compelet gcsr 2003

TABLE OF CONTENT

Sr.no Particulars Page no.

01 Summary of Sem III 01

02 Summary of Sem IV 08

03 Introduction to Indian/Philippines Dairy Industry 18

04 Introduction to Company 26

05 SWOT Analysis of Company 27

06 FDI in India/Philippines 28

07 Policies and Norms of Import/Export 55

08 Global Strategies of Company 63

09 Business Opportunities 79

10 Conclusion 82

11 Bibliography 83

1

SUMARY OF REPORT SEM III

The Philippine investment in India is confined to the sectors of telecom, reprocessing

of waste materials and human resources development.

They also expand in the areas of investment in biotechnology, IT, health care, human

resources development and energy sector.

In order to further facilitate bilateral economic cooperation, various institutional

mechanisms have been set up, which conduct regular meetings in both the countries.

The Philippine investment in India is confined to the sectors of telecom, reprocessing

of waste materials and human resources development.

The two countries are also trying to expand the areas of investment in biotechnology,

IT, health care, human resources development and energy sector.

India’s total trade with the Philippines stood at US$730 million in 2006 with

Total Indian exports at US$490 million,

imports of US$235 million.

The major items of Indian exports to the Philippines are iron and steel manufactures

and tools,

frozen buffalo meat,

rice and wheat,

electrical machinery,

pharmaceutical products and

Transport equipment.

Both countries have been competing against each other in sectors such as

Business process outsourcing (BPO),

Medical care,

Agro-products and private businesses interaction.

2

Dairy industry in Philippine

Introduction

Philippines are the second largest agriculture importer in dairy products after wheat.

Philippines are producing less than 1% of the dairy products it consumes in a year.

There are two major sectors that make the Philippines are milk industry. A vast

importing and processing sector and a small milk producing sectors. Importing and

processing sector provide 95% of milk to the Philippines and second sector provide

remaining of the supply. Out of 95% of imported milk 80% is in powder form.

Market Opportunity

Increase in local production

Local production is growing at an annual rate of 5%

Increase on local production from 13.8 thousand MT in 2008 to 14.3 in 2009.

2010 production forecasted at 15.5 thousand MT.

Increase in consumption

Increase in per capita consumption from 16 kg/yr in 2002 to 19 kg/yr in 2009.

Increase in total consumption of about 1717.6 thousand MT in 2008 to 1752.6 thousand MT

in 2009 or an annual average increase of 2%.

2010 consumption forecasted at 1786.2 thousand MT.

PESTEL Analysis

Political Factor

Agro industryPhilippines honesty scheme is pair of the Supreme Court. There is a great level of criminality

due to country’s unbalance and for that death penalty has been added to increase stability

3

Dairy industrySince 2001 to current time, a number of trends in local dairy sector have help to increase

speed growth. The law and the national development plan promote smallholder dairying, as

contained in the following relevant provisions.

Economical Factor

Agro industryEconomy has been on a solid path of economic expansion. The government has persuaded a

series of govt reforms to increase the industry environment.

Dairy industryThe dairy market generates sales amounting to US$ 1.1 billion annually.

Australia, New Zealand and the USA supply 80 percent of milk imports.

In 2002, Philippines imported some 215 million kg of milk and milk products at a cost of Php

17.3 billion (US$ 346 million).

Social factor

Agro industryRice and coconut is a main clip for a man serving of food for Filipino men cannot have

enough money to eat without rice.

Enjoys food in restaurants

Tipping is relatively common in restaurants , hotels.

Dairy industryThe Filipino peoples enjoy milk with daily meals.

The demand of milk and other things related with milk increased in day by day.

Technological factor

Agro industryInnovative Rainwater Harvesting System(IRHS): to utilize the patented plastic flexible piping

connection for farming.

4

Dairy industryPhilippines still use old machineries to produce product with milk. Therefore Machineries for

manufacturing have to Import from outside of Philippines.

The advance machinery for making ice-creams is still not well developing.

There is still lack of proper storage facility of ice-cream in bulk.

Ecological factor

Agro industryA number of volcanoes are dynamic, and the island has been subject to constructive

earthquake.

A marine temperature type of weather conditions and has two distinct season raining and dry

season affects the industries.

Dairy industryType I : Two different periods with extreme rain phase from June to September and a dry

phase this lasts from three to six or seven months.

Type II : No dry period with a very distinct extreme rain period from December to February.

Type III : No distinct extreme rain phase with a short dry season lasting only from 1-

3months.

Legal factor

Agro industryMinimum age to be employed to work in the Philippines one must be at least 15 years old.

Liberalized policy of Philippines.

Dairy industryPresence of the NDA created under the National Dairy Development Act of 1995 to ensure

the quicker expansion of the Philippine dairy industry through policy track and program

application.

SWOT ANALYSIS

Strengths:

Agro industryTheir economic development strength of agricultural products includes rice, corn, cassavas,

mangoes, pineapples, coconuts, sugarcane, pork and fish.

5

Dairy industry To maximize their returns from a premium product, the organizations have to focus on supply

fresh milk to the customer.

The business should focus on the very clear, rising liquid milk market, which involves

demand from middle to upper income group customers, the specialty coffee shops, and

hotels.

Weaknesses:

Agro industry Underdeveloped agriculture sector: Philippines agriculture suffers from low productivity

because of needs of irrigation system, rural infrastructure, post harvest facilities.

Poor state of infrastructure: below standard foundation or little organization at all.

Dairy industryPeriodic vacillations in milk production pattern, area difference of milk supply and species-

wise variation (goat, cow, buffalo etc.) in milk quality expected through milk plants maintain

to pose serious handicaps.

Opportunity:

Agro industryIn Philippines there is a unique scope for innovation in product growth, covering and

presentation.

Expanding market will creation of huge self-employment opportunities and job.

Exporting flowers to India.

Dairy industry Company can introduce value-added products like shrikhand, ice creams, paneer, khoa, dairy

sweets, etc. This will lead to a greater existence and flexibility in the market place beside by

opportunity in the field of brand building.

Threat:

Agro industryA high population growth rate and unsustainable natural resources depletion.

Little access for poor people to productive assets and enterprise opportunities.

6

Dairy industryThe Milk vendors are un-organized sector Today milk vendor are occupy the pride of place in

the industry.

Innovative Product can give either higher profit or higher loss also, so the risk in business is

more.

Porter’s Five Forces Analysis

Threat of new entrants to the industry: LOWSome outstanding characteristics of the milk industry include stable growth, high profit, and

comparatively stable market share. Therefore, in order to enter the market, companies must

have an abundant source of capital to overcome such barriers as:

Product specification: Most major dairy companies in the world have participated in

Vietnam’s dairy market, who have already had a certain and stable market share.

Large capital requirement: Capital source must be abundant enough to cover advertisement

and R&D expenses.

Interview

Philippines has traditionally been outside India's trade radar for a long time. Even

after our 'Look East' policy was launched in the early 1990's, bilateral trade with the

Philippines did not pick up whereas our trade with other countries such as Singapore,

Malaysia, Indonesia, Thailand and Vietnam grew rapidly.

One reason is the aggressiveness shown by these countries as far as trade with India is

concerned. Philippines on the other hand remained an onlooker. Also missing in the

Philippines is the presence of enough Indian companies with effective lobbying capacity back

home.

If bilateral trade is to expand, Philippines has to reciprocate the interest shown by

Indian businessmen. They could start by liberalising the visa regime for Indians further (some

liberalisation under GoaI/Embassy pressure has occurred in the last two years.)

7

CONCLUSIONS

The agriculture sector has been a major player in the Philippine economy. With

changing national and global trends, the sector has identified a number of strategies to

be competitive. A strategy that has helped alleviate poverty and increase productivity

is crop diversification. The passage by the Philippine Congress of the Agriculture and

Fisheries Modernization Act in 1997 is a giant leap towards reaping the previous

efforts of both government and private sectors on crop diversification planting one or

more crops in-between a perennial crop.

SUMARY OF REPORT SEM III

Indian dairy Industry

The Indian dairy industry is rapidly growing, trying to keep pace with the galloping

progress around the world. As he expands his overseas operations to India many profitable

options await him. He may transfer technology, sign joint ventures or use India as a sourcing

centre for regional exports. The liberalization of the Indian economy beckons to MNC's and

foreign investors alike.

India’s dairy sector is expected to triple its production in the next 10 years in view of

expanding potential for export to Europe and the West .Indian dairy sector contributes the

large share in agricultural gross domestic products. Presently there are around 70,000 village

dairy cooperatives across the country. The co-operative societies are federated into 170

district milk producers unions, which is turn has 22-state cooperative dairy federation. Milk

production gives employment to more than 72mn dairy farmers.

Major PlayersThe packaged milk segment is dominated by the dairy cooperatives. Gujarat Co-

operative Milk Marketing Federation (GCMMF) is the largest player. All other local dairy

cooperatives have their local brands (For e.g. Gokul, Warana in Maharashtra, Saras in

Rajasthan, Verka in Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil Nadu, etc). Other

private players include J K Dairy, Heritage Foods, Indiana Dairy, Dairy Specialties, etc.

8

Amrut Industries, once a leading player in the sector has turned bankrupt and is facing

liquidation

Export PotentialIndia has the potential to become one of the leading players in milk and milk product exports.

Locational advantage : India is located amidst major milk deficit countries in Asia and

Africa. Major importers of milk and milk products are Bangladesh, China, Hong Kong,

Singapore, Thailand, Malaysia, Philippines, Japan, UAE, Oman and other gulf countries, all

located close to India.

Low Cost Of Production : Milk production is scale insensitive and labour intensive. Due to

low labour cost, cost of production of milk is significantly lower in India.


Introduction



There are two major sectors that make the Philippines are milk industry. A vast importing and

processing sector and a small milk producing sectors. Importing and processing sector

provide 95% of milk to the Philippines and second sector provide remaining of the supply.

Out of 95% of imported milk 80% is in powder form.

Market Opportunity

Increase in local productionLocal production is growing at an annual rate of 5%



Increase in consumptionIncrease in per capita consumption from 16 kg/yr in 2002 to 19 kg/yr in 2009.




9

ALASKA MILK CORPORATION

Alaska Milk Corporation (AMC) is the leading milk company in the Philippines. It

has consistently maintained its leadership in the canned liquid milk category (evaporated and

sweetened condensed), thus, paving the way into growing Alaska into a mega-brand by

competing in the powdered, ready-to-drink, and creams market, among others.

In 2007, AMC further expanded its liquid milk portfolio by licensing Carnation and

Milkmaid from Nestle and acquiring Alpine, Liberty and Krem-Top. This development led to

AMC’s move to a dominant position in the category.

Apart from growing its core businesses, AMC endeavours to diversify and explore

opportunities in related consumer product categories. In March 2012, Alaska Milk

Corporation partnered with Royal Friesland Campina, the fifth largest dairy company in the

world.

AMC continues to further its mission of nourishing Filipino dreams, bringing in

affordable nutrition across different life stages to every Filipino home for over 40 years. It is

committed in providing nutrition to Filipino households, ensuring high quality standards in its

products, developing innovative marketing plans and programs, and promoting outdoor sports

as part of a healthy lifestyle.

