assigning unique identification to individual animals is essential in animal recording system. An organized recording system provides for accurate, complete, and cost-effective information for evaluating herd performance, making management decisions, breeding management, disease surveillance/monitoring, research and other purposes110. Issues with data reliability Reliability of data for reporting and decision-making needs to be improved in view of noted inconsistencies of data among NDA offices and documents.

Based on the Standard for Internal Control in the Federal Government of the GAO on control activities, transactions are promptly recorded to maintain their relevance and value to management in controlling operations and making decisions.111 While reliable internal and external sources provide data that are reasonably free from error and bias and faithfully represent what they purport to represent.112

Review of program documents, reports and data revealed discrepancies, as illustrated below:

a) Accomplishment per strategy reported in the NDA Annual

Reports and Reply to AQM No. NDA-HBP-2019-001 dated June 25, 2019, as shown in Table 33:

110 PCC, supra note 30, Chapter 8 – Records and record keeping, p. 188. 111 GAO Standards for Internal Control in the Federal Government , p. 48, 2nd par. 1st sentence. 112 Ibid, p. 59, 5th par., 3rd sentence.

Need to improve data reliability, monitoring and reporting for decision-making


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Table 33: Discrepancy on Importation and Buy-back data in

NDA’s Reports

Particular NDA Annual

Report NDA Central

Office Variance

(short)/over

Importation of dairy cattle for CY 2013

2,676 None 2,676

Buy back animals for CY 2014

879 1,749 (870)

Source: NDA Annual Reports CYs 2013-2014 and reply to audit query

b) Number of mortalities reported per NDA Central Office was

only 818 while NDA Regional Departments had 2,614 mortalities as of December 31, 2018.

c) Animal repayments per NDA Central Office data were 664 heads while NDA Regional Departments had 1,840 heads for the period CYs 2013-2018:

Table 34: Discrepancy on Animal Repayments in NDA’s Reports

Area

Per NDA Central Office Per NDA Regional

Department

No. of Heads

Appraised Value

No. of Heads

Appraised Value

NMD 76 ₱5.31 355 ₱23.74

SMD 22 2.01 146 10.10

SLD 171 12.66 204 15.81

VIS 126 4.61 942 43.37

NLD 269 19.70 193 13.45

Total 664 ₱44.29 1,840 ₱106.47 Source: NDA reply to audit query and Regional Departments Monitoring Reports

The discrepancies noted do not lend well in the provision of accurate and timely information to stakeholders and decision-makers as these will compromise decision-making. The NDA management explained that with respect to data and information system, they were already into data processing and currently administering the Dairy Monitoring System. It was added that it needs some endorsements to be more accessible to its field staff in order to capture relevant data/ information for its various programs. In the case of PCC, discrepancies in data presented in the Annual Reports and Accomplishment Reports in AI services,


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bull breeding services and calf drop were also noted (Table 35 and 36). Table 35: Comparison of PCC Bull Services per

Accomplishment Report, Annual Report and BLP Database Extracted Data for CYs 2013-2018

