By ALBERT CASTRO

San Miguel Corp., Southeast Asia's biggest food and drinks group, will spend up to $1 billion in a venture with the Kuok group to develop one million hectares of farm land, and use the produce to support its food businesses. Eduardo Cojuangco, San Miguel chairman said.

The project is under an arrangement with the government. The two companies will invest up top $1,000 per hectare.

San Miguel and the Kuok Group of Hong Kong-based billionaire Robert Kuok would split a 30 percent equity infusion in the project while the remaining 70 percent would be raised through long-term debt issues, San Miguel President Ramon Ang said.

"Our priority is always rice, corn, sugar, coconut, and maybe later on other crops like palm," Ang said, adding San Miguel will convert most of the produce into animal feed.

"We have feedmills so we can use it," he said.

Rice would be used for beer fermentation, Ang said.

Their investment through funding and technical assistance will help local farmers weather the impact of the high commodity prices.

"Food security is a global issue. But here in the Philippines, we are feeling the effect even more. Often when food crises happen, it is not because there is insufficient food supply, but because people do not have access to them. In many parts of the world, including the Philippines, food prices have reached record levels. This is why many lower income families are no longer able to afford the kind of nutrition they needed," said San Miguel chairman Danding Cojuangco.

"There are many factors that have led to the present crisis.... have all put tremendous pressure on farm lands and are changing the face of farming. The skyrocketing prices of fossil fuel, which affects not only farming but also the transportation of goods, as well as in prices of fertilizes have also had a major impact on food supply and food prices," said Kuok Group chairman Robert Kouk.

The project named "Feeding our Future" will have the Department of Agriculture and the Department of Agrarian Reform identify potential land for crop cultivation all over the Philippines where particular crops approved by both companies will be planted.

Marriz B. Agbon, Philippine Agricultural Development and Commercial Corp. (PADCC) said the government will use the country's existing community-based forestry management (CBFM) areas and DAR untenured areas for the project to which the two government agencies has identified a total of 3.6 million of potential lands.

Agbon said the government has identified about 100,000 hectares as priority one areas in Region II, IVB and Mindanao for the project, and another 240,000 priority two areas for recommendation to San Miguel and Kuok.

Kuok Group chief executive officer Edward Kuok said the project is "a shift from small pilot areas to developing a national program."

Ang said San Miguel would handle the business under its food group division.

Foreign funds yesterday bought a special block of P1.8 billion worth of San Mig "B" shares yesterday.

Claire Quiray, Accord Capital Equities, Inc. analyst, said investors see the new project as San Miguel's way of using its huge cashflow.

San Miguel is said to generate P102 billion in cashflow balance as of Q1.

Jomar Lacson, Campos Lanuza & Co., Inc., head of research, said the new venture might be San Miguel's response on the brickbats it received after it tried to venture into non-allied businesses early on its effort to diversify operations.

"This may be an assurance that they are not leaning further away form their core competencies. Remember that San Miguel is a food-based business and they were criticized when they tried to get into the energy and mining business which is not their core business," said Lacson.

Lacson however said that the new project of San Miguel also entails risk, given that the Philippines is located in the "typhoon alley" in Asia Pacific.

"A strong typhoon could affect the yield of the farms," said Lacson.

San Miguel, partly owned by Japan's Kirin Holdings, has a near monopoly of the local market for beer. It also has interests in livestock feed, poultry and hogs.

"We can go to the market and issue 25-year bonds," Ang said.

Ang said the country will benefit from the expertise of the Kuok Group, which owns Wilmar International, the world's largest listed palm oil trader.

"We are ready to help our government in any way possible, whether it is providing seed money to help farmers pay for shallow wells, basic agricultural inputs such as hybrid seeds and fertiliser, and extending technical expertise," Ang said in a statement.

San Miguel is looking to break ground at its first farm cultivation project next month.