To promote a healthy lifestyle and the brand Alaska, AMC heavily invests in sports

with its ownership of the 14-time champion professional basketball team (Alaska Aces) in the

Philippine Basketball Association (PBA) while maintaining the Alaska Power Camp, a sports

development program involving youth team sports like basketball and football and the

organizing of the 1st Alaska Basketball Cup and the 18th Alaska Football Cup—the single

largest football tournament in the Philippines.

Aside from the Alaska grassroots sports program, in 2011, AMC partnered with the

Jr. NBA Philippines—bringing in the most prestigious basketball camp in the country, NBA-

style. It aim to build participation and enhance skill development among players and coaches

by focusing on fundamental skills and instill values such as Sportsmanship, Teamwork,

Positive Attitude, and Respect or STAR values. As the partnership enter its second

agreement, the Jr. NBA-Alaska program brings the Jr. WNBA in the Philippines for the first

time.

In addition, AMC over the last four years is also the title sponsor of the Iron Kids

triathlon races in the country. Alaska Iron Kids is the junior version of the Ironman.

10

AMC looks beyond selling milk– it sells nutrition and by doing so, the Company and

brand Alaska is doing its part in nation building. Through youth sports development

programs, Alaska Milk is able to help nourish children for them to develop into champions in

the field of interest and, in general, in life.

Today, Alaska is still best known for its tagline “Sa sustansiya’tlasa, wala pa ring

tatalosa Alaska” (In nutrition and taste, nothing beats Alaska).

SWOT Analysis of Alaska dairy

STRENGTHS

1. New technological innovations are there by having higher operational efficiency in

the actions taken by them.

2. It is very well known brand in Philippines.

3. There is a great expertise in management which enables to perform managerial task

effectively and efficiently.

4. There is availability of skilled manpower.

5. This dairy is part of Royal Friesland Campina. The leading dairy company in the

Netherland.

WEAKNESSES

1. There is problem in decision making persuaded by the current events.

2. This dairy having a high dependency on imported raw materials increases

vulnerability against availability and price fluctuations.

3. In terms of marketing strategy, ad campaigns are not eye catching.

4. Some facilities need renovations.

OPPORTUNITIES

1. There is continuous growth in the Philippine economy in a year.

2. There is a continuous growth of the population in the country.

3. Competitors may be slow to adopt the technology.

4. There should be growth in the value by using new equipment’s that the company will

be using.

5. Exporting of the Alaska product in the different countries.

11

THREATS

1. There is a local major competitor named-Angel brand.

2. Economic problems experiencing in Europe.

3. The increasing rate of raw material affects the whole dairy.

4. Economic problems like not enough infrastructures, increasing population affects the

dairy itself in producing the products.

5. Different cost of utilities such as crude oil, diesel, electricity, water etc can be matter

for arranging the dairy.

FDI ON INDIA

India has been ranked at the second place in global foreign direct investments in 2010

and will continue to remain among the top five attractive destinations for international

investors during 2010-12 period, according to United Nations Conference on Trade and

Development (UNCTAD) in a report on world investment prospects titled, 'World Investment

Prospects Survey 2009-2012'.

The 2010 survey of the Japan Bank for International Cooperation released in

December 2010, conducted among Japanese investors, continues to rank India as the second

most promising country for overseas business operations.

A report released in February 2010 by Leeds University Business School,

commissioned by UK Trade & Investment (UKTI), ranks India among the top three countries

where British companies can do better business during 2012-14.

According to Ernst and Young's 2010 European Attractiveness Survey, India is

ranked as the 4th most attractive foreign direct investment (FDI) destination in 2010.

However, it is ranked the 2nd most attractive destination following China in the next three

years.

Moreover, according to the Asian Investment Intentions survey released by the Asia

Pacific Foundation in Canada, more and more Canadian firms are now focusing on India as

an investment destination. From 8 per cent in 2005, the percentage of Canadian companies

showing interest in India has gone up to 13.4 per cent in 2010.

12

FDI IN PHILIPPINES

The latest value for Foreign direct investment, net (BoP, current US$) in Philippines was

($1,253,000,000.00) as of 2011. Over the past 6 years, the value for this indicator has

fluctuated between $620,000,000.00 in 2007 and ($2,818,000,000.00) in 2006.

Definition: Foreign direct investment are the net inflows of investment to acquire a lasting

management interest (10 percent or more of voting stock) in an enterprise operating in an

economy other than that of the investor. It is the sum of equity capital, reinvestment of

earnings, other long-term capital, and short-term capital as shown in the balance of payments.

This series shows total net, that is, net FDI in the reporting economy from foreign sources

less net FDI by the reporting economy to the rest of the world. Data are in current U.S.

dollars.

Year Value

2005 ($1,665,000,000.00)

2006 ($2,818,000,000.00)

2007 $620,000,000.00

2008 ($1,285,000,000.00)

2009 ($1,604,000,000.00)

2010 ($682,000,000.00)

2011 ($1,253,000,000.00)

The Philippines moved up significantly on an annual index of business

competitiveness and now ranks 72nd out of 132 countries on the World Economic Forum's

enabling trade index, up from 92nd place two years ago.

The Global Enabling Trade Report 2012 ranks countries based on market access,

border administration, transport and communications infrastructure, and business

environment. The Philippines showed the greatest improvement in the area of market access,

moving up 50 places from 64th in 2010 to 14th in 2012. Improvement was also seen in the

category of efficiency of import-export procedures.

Net inflows of foreign direct investments (FDI) to the Philippines for the first two

months of 2012 were $850 million, three times higher than the $335 million during the same

period in 2012. Gross inflows for the first two months of 2012 were $927 million.

13

The Philippines' strong macroeconomic fundamentals are making the Philippines an

attractive environment to invest at a time of continuing concerns over the sovereign debt

crisis in some parts of Europe and the moderation in global activity

POLICY AND NORMS Of INDIA’S IMPORT/EXPORT

India allows imports of milk and milk products without quantitative limitations,

although tariff rate quotas apply and an import permit is required. NFDM imported above the

TRQ attracts a 60 percent basic duty and above quota butter oil imports are charged a 30

percent basic duty

On June 11, 2013, the Food Safety and Standards Authority of India extended the import prohibition on milk and milk products from China for an additional year until June 22, 2014. The ban includes milk, milk products, chocolates and chocolate products, candies, confectionary, and food preparations made with milk or milk solids originating in China.

Philippine Dairy Imports

Dairy products are currently the country’s third largest agricultural import after wheat

and soybean meal. Despite an expanding food processing industry, total 2013 imports

of dairy products are forecast to slightly decline from the previous year’s level of

1,955 MT (LME) to 1,900 MT (LME) due to high global prices early in the year. Post

expects imports in 2014 to increase slightly to 2,000 MT (LME) as growth in local

demand will likely continue to exceed any increases in domestic supply.

GLOBAL SATRATEGY

ALASKA MILK CORPORATION is one of the leading manufacturers of milk

products in the Philippines. It has established a strong brand heritage among Filipino

consumers with its traditional liquid canned milk products marketed under the Alaska label.

The Company has likewise established a strong presence in the powdered milk business and a

growing position in the UHT ready-to-drink and ready-to-use segments.

Today, more than ever, Alaska endeavours to maintain and reinforce its formidable

position in the Philippine milk market. We seek to cater to a new Generation of consumers by

14

building on the strengths of our portfolio of trusted Brands and capitalizing on the

possibilities created by a continually evolving consumer environment.

For over thirty years, Alaska Milk Corporation has proven its worth as a company of

people driven by a passion to deliver unparalleled value to its consumers and customers

through its quality products and superior services. We take great pride in providing affordable

nutrition for families across the country under a portfolio of trusted brands. Through all the

years of our corporate existence, our strength in the industry has always been our people. We

rely on them – their integrity, skills, talents, enthusiasm and commitment. Holding ourselves

to the highest standards ensures that we achieve our goals in a manner consistent with our

corporate values.

BUSINESS OPPORTUNITIES IN PHILIPPINES

India and the Philippines enjoy healthy and cordial bilateral economic relations. Our bilateral trade has steadily grown over the years -- from $180 million in 1998 to $372 million in 2004 -- with Indian exports to the Philippines at $283 million and imports from the Philippines at $89 million.

However, it remains below potential. India's share in Philippines' global trade is a negligible 0.46 per cent. Our exports are 0.7 per cent of Philippine's global imports, and Philippine's exports to India are 0.22 per cent of their global exports.

Philippines has traditionally been outside India's trade radar for a long time. Even after our 'Look East' policy was launched in the early 1990's, bilateral trade with the Philippines did not pick up whereas our trade with other countries such as Singapore, Malaysia, Indonesia, Thailand and Vietnam grew rapidly.

One reason is the aggressiveness shown by these countries as far as trade with India is concerned. Philippines on the other hand remained an onlooker. Also missing in the Philippines is the presence of enough Indian companies with effective lobbying capacity back home.

If bilateral trade is to expand, Philippines has to reciprocate the interest shown by Indian businessmen. They could start by liberalizing the visa regime for Indians further (some liberalization under GoI/Embassy pressure has occurred in the last two years).

The Philippines pharmaceutical market heavily dependent on bulk importation of basic raw materials, chemicals, semi-finished and finished products from the US, Europe, Canada and Australia, among others. Annual imports are about $450 million.

15

Manufacturing merely involves the formulation and processing of drugs and pharmaceuticals into various forms and dosages, repacking of imported bulk drugs and packaging them for distribution. Since the bulk of the imports are from multinational companies, medicine prices in the country are about 5 to 15 times higher than those in India.

There are two main reasons for the below-potential Indian pharma exports to the Philippines -- a strong multinational lobby working against imports of inexpensive medicines from countries like India, and stringent registration procedures of the Philippines' Bureau of Food and Drugs. We in the embassy have been countering the mischief perpetrated by the multinational lobby, by making the government, companies and people aware of the high quality and low-priced drugs available from India.

We have enlisted the support of the Philippine International Trading Corporation, a government agency, which has been importing medicines worth about $1.5 million a year from India for the last few years.

The PITC has been waging a war on the multinationals and has been promoting affordable-priced medicines from India and other countries. These medicines are supplied to government hospitals and to the 'Boutika Ng Bayan' retail outlets being set up by the Philippine government to make medicines affordable to the poor.

We have also put pressure on the BFAD to simplify the registration procedure for Indian drugs and shorten the time taken. We have been able to have the time shortened from about two years to about a year. It is a prerequisite for any drug imported into the Philippines to be registered with BFAD first. There are now over 50 Indian companies whose products are registered with BFAD.

At present, major items of Indian exports to Philippines are: frozen buffalo meat (for processing), pharmaceuticals, iron and steel manufactures and tools, textile yarn, petrochemicals, auto and motorcycle parts, cereals, organic chemicals, electronic components, etc.

Major imports from Philippines are: semi-conductors, inorganic chemicals, auto parts, newsprint, minerals, garments and miscellaneous industrial products.

There is potential for growth in our exports in pharmaceuticals, IT services, animal feed, iron and steel, auto parts, cereals, chemicals and milk. As regards exports from the Philippine, potential exists in minerals, seaweed, processed foods and auto parts.

16

Opportunities in Dairy Sector.Jul. 12 – As the demand for dairy products increases from the member nations of the Association of Southeast Asian Nations (ASEAN) , India’s dairy sector seems poised to fill the gap, and can expect a large bump in its milk exports to the region in the near future.