Year Bull Services per Accomplishment

Report

Bull Services per Annual

Report

Bull Service per BLP

Database

2013 4,497 2,167 4,471

2014 4,020 2,260 3,968

2015 4,014 4,039 3,981

2016 3,694 1,801 3,649

2017 3,765 2,072 3,572

2018 2,704 2,107 2,088 Source: PCC Accomplishment Reports for CYs 2013-2018

Table 36: Comparison of PCC AI Services and Calf Drop per

Accomplishment Report and Annual Report for CYs 2013-2018

Year AI Services per

Accomplishment Report

AI Services per Annual

Report

AI Service Calf Drop per

Accomplishment Report

AI Service Calf Drop

per Annual Report

2013 74,019 71,273 13,583 12,949

2014 73,843 71,408 14,863 14,125

2015 67,891 63,547 13,310 12,270

2016 69,247 66,293 15,437 14,232

2017 71,703 67,157 17,287 18,745

2018 67,212 67,212 18,963 No data yet

Source: PCC Accomplishment Reports for CYs 2013-2018

The PCC management commented that the Operation’s Group consolidates data from reports of the regional centers. The Annual Report will be completed by February or March of the following year in time for the Report of the Executive Director during the agency’s anniversary programs. Discrepancies might occur as a result of additional data coming from the field, particularly on AI, Bull services and calf drop which were rather late for the annual report publication. It appears that, discrepancies in reported accomplishment reports could be managed if not avoided had the reports from the regional centers with complete data been submitted on time to the Operation’s Group.


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In December 2, 2015, the PCC and the PSA entered into a MOA with the following rationale: 1) there is a need for PCC for an updated profile or baseline data in order to enhance its system of periodic monitoring the performance of its clientele – the dairy cooperatives and dairy operators, who are recipients of its technical assistance; 2) there is a need for PCC to develop and maintain quality and comprehensive profile and statistical database sourced from its monitoring system as input for its policy formulation and program implementation; 3) there is a need for the PSA to closely collaborate with PCC on the development of a system to improve the collection of administrative data to supplement the survey data and shall form as PSA’s statistical database on Carabao Dairy; and 4) there is a need for PSA to improve survey methodology and sampling frame for generating periodic carabao dairy inventory as well as production and disposition of milk thus, update the profile of dairying activity in a need for a profile and updated list of dairy enterprises.113

In accordance with the MOA, the PSA implemented the Listing of Dairy Farms (LDF) in 2016, the major activity of the Dairy Enterprise Profiling Survey (DEPS) Project. The project was intended to update the list of dairy farms/enterprises all over the country where dairy farming exists. However, only eight provinces (Cagayan, Isabela, Nueva Ecija, Bulacan, Batangas, Laguna, Bohol and Misamis Oriental) were initially identified in 2016 by the PCC with NDA for the conduct of LDF. 114 For the coverage of initial 8 provinces, PCC transferred to PSA ₱3 million to support the conduct of the project, while PSA provide a counterpart fund amounting to ₱1.5 million. 115

Comparison of the PSA reported total inventory of Dairy Animals by Type for the country as of January 1, 2015-2016 and result of PSA LDF covering 8 provinces as of November 2016 revealed that total inventories of dairy carabao (26,290) and goat (4,035) per PSA LDF are higher compared to the reported total inventories of dairy carabao (17,802) and goat (2,118) for the whole country (Figure 20 and 21).

113 MOA between PSA and PCC dated December 2, 2015, p.1 114 2016 LDF in Selected Provinces, Terminal Report, December 2017, Executive Summary, p. 1-2. 115 Ibid, p.2.

Need to complete data for accurate estimation of dairy data for decision-making


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Based on the data reported by the NDA, the contribution of private sector in terms of dairy performance statistics was not completely captured in the national data on the total inventory of dairy animals by classification, milk production by animal type and by source, and total supply milk reported by PSA. In spite of this, the NDA relies on the data coming from PSA to be incorporated in its annual reporting to present the dairy industry situation in terms of total inventory of dairy animals and milk production. Management should design control activities over the IT infrastructure to support the completeness, accuracy, and validity of information processing by IT.117 Application controls, sometimes referred to as business process controls, are those controls that are incorporated directly into computer applications to achieve validity, completeness, accuracy, and confidentiality of transactions and data during application processing. Application controls include controls over input, processing, output, master file, interface, and data management system controls118. PCC maintains databases for the implementation of its programs on AI, BLP, CBED, and GIP. These databases are maintained in EXCEL file format using files submitted electronically to PCC Headquarters-Operations Department either by email or on compact disc for consolidation purposes. The database encoders ensure that data entered are accurate and complete. It was noted that files submitted by PCC Regional Centers were of different formats. Transmitted databases for consolidation are not encrypted, since encrypting an excel file would require password to enable user open, view and edit the document119. Querying from the different data bases was not easy. Risk and Opportunity Assessment – Business Processes for Planning and Information Management Division disclosed that during the process of creating the ISSP in CY 2017 a delay occurred in the endorsement of the ISSP from Department of Information and Communication Technology to DBM for

117GAO, supra note 111 Design of IT Infrastructure, 11.09, p. 53. 118 Ibid, Design of Appropriate Type of Control Activities, 11.08, p.53. 119 Microsoft Office password protection, available at https://en.wikipedia.org/wiki/Microsoft_Office_password_protection (last accessed July 23, 2019).