Milk consumption throughout the ASEAN region, especially throughout the ASEAN six majors – which is made up of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam – has gone up in recent years thanks to increasing birth rates, improving diets, rapid urbanization and an increasingly health-conscious middle class in the countries. As a result, these countries have been increasingly dependent on the import of dairy products.“Across Asia, India is the only country with surplus milk. Above all, [India has] the location advantage to cater to the Southeast Asian market,” noted R S Sodhi, Managing Director of Gujarat Cooperative Milk Marketing Federation, which produces India’s Amul milk brand.

Indian skimmed milk powder (SMP) reportedly costs around US$3,450 a ton. In comparison, competing nations such as Australia and New Zealand charge between US$3,550-US$3,650 a ton.

“We expect dairy consumption across the ASEAN-6 to grow 2.4% a year through to 2020. This creates a requirement for an extra three billion liters of milk,” said Michael Harvey, analyst at Australia-based food bank Rabobank.

Indian SMP exports to the ASEAN region is currently 5000 tons a year, but this number is expected to jump to over 10,000 tons by the end of this year. India’s total milk powder exports are likely to touch 100,000 tons this year.

The Indian government lifted the ban on the export of milk powder just last June. This development comes off the heels of recent news that Australia and New Zealand have been gunning to fill the milk export void in the ASEAN region.

CONCLUSION

As Philippines is agriculture based country just like an India, and importing its 80% of dairy products from other countries, so it is an vast opportunity for India in the dairy sector, because India is the world leader in Milk producing and exporting. India already having good trade relation with Philippines in other sectors, except dairy sector, Indian Government has launched many policies to increase the bilateral trade between the ASEAN countries, like “LOOKING EAST”. Recently Indian government lifted the ban on the export of milk powder to increase and encourage Indian dairy sector to increase export in ASEAN.

17

Indian dairy Industry

The Indian dairy industry is rapidly growing, trying to keep pace with the galloping

progress around the world. As he expands his overseas operations to India many profitable

options await him. He may transfer technology, sign joint ventures or use India as a sourcing

centre for regional exports. The liberalization of the Indian economy beckons to MNC's and

foreign investors alike.

India’s dairy sector is expected to triple its production in the next 10 years in view of

expanding potential for export to Europe and the West .Indian dairy sector contributes the

large share in agricultural gross domestic products. Presently there are around 70,000 village

dairy cooperatives across the country. The co-operative societies are federated into 170

district milk producers unions, which is turn has 22-state cooperative dairy federation. Milk

production gives employment to more than 72mn dairy farmers.

While world milk production declined by 2 per cent in the last three years, according

to FAO estimates, Indian production has increased by 4 per cent. The milk production in

India accounts for more than 13% of the total world output and 57% of total Asia's

production. The top five milk producing nations in the world are India ,USA, Russia,

Germany and France.

Source: Export prospects for agro-based industries, World Trade Centre, Mumbai.

Production of milk in India

Year Production in million

MT

1988-1989 48.4

1989-1990 51.4

1990-1991 53.7

1991-1992 56.3

1992-1993 58.6

1993-1994 61.2

1994-1995 63.5

1995-1996 65

1996-1997 68.5

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1997-1998 70.8

1998-1999 74.7

1999-2000(E) 78.1

2000-2001(T) 81.0

Source: DFPI, Annual Report-1999-2000

World's major milk producers

Country 1997-98 1998-99

( Approx.)

India 71 74.5

Usa 71 71

Russia 34 33

Germany 27 27

France 24 24

Pakistan 21 22

Brazil 21 27

Uk 14 14

Ukrania 15 14

Poland 12 12

New Zealand 11 12

Netherland 11 11

Italy 10 10

Australia 9 10

Growing VolumesThe effective milk market is largely confined to urban areas, inhabited by over 25 per cent of

the country's population. An estimated 50 per cent of the total milk produced is consumed

here. By the end of the twentieth century, the urban population is expected to increase by

more than 100 million to touch 364 million in 2000 a growth of about 40 per cent. The

expected rise in urban population would be a boon to Indian dairying. Presently, the

organized sector both cooperative and private and the traditional sector cater to this market.

19

The consumer access has become easier with the information revolution. The number of

households with TV has increased from 23 million in 1989 to 45 million in 1995. About 34

per cent of these households in urban India have access to satellite television channel.

Potential for further growthOf the three A's of marketing - availability, acceptability and affordability, Indian dairying is

already endowed with the first two. People in India love to drink milk. Hence no efforts are

needed to make it acceptable. Its availability is not a limitation either, because of the ample

scope for increasing milk production, given the prevailing low yields from dairy cattle. It

leaves the third vital marketing factor affordability. How to make milk affordable for the

large majority with limited purchasing power? That is essence of the challenge. One practical

way is to pack milk in small quantities of 250 ml or less in polythene sachets. Already, the

glass bottle for retailing milk has given way to single-use sachets which are more

economical. Another viable alternative is to sell small quantities of milk powder in mini-

sachets, adequate for two cups of tea or coffee.

Marketing Strategy for 2000 ADTwo key elements of marketing strategy for 2000 AD are: Focus on strong brands and,

product mix expansion to include UHT milk, cheese, ice creams and spreads. The changing

marketing trends will see the shift from generic products to the packaged quasi, regular and

premium brands. The national brands will gradually edge out the regional brands or reduce

their presence. The brand image can do wonders to a product's marketing as is evident from

the words of Perfume Princess Coco Channel: In the factory, we pack perfume; in the market,

we sell hope!

Emerging Dairy MarketsFood service institutional market: It is growing at double the rate of consumer market

Defence market: An important growing market for quality products at reasonable prices

Ingredients market: A boom is forecast in the market of dairy products used as raw material

in pharmaceutical and allied industries

Parlour market: The increasing away-from-home consumption trend opens new vistas for

ready-to-serve dairy products which would ride piggyback on the fast food revolution

sweeping the urban India.

20

India, with her sizable dairy industry growing rapidly and on the path of modernization,

would have a place in the sun of prosperity for many decades to come. The one index to the

statement is the fact that the projected total milk output over the next 15 years (1995-2010)

would exceed 1457.6 million tonnes which is twice the total production of the past 15 years!

Major PlayersThe packaged milk segment is dominated by the dairy cooperatives. Gujarat Co-operative

Milk Marketing Federation (GCMMF) is the largest player. All other local dairy cooperatives

have their local brands (For e.g. Gokul, Warana in Maharashtra, Saras in Rajasthan, Verka in

Punjab, Vijaya in Andhra Pradesh, Aavin in Tamil Nadu, etc). Other private players include J

K Dairy, Heritage Foods, Indiana Dairy, Dairy Specialties, etc. Amrut Industries, once a

leading player in the sector has turned bankrupt and is facing liquidation.

Export PotentialIndia has the potential to become one of the leading players in milk and milk product exports.

Locational advantage : India is located amidst major milk deficit countries in Asia and

Africa. Major importers of milk and milk products are Bangladesh, China, Hong Kong,

Singapore, Thailand, Malaysia, Philippines, Japan, UAE, Oman and other gulf countries, all

located close to India.

Low Cost Of Production : Milk production is scale insensitive and labour intensive. Due to

low labour cost, cost of production of milk is significantly lower in India.

Concerns in export competitiveness areQuality : Significant investment has to be made in milk procurement, equipment’s, chilling

and refrigeration facilities. Also, training has to be imparted to improve the quality to bring it

up to international standards.

Productivity : To have an exportable surplus in the long-term and also to maintain cost

competitiveness, it is imperative to improve productivity of Indian cattle.

There is a vast market for the export of traditional milk products such as ghee, paneer,

shrikhand, rasgolas and other ethnic sweets to the large number of Indians scattered all over

the world.

21

What does the Indian Dairy Industry has to Offer to Foreign Investors?India is a land of opportunity for investors looking for new and expanding markets. Dairy

food processing holds immense potential for high returns. Growth prospects in the dairy food

sector are termed healthy, according to various studies on the subject.

The basic infrastructural elements for a successful enterprise are in place.

Key elements of free market system

raw material (milk) availability

an established infrastructure of technology

supporting manpower

An entrepreneur's participation is likely to provide attractive returns on the investment in a

fast growing market such as India, along with an export potential in the Middle East,

Singapore, Malaysia, Indonesia, Korea, Thailand, Hong Kong and other countries in the

region.

Among several areas of potential participation by NRIs and foreign investors, the following

list outlines a few promising opportunities

Biotechnology: Dairy cattle breeding of the finest buffaloes and hybrid cows

Milk yield increase with recombinant somatotropin

Recombinant chymosin, acceptable to vegetarian consumers

Dairy cultures, probiotics, dairy biologics, enzymes and colouring materials for food

processing

Fermentation derived foods and industrial products alcohol, citric acid, lysine, flavour

preparations, etc.

Bio preservative ingredients based on dairy fermentation, viz., Nisin, pediococcin,

acidophilic, Bulgarian contained in dairy powders.

Dairy/food processing equipment:Potential exists for manufacturing and marketing of cost competitive food processing

machinery of world-class quality.

Food packaging equipment :

Opportunities lie in the manufacturing of both machinery and packaging materials

that help develop brand loyalty and a clear edge in the marketing of dairy foods.

22

Distribution channels:

For refrigerated and frozen food distribution, a world class cold chain would help in

providing quality assurance to the consumers around the region.

Product development: Dairy foods can be manufactured and packaged for export to countries where Indian

food enjoys basic acceptance. The manufacturing may be carried out in contract

plants in India. An option to market the products in collaboration with local

establishments or entrepreneurs can also be explored. Products exhibiting potential

include typical indigenous dairy foods either not available in foreign countries or

products whose authenticity may be questionable. Gulabjamuns, Burfi, Peda,

Rasagollas, and a host of other Indian sweets have good business prospects.

Products typically foreign to India but indigenous to other countries could also be

developed for export. Such products can be manufactured in retail package sizes and

could be produced from milk of sheep, goats and camel. Certain products are

characteristically produced from milk of a particular species. For example, Feta

cheese is used in significant tonnage, in Iran. Sheep milk is traditionally used for

authentic Feta cheese. Accordingly, India's goat and sheep herds can be utilized for

the manufacture of such authentic products.

Ingredient manufacture:Export markets for commodities like dry milk, condensed milk, ghee and certain

cheese varieties are well established. These items are utilized as ingredients in foreign

countries. These markets can be expanded to include value-added ingredients like

aseptically packaged cheese sauce and dehydrated cheese powders.

Cheese sauce: Canned cheese sauce is made from real cheese to which milk, whey,

modified food starch, vegetable oil, colourings and spices may be added. Cheese

sauce is useful in kitchens for the preparation of omelette, sandwiches, entrees, and

soups. In addition, cheese sauce is used as a topping on potatoes and vegetables and

may be incorporated in pasta dishes.

Cheese powders: Cheese powders are formulated for dusting or smearing of popular

snacks like potato chips, crackers, etc. They impart flavour and may be blended with

spices.

23

With the globalization of food items, an opportunity should open up for food service

and institutional markets.

Technology-driven manufacturing units:These plants would fulfil an essential need by providing a centralized and specialized

facility for hire by the units which cannot justify capital investment but do need such

services. Potential areas for state-of-the-art contract-pack units may conceivably

specialize in cheese slicing, or dicing line, cheese packaging, butter printing, and

aseptic packaged fluid products.