No Information System Strategic Plan (ISSP) for Information Technology (IT) System


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Low monitoring rates posed challenges to PCC program implementation

budgeting.120 Thus, the PCC has no ISSP yet as basis for investment and expenditures in relation to IT infrastructure. As of September 2018, the PCC had a total of 866 Active technicians providing AI Services, of which 506 came from LGUs, 303 from village-based technicians and 57 from PCC. They were able to monitor only 379 out of 950 bulls loaned out resulting in 40 percent monitoring rate. As reported, annual monitoring rates ranged from 35 to 61 percent for CYs 2012-2017 are shown in Table 37 below. Table 37: PCC’s AI Performance for CYs 2012-2017

Particulars 2012 2013 2014 2015 2016 2017

AI Services 81,321 74,019 73,843 67,891 69,247 71,703

Calf Drop 14,066 13,583 14,863 13,310 15,437 17,287

No. of Active Technician

1,013 979 982 926 949 972

Percent Monitoring

35% 43% 61% 49% 46% 50%

Source: PCC reply on AQM

The PCC pointed out that the Rationalization Plan has reduced the number of plantilla positions/permanent employees. Based on the organizational structure and approved plantilla, the PCC did not have a Monitoring Division. Its Organizational Structure is composed of Office of the Executive Director, Administrative, Financial and Management Division; Planning and Information Management Division; Knowledge Management Division; Research and Development Division; and Regional Centers. Thus, the PCC had to use other plantilla positions and Job Orders to perform monitoring (Table 38). Table 38: PCC’s Existing and Filled-up Plantilla Positions and Job

Orders Involved in Monitoring

PCC Center

Existing and filled-up plantilla

positions

Plantilla Positions

involved in monitoring

Job Orders (JO) involved in monitoring

PCC-UPLB 22 5 0

PCC-USF 7 1 7

PCC-CMU 12 4 3

PCC-CSU 10 4 0

Source: PCC reply on AQM

120 PIMD Risk and Opportunity Assessment, Date of Assessment July 5, 2017, No. of Assessment 1.


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In addition, from CYs 2013-2016, clients’ herd and milk production monitoring rate is only at 32 percent. This task is among the many tasks of CBED Regional centers and the NIZ that have at most two full-time CBED staff to attend to clients’ cooperative/organizational development and management, community mobilization, business/financial literacy and monitoring and reporting. Thus, absorptive capacity has been the concern of PCC, which was also mentioned in their reply to the audit team’s query.

Lack of monitoring had caused delay in the submission of reports. As discussed earlier, delay in the submission of reports resulted in discrepancies of data among accomplishment reports. Delayed submission of monitoring reports was noted in the case of reports from Municipal Agriculture Officer in Batangas. AI services performed in CY 2016 which resulted in calf drop in CY 2017 were reported only in CY 2018 while AI services performed in CY 2017 which resulted in calf drop in CY 2018 were reported in CY 2019.121

The PCC admitted that low monitoring rate and delayed reporting posed recurrent challenges to program implementers and primary stakeholders on AI, Bull services and calf drop.122 In addition, efficiency of the AI services rendered would be difficult to determine without 100 percent monitoring rate.

121 AIP Form No. 3, DA Regional Field Units-LGUs, Technician’s Quarterly Calf Drop Report. 122 PCC PMC Resolution No. 004, s. 2017, Resolution to Implement a Quick Monitoring and Reporting (QMR) Program.