Training centres for continuing education:NRIs could set up technology transfer and updating centres for conducting seminars

and workshops - catering to the needs of workers at all levels of the dairy industry.

Here technical, marketing and management topics can be offered to ensure that the

manpower continues to acquire the latest know-how of their respective fields.

The entrepreneurs need powerful tools to implement their plans. Appropriate

investment and involvement by NRIs can serve as a catalyst for India's dairy food

industry leading to exploration of business potential in domestic and export trade.

Risk factors must be identified and managed by in-depth study of chosen areas so that

chances of rewards are maximized under the current liberalization climate.

Indian (traditional) Milk Products:There are a large variety of traditional Indian milk products such as

Makkhan - unsalted butter.

Ghee - butter oil prepared by heat clarification, for longer shelf life.

Kheer - a sweet mix of boiled milk, sugar and rice.

Basundi - milk and sugar boiled down till it thickens.

Rabri - sweetened cream.

Dahi - a type of curd.

Lassi - curd mixed with water and sugar/ salt.

Channa/Paneer - milk mixed with lactic acid to coagulate.

Khoa - evaporated milk, used as a base to produce sweet meats.

24

The market for indigenous based milk food products is difficult to estimate as most of

these products are manufactured at home or in small cottage industries catering to

local areas.

Consumers while purchasing dairy products look for freshness, quality, taste and

texture, variety and convenience. Products like Dahi and sweets like Kheer, Basundi,

Rabri are perishable products with a shelf life of less than a day. These products are

therefore manufactured and sold by local milk and sweet shops. There are several

such small shops within the vicinity of residential areas. Consumer loyalty is built by

consistent quality, taste and freshness. There are several sweetmeat shops, which have

built a strong brand franchise, and have several branches located in various parts of a

city.


Introduction



There are two major sectors that make the Philippines are milk industry. A vast importing and

processing sector and a small milk producing sectors. Importing and processing sector

provide 95% of milk to the Philippines and second sector provide remaining of the supply.

Out of 95% of imported milk 80% is in powder form.

Market Opportunity

Increase in local productionLocal production is growing at an annual rate of 5%



Increase in consumptionIncrease in per capita consumption from 16 kg/yr in 2002 to 19 kg/yr in 2009.




25

ALASKA MILK CORPORATION

Alaska Milk Corporation (AMC) is the leading milk company in the Philippines. It

has consistently maintained its leadership in the canned liquid milk category (evaporated and

sweetened condensed), thus, paving the way into growing Alaska into a mega-brand by

competing in the powdered, ready-to-drink, and creams market, among others.

In 2007, AMC further expanded its liquid milk portfolio by licensing Carnation and

Milkmaid from Nestle and acquiring Alpine, Liberty and Krem-Top. This development led to

AMC’s move to a dominant position in the category.

Apart from growing its core businesses, AMC endeavours to diversify and explore

opportunities in related consumer product categories. In March 2012, Alaska Milk

Corporation partnered with Royal Friesland Campina, the fifth largest dairy company in the

world.

AMC continues to further its mission of nourishing Filipino dreams, bringing in

affordable nutrition across different life stages to every Filipino home for over 40 years. It is

committed in providing nutrition to Filipino households, ensuring high quality standards in its

products, developing innovative marketing plans and programs, and promoting outdoor sports

as part of a healthy lifestyle.

To promote a healthy lifestyle and the brand Alaska, AMC heavily invests in sports

with its ownership of the 14-time champion professional basketball team (Alaska Aces) in the

Philippine Basketball Association (PBA) while maintaining the Alaska Power Camp, a sports

development program involving youth team sports like basketball and football and the

organizing of the 1st Alaska Basketball Cup and the 18th Alaska Football Cup—the single

largest football tournament in the Philippines.

Aside from the Alaska grassroots sports program, in 2011, AMC partnered with the

Jr. NBA Philippines—bringing in the most prestigious basketball camp in the country, NBA-

style. It aim to build participation and enhance skill development among players and coaches

by focusing on fundamental skills and instill values such as Sportsmanship, Teamwork,

Positive Attitude, and Respect or STAR values. As the partnership enter its second

agreement, the Jr. NBA-Alaska program brings the Jr. WNBA in the Philippines for the first

time.

In addition, AMC over the last four years is also the title sponsor of the Iron Kids

triathlon races in the country. Alaska Iron Kids is the junior version of the Ironman.

26

AMC looks beyond selling milk– it sells nutrition and by doing so, the Company and

brand Alaska is doing its part in nation building. Through youth sports development

programs, Alaska Milk is able to help nourish children for them to develop into champions in

the field of interest and, in general, in life.

Today, Alaska is still best known for its tagline “Sa sustansiya’tlasa, wala pa ring

tatalosa Alaska” (In nutrition and taste, nothing beats Alaska).

SWOT Analysis of Alaska dairy

STRENGTHS1. New technological innovations are there by having higher operational efficiency in

the actions taken by them.

2. It is very well known brand in Philippines.

3. There is a great expertise in management which enables to perform managerial task

effectively and efficiently.

4. There is availability of skilled manpower.

5. This dairy is part of Royal Friesland Campina. The leading dairy company in the

Netherland.

WEAKNESSES1. There is problem in decision making persuaded by the current events.

2. This dairy having a high dependency on imported raw materials increases

vulnerability against availability and price fluctuations.

3. In terms of marketing strategy, ad campaigns are not eye catching.

4. Some facilities need renovations.

OPPORTUNITIES1. There is continuous growth in the Philippine economy in a year.

2. There is a continuous growth of the population in the country.

3. Competitors may be slow to adopt the technology.

4. There should be growth in the value by using new equipments that the company will

be using.

5. Exporting of the Alaska product in the different countries.

27

THREATS1. There is a local major competitor named-Angel brand.

2. Economic problems experiencing in Europe.

3. The increasing rate of raw material affects the whole dairy.

4. Economic problems like not enough infrastructures, increasing population affects the

dairy itself in producing the products.

5. Different cost of utilities such as crude oil, diesel, electricity, water etc can be matter

for arranging the dairy.

Trade:

U.S. Exports to the Philippines Increase 13% in 2012

Despite record exports of $317.5 million (up 13 percent) in 2012, the Philippines

slipped one notch to become the 5th largest market for U.S. dairy products. U.S. dairy

exports in 2013 are expected to grow slightly (by about 2-3 percent), reaching $325

million by the end of the year. The top U.S. dairy exports to the Philippines in 2012

were nonfat dry milk powder ($142.7 million), buttermilk ($41.7 million) and whey

($34.4 million).








News of a late season drought in New Zealand (the top supplier to the Philippines)

and a lack of exportable supplies of skim milk powder (SMP) and whole milk powder

(WMP) from the EU led to a sharp rise in dairy prices in early 2013. Prices have since

come down but are still expected to remain relatively strong for the rest of the year.

The major country suppliers to the Philippines by volume are New Zealand with 46

percent share of total imports, the United States with 29 percent, and Australia at 8

28

percent. U.S. dairy exports to the Philippines have continued to rise dramatically due

in part to the weak U.S. dollar vis-à-vis major competitor countries, the strengthening

peso, as well as the supply problems in major dairy producing countries.

Skim Milk Powder (SMP) and Whole Milk Powder (WMP) imports currently

comprise about 56 percent of total dairy imports. SMP imports declined by five

percent while WMP imports increased 13 percent in 2012. Liquid milk imports fell 24

percent. Imports of butter and other dairy spreads also declined by 14 percent while

imports of cheese increased by 26 percent.

According to trade and industry contacts, imported dairy products are used as follows:

Skim Milk Powder: Recombined sweetened condensed milk, recombined UHT milk,

ice cream, infant and follow-on formulas, and medical nutrition formulas.

Whole Milk Powder: Recombined UHT milk, ice cream, infant and follow-on

formulas, medical nutrition formulas, and instant powdered milk.

Butter Milk Powder: Recombined sweetened condensed milk, ice cream, and

bakery.

Whey Powder: Recombined sweetened dairy creamer, ice cream, infant and follow-

on formulas, processed meat, processed food, confectionery, bakery, and animal feed.

Cheese Curd: Processed cheese, cheese spreads, and processed food.

Liquid Milk: Retail, primarily organic and extended shelf life (ESL) milk.

Cheese: Retail, quick service restaurants and fast food chains

Philippine Dairy Exports

Total dairy exports declined 53 percent in 2012 with exports of milk and cream

comprising about 98 percent of the total volume. The main countries of destination

were Malaysia (43 percent), Thailand (23 percent) and Bangladesh (12 percent).

Exports in 2013 are expected to drop even lower due in part to increasing prices of

Philippine dairy products as a result of the stronger peso.

Policy:

The Philippine Department of Agriculture (DA) continues to make the development

of the Philippine dairy industry a priority with a special emphasis on improving local

29

supply of fresh milk. While the DA accepts that the Philippines cannot compete in the

powdered milk market, it believes that it can greatly augment the supply of fresh milk

to the market.

The NDA is the DA’s primary agency overseeing and aiding the development of the

Philippine dairy sector. The NDA aims to accelerate dairy herd build-up and milk

production, enhance the dairy business through delivery of technical services, increase

coverage of milk feeding programs and promote milk consumption.

At the heart of the NDA strategy is the Herd Build-Up Program. This program aims to

expand local dairy production through the importation of dairy animals, embryos and

equipment, and through the upgrading of local animals to dairy breeds via breeding

programs, the establishment of multiplier farms, and the preservation of existing

stocks. The following are sub-programs of the Herd Build-Up Program:

1. Save-the-Herd (STH) - Promotes animal trading, dairy enterprise enhancement and

herd conservation. Under this program, the STH partner receives a dairy animal from

NDA which he is obligated to rear, condition and impregnate according to prescribed

dairy husbandry management standards.

2. Herd Infusion - Includes importation of dairy stocks, diversification of sources and

local procurement of dairy animals.

3. Improved Breeding Efficiency - Breeding services to maximize the reproductive

capacity of dairy animals either through artificial insemination or natural (bull)

breeding.

4. Animal Financing - Tailoring of animal loan programs to the dairy business cycle

and identifying new sources of affordable loans.

5. “Palit-Baka” Scheme or Dairy Animal Distribution - Refers to the program

whereby NDA distributes a potential dairy animal to an eligible participant who, in

turn, would eventually provide NDA with a female dairy animal as payment in kind.

6. Upgrading of Local Animals - Artificial insemination of local cattle with 100%

purebred Holstein-Friesian semen. Calves born from upgrading programs are

distributed to new farmers interested in dairying.

7. Breeding/Multiplier Farm Operations - Engaging and encouraging private-public

partnerships in producing local born dairy stocks.

30

8. Bull Loan – Loan program that provides purebred and crossbred dairy bulls to

regional field units of the Department of Agriculture or to other project partners for

semen production, collection and processing purposes.

ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA): The

AANZFTA was signed by Australia and New Zealand and the ten ASEAN members

in 2009. Since 2010, milk powder, cheese, whey and buttermilk from Australia and

NZ are able to enter the Philippines duty free; U.S. milk powder and whey has a MFN

duty of 1 percent; cheese 3-7 percent, and buttermilk 3 percent.

Marketing:

The greater Manila area remains as the major fresh milk market in the country and is

classified into business and consumer sectors. The business sectors include the

institutional and retail operations such as coffee shops, hotels, restaurants,

supermarkets and small retailers. The consumer sectors include households and

schools through the government milk feeding program.

The main targets of local milk processors are the institutional buyers, especially

coffee shops. Specialty coffee shops are good markets because of the continuing trend

towards coffee consumption as a lifestyle in the country. Locally sourced, fresh milk

dominates this market because of its superior foaming properties, as compared to

UHT milk. The major suppliers of fresh milk to coffee shops are processors from

Southern Luzon, particularly from Batangas and Laguna. Other suppliers to coffee

shops produce UHT milk reconstituted from imported milk powder and packaged

under their own brand.

The specialty coffee shop industry is projected to sustain growth of 20 percent over

the next five years. Analysts attribute this expansion to the growing consumer

preference for specialty coffee and the improving image of coffee in general. (Food

and Agribusiness Monitor, University of Asia and the Pacific)

31

FDI In India

India has been ranked at the second place in global foreign direct investments in 2010

and will continue to remain among the top five attractive destinations for international

investors during 2010-12 period, according to United Nations Conference on Trade and

Development (UNCTAD) in a report on world investment prospects titled, 'World Investment

Prospects Survey 2009-2012'.

The 2010 survey of the Japan Bank for International Cooperation released in

December 2010, conducted among Japanese investors, continues to rank India as the second

most promising country for overseas business operations.

A report released in February 2010 by Leeds University Business School,

commissioned by UK Trade & Investment (UKTI), ranks India among the top three countries

where British companies can do better business during 2012-14.

According to Ernst and Young's 2010 European Attractiveness Survey, India is

ranked as the 4th most attractive foreign direct investment (FDI) destination in 2010.

However, it is ranked the 2nd most attractive destination following China in the next three

years.

Moreover, according to the Asian Investment Intentions survey released by the Asia

Pacific Foundation in Canada, more and more Canadian firms are now focusing on India as

an investment destination. From 8 per cent in 2005, the percentage of Canadian companies

showing interest in India has gone up to 13.4 per cent in 2010.

India attracted FDI equity inflows of US$ 2,014 million in December 2010. The

cumulative amount of FDI equity inflows from April 2000 to December 2010 stood at US$

186.79 billion, according to the data released by the Department of Industrial Policy and

Promotion (DIPP).

The services sector comprising financial and non-financial services attracted 21 per

cent of the total FDI equity inflow into India, with FDI worth US$ 2,853 million during

April-December 2010, while telecommunications including radio paging, cellular mobile and

basic telephone services attracted second largest amount of FDI worth US$ 1,327 million

during the same period. Automobile industry was the third highest sector attracting FDI

worth US$ 1,066 million followed by power sector which garnered US$ 1,028 million during

the financial year April-December 2010. The Housing and Real Estate sector received FDI

worth US$ 1,024 million.

32

During April-December 2010, Mauritius has led investors into India with US$ 5,746

million worth of FDI comprising 42 per cent of the total FDI equity inflows into the country.

The FDI equity inflows in Mauritius is followed by Singapore at US$ 1,449 million and the

US with US$ 1,055 million, according to data released by DIPP.

WHO CAN INVEST IN INDIA

1. A non-resident entity (other than a citizen of Pakistan or an entity incorporated in

Pakistan) can invest in India, subject to the FDI Policy. A citizen of Bangladesh or an

entity incorporated in Bangladesh can invest in India under the FDI Policy, only under

the Government route.

2. NRIs resident in Nepal and Bhutan as well as citizens of Nepal and Bhutan are

permitted to invest in the capital of Indian companies on repatriation basis, subject to

the condition that the amount of consideration for such investment shall be paid only

by way of inward remittance in free foreign exchange through normal banking

channels.

3. OCBs have been derecognized as a class of Investors in India with effect from

September 16, 2003. Erstwhile OCBs which are incorporated outside India and are

not under the adverse notice of RBI can make fresh investments under FDI Policy as

incorporated non-resident entities, with the prior approval of Government of India if

the investment is through Government route; and with the prior approval of RBI if the

investment is through Automatic route.

4. (i) An FII may invest in the capital of an Indian Company under the Portfolio

Investment Scheme which limits the individual holding of an FII to 10% of the capital

of the company and the aggregate limit for FII investment to 24% of the capital of the

company. This aggregate limit of 24% can be increased to the sectorial cap/statutory

ceiling, as applicable, by the Indian Company concerned by passing a resolution by its

Board of Directors followed by passing of a special resolution to that effect by its

General Body. The aggregate FII investment, in the FDI and Portfolio Investment

Scheme, should be within the above caps.

(ii) The Indian company which has issued shares to FIIs under the FDI Policy for

which the payment has been received directly into company’s account should report

33

these figures separately under item no. 5 of Form FC-GPR (Annex-1-A) (Post-issue

pattern of shareholding) so that the details could be suitably reconciled for

statistical/monitoring purposes.

(iii) A daily statement in respect of all transactions (except derivative trade) have to

be submitted by the custodian bank in floppy / soft copy in the prescribed format

directly to RBI to monitor the overall ceiling/sectorial cap/statutory ceiling.

5. No person other than registered FII/NRI as per Schedules II and III of Foreign

Exchange Management (Transfer or Issue of Security by a Person Resident Outside

India) Regulations of FEMA 1999, can invest/trade in capital of Indian Companies in

the Indian Stock Exchanges directly i.e. through brokers like a Person Resident in

India.

6. A SEBI registered Foreign Venture Capital Investor (FVCI) may contribute up to

100% of the capital of an Indian Venture Capital Undertaking (IVCU) and may also

set up a domestic asset management company to manage the fund. All such

investments can be made under the automatic route in terms of Schedule 6 to

Notification No. FEMA 20. A SEBI registered FVCI can also invest in a domestic

venture capital fund registered under the SEBI (Venture Capital Fund) Regulations,

1996. Such investments would also be subject to the extant FEMA regulations and

extant FDI policy including sectorial caps, etc. SEBI registered FVCIs are also

allowed to invest under the FDI Scheme, as non-resident entities, in other companies,

subject to FDI Policy and FEMA regulations.

ENTITIES FOR FDI

1. FDI in an Indian Company

(i) Indian companies including those which are micro and small enterprises (MSEs)

can issue capital against FDI.

2. FDI in Partnership Firm / Proprietary Concern:

1. A Non-Resident Indian (NRI) or a Person of Indian Origin (PIO) resident outside

India can invest by way of contribution to the capital of a firm or a proprietary

concern in India on non-repatriation basis provided;

34

2. (a) Amount is invested by inward remittance or out of NRE/FCNR(B)/NRO

account maintained with Authorized Dealers / Authorized banks

(b) The firm or proprietary concern is not engaged in any agricultural/plantation or

real estate business or print media sector.

(c)Amount invested shall not be eligible for repatriation outside India.

(i) Investments with repatriation benefits: NRIs/PIO may seek prior permission of

Reserve Bank for investment in sole proprietorship concerns/partnership firms

with repatriation benefits. The application will be decided in consultation with the

Government of India.

(ii) Investment by non-residents other than NRIs/PIO: A person resident outside

India other than NRIs/PIO may make an application and seek prior approval of

Reserve Bank for making investment by way of contribution to the capital of a

firm or a proprietorship concern or any association of persons in India. The

application will be decided in consultation with the Government of India.

(iii) Restrictions: An NRI or PIO is not allowed to invest in a firm or

proprietorship concern engaged in any agricultural/plantation activity or real

estate business (i.e. dealing in land and immovable property with a view to

earning profit or earning income there from) or engaged in Print Media.

3. FDI in Venture Capital Fund (VCF): FVCIs are allowed to invest in Indian

Venture Capital Undertakings (IVCUs) /Venture Capital Funds (VCFs) /other

companies, as stated in paragraph 3.1.6 of this Circular. If a domestic VCF is set

up as a trust, a person resident outside India (non-resident entity/individual

including an NRI) cannot invest in such domestic VCF under the automatic route

of the FDI scheme and would be allowed subject to approval of the FIPB.

However, if a domestic VCF is set-up as an incorporated company under the

Companies Act, 1956, then a person resident outside India (non-resident

entity/individual including an NRI) can invest in such domestic VCF under the

automatic route of FDI Scheme, subject to the pricing guidelines, reporting

requirements, mode of payment, minimum capitalization norms, etc.

35

4. FDI in Trusts: FDI in Trusts other than VCF is not permitted.

5. FDI in other Entities2: FDI in resident entities other than those mentioned above

is not permitted.

ENTRY ROUTES FOR FDI

Investments can be made by non-residents in the equity shares/fully, compulsorily and

Mandatorily convertible debentures/ fully, compulsorily and mandatorily convertible

preference shares of an Indian company, through two routes;

1. The Automatic Route: under the Automatic Route, the non-resident investor or the

Indian company does not require any approval from the RBI or Government of

India for the investment.

2. The Government Route: under the Government Route, prior approval of the

Government of India through Foreign Investment Promotion Board (FIPB) is

required. Proposals for foreign investment under Government route as laid down

in the FDI policy from time to time, are considered by the Foreign Investment

Promotion Board (FIPB) in Department of Economic Affairs (DEA), Ministry of

Finance.

GUIDELINES FOR CONSIDERATION OF FDI PROPOSALS BY FIPB:

The following guidelines are laid down to enable the FIPB to consider the proposals for

FDI and formulate its recommendations.

1. All applications should be put up before the FIPB by its Secretariat within 15 days

and it should be ensured that comments of the administrative ministries are placed

before the Board either prior to/or in the meeting of the Board.

2. Proposals should be considered by the Board keeping in view the time frame of thirty

(30) days for communicating Government decision.

36

3. In cases in which either the proposal is not cleared or further information is required

in order to obviate delays presentation by applicant in the meeting of the FIPB should

be resorted to.

4. While considering cases and making recommendations, FIPB should keep in mind the

sectorial requirements and the sectorial policies vis-à-vis the proposal (s).

5. FIPB would consider each proposal in its totality.

6. The Board should examine the following while considering proposals submitted to it

for consideration:

(i) whether the items of activity involve industrial licence or not and if so the

considerations for grant of industrial licence must be gone into;

(ii) whether the proposal involves any export projection and if so the items of

export and the projected destinations;

(iii) Whether the proposal has any strategic or defence related considerations.

7. While considering proposals the following may be prioritized:

(i) Items falling in infrastructure sector;

(ii) Items which have an export potential;

(iii) Items which have large scale employment potential and especially for rural

people;

(iv) Items which have a direct or backward linkage with agro business/farm sector;

(v) Items which have greater social relevance such as hospitals, human resource

development, life saving drugs and equipment;

(vi) Proposals which result in induction of technology or infusion of capital.

8. The following should be especially considered during the scrutiny and consideration

of proposals.