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Importation of superior breed animals was considered as one of the strategies to substantially increase the local dairy industry. As of December 31, 2018, the NDA was able to import 3,060 dairy animals or short by 74 percent of the DRM target due to unfunded importation plan and failed biddings caused by absence of suppliers, unavailability of dairy stocks and FMD issues. Importation efforts of the NDA were made without comprehensive research on the desired breed acclimatized to build up even if the DTRI is one of the members of the DIB. At least 25 percent of the dairy animals imported under three batches had died due to pneumonia, downer and septicemia. On the other hand, the PCC’s importations of 2,509 heads of ItMB as substitute to the unavailable Brazilian Murrah-based breed were received in CYs 2013 and 2014 although the procurement process started in CY 2010. However, the restrictions in crossbreeding of ItMBs dd not provide the intended boost in fast tracking the increase in the number of genetically improved buffaloes. Since CY 2014, PCC was not able to implement its planned importation due to budget limitations. The limited infusion through importation impacted on the availability of dairy animals for dispersal to farmer beneficiaries and the target increase in dairy stocks. Effective and efficient genetic upgrading of dairy animals, repayments and buy-back of dairy animals could have cushioned the effect of limited importation. However, it was noted that cited strategies had not been carried out satisfactorily or with success based on adopted standards and targets, if any. Records showed that the NDA was only 42 percent successful in producing calves out of the animals inseminated and bred compared to the agreed success rate of 60 percent. The PCC had 22 percent success rate in AI compared to the 35 percent target while its bull breeding services had been declining along with the calf drop despite increasing number of bulls loaned out. Also, 31 percent of the target AI services of PCC were not served due to insufficient AI technicians. It was noted that the target success rate could be achieved with 100 percent monitoring as performed in one of the PCC centers. The NDA’s harvest rate through the buy-back scheme was only 11 percent or way below the 20 percent target while repayments through “palit-baka” scheme was low at only 37 percent of the animals due as of end of CY 2018. Meanwhile, the NDA and PCC’s partnership for the carabao buy-back


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program was not efficiently implemented due to issues on procurement. The goal of increasing the number of dairy animals was also impacted by the mortalities of dairy animals. NDA had recorded a total of 2,614 mortalities with an estimated total cost of ₱346.35 million from CYs 2013-2018 or an annual mortality average of 436 heads. For the same period, the PCC had 3,284 mortalities with estimated value of ₱471.42 million losses or a yearly average of 547 deaths. The leading causes of mortalities were fasciolosis, FBS and bloat/surra/digestive reproductive problems. High mortality rates in the PCC’s IH and GP were also noted. Among the reasons identified for mortalities included non-provision of proper animal health services, herd management problems, non-provision of housing facilities and traditional farming practices. Considerable amount of losses from buffalo mortalities had become a concern among PCC officers on the accountabilities over these animals in the possession of the beneficiaries. The PCC Management thus amended its contract by incorporating a provision transferring the ownership of the animal to the farmer beneficiary upon signing of the contract even without fulfilment of the conditions, thereby exposing government’s interest in jeopardy. Gaps in program administration to include poor coordination among cooperating agencies, deficiencies in contract provisions, lack of specific guidelines on program strategies, laxity in enforcing contract provisions, low monitoring rate, deficiencies in information management, and reporting did not lend well in ensuring efficient, economical and effective program implementation. In view of the foregoing gaps in the implementation of HBP and CDP and with additional demand created by RA 11037 or the NFP in addition to annual increase in population, it is unlikely that the dairy industry through the initiatives of NDA and PCC could attain the milk sufficiency target by CY 2022.