37

(i) The extent of foreign equity proposed to be held (keeping in view sectorial

caps if any;

(ii) Extent of equity from the point of view whether the proposed project would

amount to a holding company/wholly owned subsidiary/a company with

dominant foreign investment(i.e. 76% or more) joint venture;

(iii) Whether the proposed foreign equity is for setting up a new project (joint

venture or otherwise) or whether it is for enlargement of foreign/NRI equity or

whether it is for fresh induction of foreign equity/NRI equity in an existing

Indian company;

(iv) In the case of fresh induction offerings/NRI equity and/or in cases of

enlargement of foreign/NRI equity, in existing Indian companies whether

there is a resolution of the Board of Directors supporting the said

induction/enlargement of foreign/NRI equity and whether there is a

shareholders agreement or not;

(v) In the case of induction of fresh equity in the existing Indian companies and/or

enlargement of foreign equity in existing Indian companies, the reason why

the proposal has been made and the modality for induction/enhancement (i.e.

whether by increase of paid up capital/authorized capital, transfer of shares

(hostile or otherwise) whether by rights issue, or by what modality;

(vi) Issue/transfer/pricing of shares will be as per SEBI/RBI guidelines;

(vii) Whether the activity is an industrial or a service activity or a combination of

both;

(viii) Whether the items of activity involves any restriction by way of reservation

for the Micro & Small Enterprises sector;

(ix) Whether there are any sectorial restrictions on the activity;

38

(x) Whether the proposal involves import of items which are either

hazardous/banned or detrimental to environment (e.g. import of plastic scrap

or recycled plastics).

9. No condition specific to the letter of approval issued to a non-resident investor would

be changed or additional condition imposed subsequent to the issue of a letter of

approval. This would not prohibit changes in general policies and, regulations

applicable to the industrial sector.

TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (Financial years)

Amount Rupees in crores (US$ in million)

Ranks Country 2008-09

(April- March)

2009-

10(April-

March)

2010-11 (

April-

March)

Cumulative

Inflows (April

’00 - March

‘11)

%age to

total

Inflows

(in terms

of US $)

1 MAURITIUS 50,899(11,229) 49,633

(10,376)

31,855

(6,987)

242,761

(54,227)

42 %

2 SINGAPORE 15,727 (3,454) 11,295

(2,379)

7,730

(1,705)

52,876

(11,895)

9 %

3 U.S.A. 8,002 (1,802) 9,230

(1,943)

5,353

(1,170)

42,542 (9,449) 7 %

4 U.K. 3,840 (864) 3,094

(657)

3,434

(755)

29,433 (6,639) 5 %

5 NETHERLANDS 3,922 (883) 4,283

(899)

5,501

(1,213)

25,627 (5,700) 4 %

6 JAPAN 1,889 (405) 5,670

(1,183)

7,063

(1,562)

23,958 (5,276) 4 %

7 CYPRUS 5,983 (1,287) 7,728

(1,627)

4,171

(913)

21,948 (4,812) 4 %

8 GERMANY 2,750 (629) 2,980 908 (200) 13,376 (2,999) 2 %

39

(626)

9 FRANCE 2,098 (467) 1,437

(303)

3,349

(734)

10,267 (2,264) 2 %

10 U.A.E. 1,133 (257) 3,017

(629)

1,569

(341)

8,592 (1,890) 1 %

TOTAL FDI

INFLOWS *

123,025

(27,331)

123,120

(25,834)

88,520

(19,427)

580,722

(129,716)

-

SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS

Amount in Rs. crores (US$ in million)

Ranks Sector 2008-09

(April-

March)

2009-

10(April-

March)

2010-11

( April-

March)

Cumulative

Inflows

(April ’00 -

March ‘11)

%age to

total

Inflows

(in

terms of

US $)

1 SERVICES

SECTOR(financial & non-

financial)

28,516

(6,138)

20,776

(4,353)

15,539

(3,403)

120,771

(27,007)

21 %

2 COMPUTER SOFTWARE

&HARDWARE

7,329

(1,677)

4,351

(919)

3,571

(784)

47,700

(10,723)

8 %

3 TELECOMMUNICATIONS

(radio paging, cellular mobile,

basic telephone services)

11,727

(2,558)

12,338

(2,554)

7,546

(1,665)

48,220

(10,589)

8 %

4 HOUSING & REAL

ESTATE

12,621

(2,801)

13,586

(2,844)

5,149

(1,127)

43,192

(9,632)

7 %

5 CONSTRUCTION

ACTIVITIES (including

roads & highways)

8,792

(2,028

13,516

(2,862)

5,077

(1,125)

40,770

(9,178)

7 %

6 AUTOMOBILE INDUSTRY 5,212 5,754 6,008 26,831 5 %

40

(1,152) (1,208) (1,331) (5,927)

7 POWER 4,382

(985)

6,908

(1,437)

5,709

(1,252)

26,712

(5,900)

5 %

8 METALLURGICAL

INDUSTRIES

4,157

(961)

1,935

(407)

5,055

(1,105)

18,495

(4,235)

3 %

9 PETROLEUM & NATURAL

GAS

1,931(412) 1,328

(272)

2,621

(574)

13,735

(3,153)

2 %

10 CHEMICALS(other than

fertilizers)

3,427(749) 1,707

(362)

1,810

(398)

13,078

(2,892)

2 %

INDIAN ECONOMY

Recent Trends in Indian Economy

• The Indian economy has emerged with remarkable rapidity from the slowdown caused by

the global economic crisis and emerged stronger in 2011.The Indian economy is estimated to

grow at 8.6 per cent in 2010-11 as compared to the growth rate of 8.0 per cent in 2009-10.

The growth rate of 8.6 per cent in GDP during 2010-11 has been due to the robust growth

rates of over 8 per cent in the sectors of manufacturing, construction, trade, hotels, transport

and communication, financing, insurance, and, real estate and business services.

• The agriculture, forestry and fishing sector is likely to show a growth of 5.4 per cent during

2010-11, as against the previous year's growth rate of 0.4 per cent. According to the

Department of Agriculture and Cooperation (DAC) of Government of India, production of

food grains and oilseeds is expected to grow by 6.5 per cent and 11.9 per cent, respectively,

as compared to the previous agriculture year. The production of cotton and sugarcane is also

expected to rise by 41.2 per cent and 15.2 per cent, respectively, in 2010-11. Among the

horticultural crops, production of fruits and vegetables is expected to increase by 4.1 per cent

and 3.8 per cent, respectively, during the year 2010-11.

• The growth in mining and quarrying and manufacturing sectors during 2010-11 is expected

to be 6.2 and 8.8 per cent respectively over previous year. According to the latest estimates

available of the Index of Industrial Production (IIP),mining and manufacturing registered

growth rates of 8.0 per cent and 10.0 per cent respectively during April-November, 2010. The

estimated growth rate for construction sector is 8.0 per cent in 2010-11. The key indicators of

41

construction sector, namely, cement production and steel consumption have registered growth

rates of 4.4 per cent and 8.8 per cent, respectively during April- December, 2010.

• The estimated growth in the trade, hotels, transport and communication sectors during

2010-11 is placed at 11.0 per cent, mainly on account of growth of 14.9 per cent in

passengers handled in civil aviation, 21.3 per cent in air cargo handled and 40.9 per cent in

stock of telephone connections. The sales of commercial vehicles witnessed an increase of

34.1 per cent per cent in April-December, 2010. The financing, insurance, real estate and

business services sectors are expected to show a growth rate of 10.6 per cent during 2010-11,

on account of 14.0 per cent growth in aggregate deposits and 22.6 per cent growth in bank

credit during April- November 2010 (against the respective growth rates of 18.6 per cent and

10.1 per cent in the corresponding period of previous year). The growth rate of community,

social and personal services during 2010-11 is estimated to be 5.7 per cent.

• India's per capita income, often used to measure a country's standard of living, increased by

14.5 per cent during 2009-10 to US$ 1038.2 as compared to US$ 906.9 in 2008-09.

Growth in Gross Domestic Product

Annual growth by economic activity in Gross Domestic Product (GDP) for the year 2010-11,

released by the Central Statistics office (CSO) of Government of India

S.No. Industry GDP at Factor Cost

(2010-11)

Percentage change over

previous year

at 2004-05 prices

(US$ billion)

at current

prices

(US$

billion)

at

2004-

05

prices

at

current

prices

1 Agriculture, forestry & fishing 152.42 295.25 5.4 23.2

2 Mining & quarrying 24.32 40.13 6.2 18.2

3 Manufacturing 170.87 228.09 8.8 14.5

42

4 Electricity, gas & water supply 20.49 22.15 5.1 8.6

5 Construction 84.57 129.21 8.0 17.0

6 Trade, hotels, transport &

communication

291.36 379.65 11.0 16.7

7 Financing, insurance, real estate &

business services

187.89 285.97 10.6 26.5

8 Community, social & personal

services

141.87 216.87 5.7 11.3

Total GDP 1073.79 1597.49 8.6 18.3

Source: Central Statistics Office (CSO), Ministry of Statistics & Programme Implementation,

Government of India.

Economic Survey 2010-11

According to the Economic Survey 2010-11, tabled in Parliament on February 25, 2011 by

the Union Finance Minister, Mr Pranab Mukherjee, the economy is expected to grow at 8.6

per cent in 2010-11 and is expected to be around 9 per cent in the next fiscal year. The

growth has been broad based with a rebound in the Agriculture sector which is expected to

grow around 5.4 per cent. Manufacturing and Services sector have registered impressive

gains. The Survey reports that the industrial output growth rate was 8.6 per cent while the

manufacturing sector registered a growth rate of 9.1 per cent in 2010-11.

The main highlights of the survey are:

• Economy expected to grow at 8.6 per cent in 2010-11 and 9 per cent in next fiscal

• Growth broad based with rebound in Agriculture, continued momentum in manufacturing

and private services

• Fundamentals strong with savings and investments up, exports rising rapidly and inflation

falling

• Agriculture likely to grow at 5.4 per cent in 2010-11

• Industrial output grows by 8.6 per cent

• Manufacturing sector registers 9.1 per cent growth

43

• Exports in April–December 2010 up by 29.5 per cent

• Imports in April–December 2010 up by 19 per cent

• Trade gap narrowed to US$ 82.01 billion in April-December 2010

• 59 per cent rise in Net Bank Credit

• Social programme spending stepped up by 5 percentage points of GDP over past 5 years

• 9.7 per cent growth of GDP at market prices

• Production of foodgrains estimated at 232.1 million tonnes

• Forex Reserves estimated at US$ 297.3 billion

• Gross Fiscal Deficit stands at 4.8 per cent of GDP

POTENTIAL FOR INVESTMENT IN INDIA

India presents a vast potential for overseas investment and is actively encouraging the

entrance of foreign players into the market. India is also one of the few markets in the world,

which offers high prospects for growth and earning potential in practically all areas of

business.

India’s biotechnology sector is set to become a $10 billion industry by 2015, CMD of

Biocon Ltd, KiranMazumdar-Shaw said . She expects the industry to grow to $5 billion by

next year. In 2008-09 it was $2.51 billion. “India’s biotechnology industry is at an inflexion

point, and has attained a critical mass, Mazumdar-Shaw said. It now has a platform from

where it can leapfrog and deliver exponential growth, she said. India is also becoming the

vaccine capital. Clinical trials, agri-biotech and bio-fuels are becoming opportunities. There

are a lot of growth drivers and trigger points which, she said, will deliver in the next five

years.

With the launch of video telephony, by BSNL and Sai Info Systems (SIS), will boost

demand for broadband connection, Sam Pitroda, advisor to Prime Minister on public

information, infrastructure and innovations, expects the number to hit 100 million in next five

years. "The service is expected to revolutionize the telecom sector and take it to the next

level. Globally with video phones have become an integral part of life. The service will be

provided and marketed by SIS while the connectivity for the service will be provided by

BSNL. BSNL will also market it as another value added service to its large broadband

customer base," said Vijay Mandora, director, SIS.