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collection of animal repayments to increase the inventory of dairy animals for dispersal and milking purposes taking into consideration adopted indicators and success rates. The NDA and PCC also need to maximize their production using the existing pure breeds in the upgrading of local animal and milk production. Indicators must be set up with reasonable targets to assess production efficiency and economy, and effectiveness of strategies implemented to increase dairy stocks and milk production. The NDA should make optimum use of its resources by developing specific operational policy guidelines on all its strategies such as importation/infusion of dairy animals, upgrading activities thru AI or bull breeding, and buy-back scheme after considering all the information at hand directed towards the achievement of its mandates and desired goals. There is a need to formulate these guidelines for the individual strategies it had adopted to increase the local dairy stocks and milk production in order to have a complete assessment and evaluation as to their respective contributions in the attainment of targets. Priority should also be given to cooperatives/farmer beneficiaries in the dispersal of dairy animals in line with the provisions of the GAA. The PCC may need to consider alternative budget sources for the infusion of superior breeds through submission of foreign loan proposals or solicitation of grants to finance importations, as necessary. It may consider replicating best practice in the animal dispersal as source of purebred animals. The PCC also needs to continuously capacitate staff assigned to manage the IH, GP and assist local dairy farmers and formulate monitoring mechanism to ensure they religiously follow the appropriate livestock management practice to minimize mortality of carabaos. Both the NDA and PCC should further ensure that the mortality rates among dairy animals are below the thresholds by continuous provision of information, preventive measures and technical assistance to cooperatives and farmer beneficiaries. There is a need to address deficiencies in the procedures and contracts for dispersal of dairy animals, laxity in the enforcement of contract provisions, low monitoring rates on services rendered and repayments, incomplete and inaccurate data to ensure that dairy programs are administered in line with the principles of economy, efficiency and effectiveness.


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To provide appropriate and reliable data from operations to update sectoral performance and to support formulation of policies, the PCC needs to further strengthen its partnership with LGUs and other agencies to compensate for their limited number of plantilla positions available to perform the monitoring function and strictly monitor the prompt submission of reports. It needs to continue the formulation of ISSP and comply with necessary requirements for approval to serve as basis of IT investments and enhance data integrity and reliability. On the other hand, the NDA should pursue the completion of its ongoing initiative on Data Monitoring System to ensure consistency, accuracy, and completeness of data for decision-making. The PCC and NDA need to collaborate with PSA for updating of data on dairy to ensure that data and information used for decision-making are complete and accurate. The PCC needs to revisit policies and strategies that will help sustain the attainment of PCC’s goals and objectives along with the objectives of the DRM on the following areas: a) incentive mechanism for AI technicians; b) mechanism for the procurement of carabaos for buy-back program; c) procedures in the dispersal of animals particularly from repossessed animals and those needing rehabilitation; d) optimum herd; and e) partner/co-maker in the contract, as appropriate. It is acknowledged that actions and measures have been adopted and/or initiated to address gaps in the implementation of the programs. It is expected that improvement will be seen in the attainment of program and DRM objectives with the observance of the foregoing recommendations.

Appendix I: Objectives, Scope and Methodology

Herd Build-up and Carabao Development Programs

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The COA has conducted performance audits to help government agencies better perform their mandates and achieve program goals and objectives efficiently, economically and effectively. It identified the National Dairy initiatives of the government specifically the HBP and CDP of NDA and PCC respectively, for examination and/or evaluation. The audit aimed to determine: (1) the extent to which the HBP and CDP attained the target increase in the local dairy stocks and volume of milk production taking into consideration the objectives of the DRM; and (2) the extent the NDA and PCC ensured proper administration of the program.

In line with our audit objectives, we reviewed documentation related to the HBP and CDP, such as DRMs, plans and targets, accomplishment reports, minutes of meeting of Advisory Boards and Program Management Committee and monitoring reports covering program implementation from CYs 2013-2018. In addition, we analysed the agencies’ MoA with beneficiaries and partner implementers, previously reported COA AARs, budget issuances, and other reports relevant to HBP and CDP. We also administered structured survey questionnaire to farmer-beneficiaries to obtain feedback on program implementation, validate compliance with contracts on the dispersal of animals and benchmark the best practices among beneficiaries. We also conducted interview with the Program Officials and personnel and assessed the extent of coordination among stakeholders and program implementers to determine the actions taken to implement the program according to the established guidelines. Moreover, we also conducted site visits to different PCC-NIZ/RIZs and NDA-Regional Departments and took photographs to determine the existence of selected farms.