Tumbling voice tariffs contributing to the declining average revenue per user (ARPU)

rates, will result in SMS volumes to reach 191.6 billion in India by 2013, predicts Gartner. By

44

2013, the country would have more than 750 million mobile connections; therefore the SMS

usage per user would essentially drop However, overall large base of mobile connections

would support this SMS volume. Strong organic growth continues in Asia’s developing

markets, with marginal subscribers turning to low-cost messaging as an entry-level service.In

the mature markets of the Asia-Pacific region, SMS has seen sustained healthy growth as a

result of steady price declines and increasingly generous SMS and data bundles,\" said

Madhusudan Gupta, senior research analyst at Gartner. SMS contributes around 8% to value

added services (VAS), which in turn contributes 10-12% of an operator’s revenue.

The Indian auto sector is likely to witness an overall growth of 10%-12% in sales

during 2010 and a faster recovery in expected in passenger vehicle (PV) volumes—of 12%-

14%—compared with 5%-6% for the commercial vehicle (CV) segment. The positive

outlook for demand could result in a sharp increase in capex plans, which could offset the

positive impact on credit profiles of higher volumes and lower inventories, said Fitch

Ratings. The PV rebound has been supported by an improving liquidity scenario and

restoration of consumer confidence; modest growth in industrial production, together with the

government stimulus, has brought about stability in CV sales, though at lower levels than for

PVs.Domestic CV sales grew by 22.3% during April-December 2009 compared with same

period in 2008, building on the recovery in demand beginning Q4 09. However, growth

trends have distinctly varied within the CV segment - depending on the tonnage capacity and

end-use, as light commercial vehicles (LCVs) have been able to maintain their ground while

medium and heavy commercial vehicles (M&HCVs) continued to face pressure due to the

decline in industrial output.The M&HCV segment is now stabilising with the higher

industrial production, while the LCV segment is showing a more rapid recovery. Fitch

expects the full-year 2010 numbers to reveal moderate growth in the range of 5%-6% for

domestic sales, with the first few months being driven by regulatory guidelines.

The Union food processing ministry has set a target of attracting investments to the

tune of Rs 1 lakh crore in the sector by 2015.Subodh Kant Sahai, Union food processing

minister, said: “We are expecting investments of Rs 1 lakh crore in the next five years. We

are planning to increase food processing to 20% of the total fruits and vegetable produced in

the country. “According to him, food processing has grown by 10% in India while value-

added products have grown by 10-15% in the last five years. We are looking at a growth of

35% in value-added production by 2015,” Sahai said.

The 234 million tonne per annum (mtpa) Indian cement industry, which witnessed a

double digit despatch growth in December 2009 and an overall growth thanks to

45

infrastructure and real estate projects, is set to add 43.2 mtpa capacity during the next 15

months (January 2010 to March 2011).South India, which has already started feeling the heat

of oversupply, will add the maximum capacity of 17.6 million tonne during that period. The

next in line is the northern region, which will add 9.6 mt. The western, central and eastern

regions will add 9 mt, 3 mt and 4 mt, respectively. “The southern market with 18 players

having capacity of 1mtpa or more is the most fragmented one in India. Capacities of three

new players (Raghuram Cement, Jayajyothi and JSW Cement with more than 2 mtpa each)

will stabilise in the next 6-9 months. With sharp price cuts, new producers may find it

difficult to break even, and this would likely to prompt some consolidation. All the three new

producers are unlikely to participate in consolidation,” J Radhakrishnan, analyst with IIFL,

said in his report.

The healthcare industry in the country, which comprises hospital and allied sectors, is

projected to grow 23% per annum to touch $77-billion mark by 2012 from the current

estimated size of $35 billion, according to a Yes Bank and Assocham report. The sector has

registered a growth of 9.3% between 2000-2009, comparable to the sectorial growth rate of

other emerging economies such as China, Brazil and Mexico. The growth in the sector would

be driven by healthcare facilities, both private and public sector, medical diagnostic and path

labs and the medical insurance sector. Of the sum, diagnostic and pathology services would

account for $2.5 billion in 2012, more than double its estimated current size of $1billion. The

growth in the segment is expected to be driven by consolidation in the industry and

increasing insurance penetration among the country’s population. Healthcare facilities,

inclusive of public and private hospitals, the core sector, around which the healthcare sector

is cantered, would continue to contribute over 70% of the total sector and touch a figure of

$54.7 billion by 2012.The medical insurance sector would account for another $ 3 billion in

the next three years, up from the estimated current size of $1 billion.

Steve King, CEO of Zenith Opt media Worldwide feels that new and emerging

advertising markets like India and China will power the global industry’s recovery, on the

back of positive signals from developed markets like US, Europe. “India, with an

approximate 10% growth, will certainly be in the top ten advertising markets in absolute

dollar terms by 2015,” he told. Zenith Opt media, the world’s third largest media-buying

agency and an enterprise under the Paris-based Publicist Group is upbeat about India. It has

brought fresh business worth $100 million in the country this year. India figures amongst

46

Zenith Opt media’s 20 largest markets globally, but over the past five years, it has been

among the top three fastest growing ones. “Most of our markets are between 15 to 20 years

old, so despite being here for only five years, this market has responded very well. Our focus

here will be on winning local clients, apart from the international ones. By the next five

years, we will have considerably closed the gap on the top two market leaders here,” King

said.

Advantage India

• World\'s largest democracy with 1.2 billion people.

• Stable political environment and responsive administrative set up.

• Well established judiciary to enforce rule of law.

• Land of abundant natural resources and diverse climatic conditions.

• Rapid economic growth: GDP to grow by 8.5% in 2010-11* and 9.0% in 2011-12.

• India\'s growth will start to outpace China\'s within three to five years and hence will

become the fastest large economy with 9-10% growth over the next 20-25 years (Morgan

Stanley).

• Investor friendly policies and incentive based schemes.

• Second most attractive Foreign Direct Investment (FDI) location in the world: India

received a total of US$ 25.9 billion of FDI in 2009-10.

• Healthy macro-economic fundamentals: Investment rate is expected to be 37% in 2010-11

and 38.4% in 2011-12 while Domestic Savings rate is expected to be 34% in 2010-11 and

36% in 2011-12.

• India\'s economy will grow fivefold in the next 20 years (McKinsey).

• Cost competitiveness; low labour costs.

• Total labour force of nearly 530 million.

47

• Large pool of skilled manpower; strong knowledge base with significant English speaking

population.

• Young country with a median age of 30 years by 2025: India\'s economy will benefit from

this \"demographic dividend\".

• The proportion of population in the working age group (15-59 years) is likely to increase

from approximately 58% in 2001 to more than 64% by 2021.

• Huge untapped market potential.

• The urban population of India will double from the 2001 census figure of 290m to

approximately 590m by 2030 (McKinsey).

• Progressive simplification and rationalization of direct and indirect tax structures.

• Reduction in import tariffs.

• Full current account convertibility.

• Compliance with WTO norms.

• Robust banking and financial institutions.

"* India's financial year is from April to March. 2010-11 above means April 2010-March

2011."

Indian Economy

India has undergone a paradigm shift owing to its competitive stand in the world. The Indian

economy is on a robust growth trajectory and boasts of a stable annual growth rate, rising

foreign exchange reserves and booming capital markets among others.Indian economy is

estimated to grow at 8.6 percent in 2010-11 as compared to the growth rate of 8.0 percent in

2009-10. These GDP figures are based at factor cost at constant (2004-05) prices in the year

2010-11.The growth rate of 8.6 per cent in GDP during 2010-11 has been due to the robust

growth rates of over 8 per cent in the sectors of manufacturing, construction, trade, hotels,

transport and communication, financing, insurance, and, real estate and business services.

48

Agriculture sector registered a growth rate of 5.4 percent in 2009-10. A growth rate of 18.3

percent is estimated for GDP at current prices in the year 2010-11.

Agriculture SectorThe agriculture, forestry and fishing sector is likely to show a growth of 5.4 per cent in its

GDP during 2010-11, as against the previous year’s growth rate of 0.4 per cent.The estimate

of GDP from agriculture in 2010-11,according to the Department of Agriculture and

Cooperation (DAC),production of foodgrains and oilseeds is expected to grow by 6.5 per cent

and 11.9 per cent, respectively, as compared to the previous agriculture year. The production

of cotton and sugarcane is also expected to rise by 41.2 per cent and 15.2 per cent,

respectively, in 2010-11. Among the horticultural crops, production of fruits and vegetables

is expected to increase by 4.1 per cent and 3.8 per cent, respectively, during the year 2010-11.

Industry Sector

The growth in GDP for mining and quarrying and manufacturing sectors during 2010-11 is

expected to be 6.2 and 8.8 percent respectively over previous year. According to the latest

estimates available on the Index of Industrial Production (IIP), the index of mining and

manufacturing registered growth rates of 8.0 per cent and 10.0 per cent during April-

November, 2010. The estimated growth rate for construction sector is 8.0 percent in 2010-11.

The key indicators of construction sector, namely, cement production and steel consumption

have registered growth rates of 4.4 per cent and 8.8 per cent, respectively during April-

December, 2010.

Services Sector

The estimated growth in GDP for the trade, hotels, transport and communication sectors

during 2010-11 is placed at 11.0 per cent, mainly on account of growth during April-

November, 2010-11 of 14.9 per cent in passengers handled in civil aviation , 21.3 per cent in

air cargo handled and 40.9 per cent in stock of telephone connections. The sales of

49

commercial vehicles witnessed an increase of 34.1 per cent per cent in April-December,

2010. The financing, insurance, real estate and business services sector is expected to show a

growth rate of 10.6 per cent during 2010-11, on account of 14.0 per cent growth in aggregate

deposits and 22.6 per cent growth in bank credit during April- November 2010 (against the

respective growth rates of 18.6 per cent and 10.1 per cent in the corresponding period of

previous year). The growth rate of community, social and personal services during 2010-11 is

estimated to be 5.7 per cent.

New Projects

• Private equity fund IL&FS Investment Managers (IIML) is estimated to have invested US$

300 million in real estate and urban infrastructure projects in 2010.

• Close to Nalagarh in Solan district, Dabhota is set to be the latest industrial area to be

developed by the Himachal Pradesh government, say officials. The state government has

already issued a notification and asked the state land acquisition officials to acquire 2,020

bighas of land at Baghota to be developed into industrial plots.

• Ramky Estates and Farms Limited, the real estate arm of the Ramky Group, is

contemplating to enter Indian market by July 2011. The company is evaluating on land

acquisitions in Kolkata and Bhubaneswar.

• Chennai-based VGN Developers Pvt Ltd has entered into a joint venture with private equity

firm Pragnya Fund to initiate a new residential project with an investment of US$ 20.06

million in the city.

• Ascends has entered into an agreement with a Japanese consortium of Mizuho Corporate

Bank (MCB) and JGC Corporation to develop integrated townships in India, according to a

press release from Ascends. The integrated township is likely to be in Chennai, which has

attracted investment by a number of companies from Japan. Ascends of Singapore will be the

master developer.