We have determined that the data used in this report were sufficiently reliable to assess the implementation of the HBP and CDP by the NDA and PCC as it relates to the DRM.

The audit team conducted the performance audit from April to August 2019 in accordance with the International Standards of Supreme Audit Institutions 3000 – Standard for Performance Auditing. The standard requires that we plan and perform the audit to obtain sufficient and appropriate evidence to provide a reasonable basis for our findings and conclusions based on our


Appendix I: Objectives, Scope and Methodology

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audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives

Appendix II: Significant Provisions of NDA Dairy Animal Dispersal Contracts/ Memorandum of Agreements


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The terms of payment stated in the MOA between NDA and farmer beneficiaries under various schemes are the following:

1. For Dairy Multiplier Farm Program - Standard Payment-

in-Kind Scheme. 1.1 Standard Payment-in-Kind Scheme: Payment of two

(2) pregnant heifers in eight (8) years. i. Payment-in-kind is by way of two (2) dairy heifers

for every animal loaned; of which the body condition and the dairy blood composition of the animals will be similar to or higher than the animals originally received from the NDA.

1.2 Animal Repayments: Animal repayments considered

as principal payments shall each have a book value equivalent to half the book value of the original animal provided by the NDA to the DMF operator.

1.3 In case of failure of the DMF Operator to settle its

outstanding obligation hereunder, a penalty charge of eight percent (8 percent) per annum shall be imposed, to be computed from date of demand.

2 For Special Distribution Scheme for Holstein Friesian:

Jersey Dairy Crosses Payment-in-Kind Scheme: Payment of one (1) pregnant heifer in five (5) years:

2.1 Payment-in-kind is by way of one (1) dairy heifers for every animal provided; of which the body condition and the dairy blood composition of the animals will be similar to or higher than the animals originally received from the NDA.


Appendix II: Significant Provisions of NDA Dairy Animal Dispersal Contracts/ Memorandum of Agreements

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2.2 A penalty charge of eight percent (8 percent) per annum shall be imposed should the DMF Partner fail to pay the NDA within the required payment period.

3 For NDA Dairy Animal Distribution Program – Unified

Standard Payment-in-Kind Scheme or 1:1 Scheme123 3.1. Payment-in-kind is by way of one (1) similar dairy

animal for every animal distributed to and received by the Dairy Farm Operator provided that the animal offered for payment passed NDA’s Technical Criteria.

3.2. Payment due date shall be on or before the last day of the fourth (4th) year of the contract period computed from the delivery of the dairy animals.

3.3. A penalty charge of 6 percent per annum shall be imposed should the DMF Partner fail to pay the NDA within the required payment period.

Terms of Payment for Island or Local Born Dairy Animals Distributed

1. For New Payment-in-Kind (“Palit-Baka”) Scheme for the Distribution of Dairy Animals to Cooperatives124 1.1. “Palit-Baka” refers to the payment-in-kind by the

Cooperative of the same classification and condition of female dairy animals with similar or higher dairy blood composition within the period of five (5) years at no interest.

1.2. A penalty charge of eight percent (8 percent) per annum shall be imposed should the Cooperative Partner/Farmer Takers fail to pay the NDA within the required animal payment on the due date.

123 MOA under Unified Payment-in-Kind Scheme, p. 1-2, § 2: Terms of Payment 124 MOA under Cooperative Based-Island Born Dairy Animals, p. 3-4, § 4: Terms of Payment

Appendix III: Significant Provisions of PCC Dairy Animal Dispersal Contracts


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1) DAIRY BUFFALO MODULE The dairy buffalo module is a facility whereby PCC entrusts purebred dairy buffaloes to qualified farmer-trustees, families, company, corporation, cooperative or individual entrepreneurs capable of operating a dairy farm business. The entrustment follows either a Modified “Paiwi” scheme or Dairy Buffalo Multiplier Farm (DBMF) scheme wherein the trustee is expected to take care of the animal, maintain animal and production records, provide necessary inputs and other obligations stipulated in the Modified “Paiwi” contract or DBMF contract; and continuously engage in dairy business following approved practices and technologies provided by PCC. a. Modified “Paiwi” or Trusteeship Scheme.

The farmer-trustee takes ownership of the original animal on the condition that he/she fully commits to the provisions stipulated in the contract. All calves of the original animal will be co-owned by PCC and the farmer-trustee on a 50:50 scheme. Farmer trustee may opt to buy the PCC’s share in each calf or the other way around. Dairy buffalo module under the modified “paiwi” or trusteeship scheme can be availed of in two ways: (B.1.1.) Cooperative Dairy Module, and (B.1.2.) Family Dairy Module - Qualified family or families may avail of five (5) to ten (10) head dairy buffaloes in case they are already into dairying activity using crossbred or native carabaos for around five years or more. This is prioritized in areas with at least 100 breedable animals and where a dairy cooperative does not exist yet. Moreover, these trustee families have to agree first to later organize themselves into a dairy association or cooperative. Several changes in the contract agreement of the Paiwi Scheme were made by PCC management, the following significant amendments are as follows:



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i. Type 3A

Farmer beneficiary’s liability in case of death of animal due to negligence and blacklisting of negligent farmer beneficiary; and

Ownership of the original dairy animal will be transferred to the farmer beneficiary with condition that PCC retains the right to withdraw the animal in case the later will be proven to have violated the provisions of the agreement.

ii. Type 5

Ownership of the original dairy carabao is transferred to the farmer beneficiaries with attached Special Power of Attorney with Waiver of Rights in favour of the PCC on the case that the farmer beneficiary violates the provisions in the contract; and

The PCC or authorized representative may file a case against the farmer if it is found guilty to the reason of animal’s death, lost or stolen.

b. Dairy Buffalo Multiplier Farm (DBMF) Scheme: Farm owners/corporation/ company/cooperative that are capable of operating and would like to engage in a semi-commercial/commercial dairy buffalo farm business may avail of 20 (riverine-type) heifers or more. A 30-day period from the date of receipt of the animals shall be observed under this scheme. Ownership of the original animals will be transferred to the DBMF operator after it has been fully paid according to the contract. The PCC has the first option to buy succeeding calves produced by the original stocks and the decision will be made on or before the calf reaches 12th month of age

2) BULL LOAN PROGRAM

Purebred dairy-type bulls are loaned out to qualified farmers for natural mating with purebred dairy-type buffaloes, crossbreds and native carabaos in areas where AI services are limited and not readily available. This



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service is an integral part of the enetic improvement program aimed at producing animals with improved productivity for milk and meat, without disregard to draft power. Bulls for loan are availed of for the following purposes: (1) to service purebred dairy-type buffaloes and crossbreds in a dairy module under the cooperative/association/dairy-buffalo multiplier farm schemes; and (2) to service native or crossbred carabaos for crossbreeding (upgrading) program in the villages. Repayment Scheme: i. Loan Scheme 1: Bulls servicing purebred and

crossbred dairy-type buffaloes under the cooperative/association/dairy buffalo multiplier farm. Bulls loaned under this scheme will be PCC-owned and continuously replaced every three to four years to avoid inbreeding.

ii. Loan Scheme 2: Bulls to be used in the carabao crossbreeding (upgrading) in the villages. A junior bull (2.5 years old and below) and socialized, is considered paid in full when it has produced 25 calves. This is subject to proper proof and certification from the Municipal Agriculturist, Veterinarian or Livestock Inspector.

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