• Godrej Group\'s real estate company, Godrej Properties and Frontier Home Developers, has

launched a residential project in Gurgaon with joint venture partner M/s. Frontier Home

Developers Pvt. Ltd. This is a debut residential project in the national capital region (NCR)

for Godrej Properties.

50

• Shristi Infrastructure Development Corporation will invest US$ 444.7 million over the next

three years in seven small cities in West Bengal, Tripura and Rajasthan. The money would be

used to build integrated townships, healthcare facilities, hospitality and sports facilities, retail

malls, logistics hubs and commercial and residential complexes.

• Realty major Ansal Properties & Infrastructure Ltd plans to invest about US$ 330.8 million

over the next three years on expansion of its existing integrated townships and to develop a

group housing project in Haryana.

• Vision India Real Estate, a closely-held business group in the US, is investing US$ 5

million in Gem Group\'s upcoming residential project in Chennai. This will be the first joint

development project for the US company that is proposing to invest US$ 100 to US$ 200

million over the next three years on projects, especially in the logistics arena.

• Realty major Embassy Property Developments has entered into a joint venture with MK

Land Holding, a Malaysian company that specializes in pre-fabricated affordable housing, to

build projects in the affordable housing segment. The proposed project entails an investment

of over US$ 1.2 billion.

• Thai real estate developer Pruksa Global plans to invest US$ 218 million in projects in India

and launched its first residential project in the country at Bangalore in October 2010.

• The International Finance Corporation (IFC) is in talks with several real estate developers to

create large affordable housing projects in India. For FY-09 and FY-10 (fiscal year ending

June 30), IFC's highest exposure has been in India. Out of the US$ 3.5 billion that IFC has

committed in India, US$ 2.5-2.6 billion have been disbursed. IFC will continue to invest

roughly US$ 1 billion in India every year for the next two or three years.

FDI IN PHILIPPINES

The latest value for Foreign direct investment, net (BoP, current US$) in Philippines was

($1,253,000,000.00) as of 2011. Over the past 6 years, the value for this indicator has

fluctuated between $620,000,000.00 in 2007 and ($2,818,000,000.00) in 2006.

Definition: Foreign direct investment are the net inflows of investment to acquire a lasting

management interest (10 percent or more of voting stock) in an enterprise operating in an

economy other than that of the investor. It is the sum of equity capital, reinvestment of

51

earnings, other long-term capital, and short-term capital as shown in the balance of payments.

This series shows total net, that is, net FDI in the reporting economy from foreign sources

less net FDI by the reporting economy to the rest of the world. Data are in current U.S.

dollars.

Year Value

2005 ($1,665,000,000.00)

2006 ($2,818,000,000.00)

2007 $620,000,000.00

2008 ($1,285,000,000.00)

2009 ($1,604,000,000.00)

2010 ($682,000,000.00)

2011 ($1,253,000,000.00)

The Philippines moved up significantly on an annual index of business

competitiveness and now ranks 72nd out of 132 countries on the World Economic Forum's

enabling trade index, up from 92nd place two years ago.

The Global Enabling Trade Report 2012 ranks countries based on market access,

border administration, transport and communications infrastructure, and business

environment. The Philippines showed the greatest improvement in the area of market access,

moving up 50 places from 64th in 2010 to 14th in 2012. Improvement was also seen in the

category of efficiency of import-export procedures.

Net inflows of foreign direct investments (FDI) to the Philippines for the first two

months of 2012 were $850 million, three times higher than the $335 million during the same

period in 2012. Gross inflows for the first two months of 2012 were $927 million.

The Philippines' strong macroeconomic fundamentals are making the Philippines an

attractive environment to invest at a time of continuing concerns over the sovereign debt

crisis in some parts of Europe and the moderation in global activity.

Philippines GDP 2012

52

Moody's Analytics has upped Philippines GDP for 2012 to 4.7%, which is stronger than

expected. The government announced today that the Philippine economy expanded 6.4

percent in the first three months of the year. This is attributed to the reforms being undertaken

by the Aquino government that continue to attract foreign investment. The Philippines has so

far received six upgrades from Moody's Investors Service since President Benigno Aquino III

assumed power. The Philippines has the strongest GDP growth in Southeast Asia and the

second strongest in Asia behind China.

The Bangko Sentralng Pilipinas on Thursday reported that net inflow of FDIs reached $766

million in January compared with the $214 million registered in the same period the previous

year.

The Philippines Largest Direct Foreign Investment Industries Outsourcing Real Estate

Manufacturing

Agriculture

Mining

Infrastructure

Retail

Report Highlights:

Producing less than one percent of its growing dairy requirement of 1.82 million

metric tons (MMT) in 2013, the Philippines is a major global importer of dairy

products, especially milk powder. Despite an expanding food processing industry,

high prices in early 2013 are expected to result in total annual imports remaining at

2012 levels of just under 2 MMT. Major suppliers are New Zealand (46 percent), the

United States (29 percent), and Australia (8 percent). U.S. dairy exports to the

Philippines are forecast to reach a record $325 million in 2013, up from the 2012

record of $317 million. While milk powder exports dominate this category, there has

also been strong growth in U.S. whey and buttermilk sales. Dairy products are the

country’s third largest agricultural import after wheat and soybean meal.

Production:

53

The country produces less than one percent of its total annual dairy requirement and

imports the balance. Data from the Philippine National Dairy Authority (NDA) shows

that local dairy production was at 18,450 metric tons (MT) in 2012, up from 16,450

MT in 2011. The value of dairy production in 2012 amounted to P560 million ($13

million). Local milk production is projected to reach 19,000 MT in 2013 and will

likely continue expanding on an annual basis due to strong demand for fresh milk and

growing dairying capabilities.

As of June 2013, the Bureau of Agricultural Statistics estimated the nation’s total

dairy herd at 19,690 dams and does, an increase of over 10 percent from the previous

year. These were comprised of dairy cattle (9,847), water buffalo (8,287) and dairy

goats (1,556). Dairy cattle numbers increased in 2013 due in most part to the ongoing

government herd build-up programs and the growing number of dairy multiplier

farms of the NDA. Dairy cattle numbers are expected to continue increasing by about

1,000-1,500 head per year for the next several years.

The average Philippine milk production per animal (8 liters/day) remains low due

mainly to poor feed and management practices. According to various sources, the

average daily milk yield in the United States is around 30 liters/day and about 20

liters/day in the United Kingdom. According to the NDA, the average farm gate price

of milk as of July 2013 was P30.33/liter ($0.70/liter). By contrast the corresponding

farm gate price of milk in the U.S. is about $0.37/liter ($16.90 hundred weight) as of

July 2013.

There are four main types of dairy farms in the Philippines: individual smallholder

producers (who consume and sell locally what they produce), smallholder

cooperatives (who deliver their milk to a collection point for transport to a processing

plant), commercial farms (which supply processors), and government farms (which

supply school and rural community feeding programs).

In answer to the country’s cold chain challenges and limited production, a significant

amount of Philippine fluid milk supply is actually Ultra High Temperature (UHT)

milk reconstituted from imported milk powder.

Consumption:

54

NDA estimates 2013 domestic dairy requirements to be at 1,820 MMT. According to

FAO estimates, annual per capita milk consumption in the Philippines is at 22 kg,

compared with Thailand at 26 kg, Malaysia at 52 kg and the United States at 287 kg.

With a strong economy and a growing population of roughly 100 million in 2013, the

Philippines is a large and rapidly expanding market for milk and milk products. Other

factors contributing to the long term trend of strong growth in local dairy

consumption are expanding cold chain capacity, an increase in the number of

supermarkets, and a blossoming food processing industry. In addition, the strong peso

(the Philippine currency has appreciated by almost 25 percent since 2004) and the

weak U.S. dollar vis-à-vis competitor countries make the Philippine market attractive

for U.S. dairy exporters.

According to the NDA, half of smallholder milk production goes to school and

community milk feeding programs and the rest to local commercial sales or household

consumption. With dairy production in the country being more community-based,

maintaining the quality of fresh milk is a challenge due to the lack of processing and

distribution systems, and a dependable, continuous cold chain. Fresh fluid milk in a

mid-range Manila supermarkets sells for P90-120 per liter ($2.20-2.93).

POLICIES AND NORMS OF IMPORT/EXPORT

Trade Policy

India allows imports of milk and milk products without quantitative limitations, although

tariff rate quotas apply and an import permit is required. NFDM imported above the TRQ

attracts a 60 percent basic duty and above quota butter oil imports are charged a 30 percent

basic duty.

Although India allows milk and milk product imports, in most cases both import permits and

sanitary certificates are required. For the import of livestock products (including milk and

milk products), an applicant has to apply at least 30 days in advance with form A/B

(Department of Animal Husbandry and Dairying). Exports of U.S. dairy products to India are

effectively prohibited under India’s current dairy sanitary import protocol. Imported dairy

55

products, like domestic dairy products, must adhere to all relevant food safety laws and

quality standards. These include the quality standards set by the Bureau of Indian Standards

(BIS) as well as the food safety standards covered in the Food Safety and Standards

Regulation, 2011.

On November 21, 2012, India revised its tariff rate quota (TRQ) on dairy products falling

under harmonized system (HS) code 040210 and 04022100 (SMP). Under the notified TRQ,

India will permit imports up to 10,000 metric tons (MT) of SMP per fiscal year at a tariff rate

of 15 percent. Quantities above 10,000 MT will incur a 60 percent tariff.

On November 22, 2012, the Government of India (GOI) lifted its ban on the export of dairy

products falling under HS code 0402. This includes milk and cream, concentrated and/or

sweetened milk and cream, whole milk powder, dairy whitener and infant milk foods.

Industry sources state that this action will have little consequence on trade, as the majority of

India’s dairy product exports are skim milk powder (SMP) and casein, both of which were

permitted for export on June 8, 2012.

In March, 2013, the Department of Animal Husbandry, Dairying and Fisheries (DADF) of

the Ministry of Agriculture, Government of India (GOI) posted revised guidelines on its

website for the import and export of bovine genetics to India.

On June 11, 2013, the Food Safety and Standards Authority of India extended the import

prohibition on milk and milk products from China for an additional year until June 22, 2014.

The ban includes milk, milk products, chocolates and chocolate products, candies,

confectionary, and food preparations made with milk or milk solids originating in Chin

Import duty & taxes when importing into India

Import duty and taxes are due when importing goods into India whether by a private

individual or a commercial entity. The valuation method is CIF (Cost, Insurance and

Freight), which means that the import duty and taxes payable are calculated on the complete

shipping value, which includes the cost of the imported goods, the cost of freight, and the

cost of insurance. Duty in particular is calculated on the sum of the CIF value and landing

charges (explained below). Some duties are also based on quantity measurements. In

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addition to duty, imports are subject to other taxes and charges such as landing charges,

countervailing duty, CESS, and education CESS.

Duty Rates

Duty rates in India can be ad valorem (as a percentage of value) or specific (rupees per unit).

Duty rates vary from 0% to 150%, with an average duty rate of 11.9%. Some goods are not

subject to duty (e.g. laptops and other electronic products).

Sales Tax

There is no sales tax in India for imported goods.

Minimum thresholds

There is no minimum threshold in India, i.e. all imports regardless of their value are subject

to duty and taxes.

Other taxes and custom fees

Landing charges: (1% CIF)

Countervailing duty (CVD): (0%, 6% or 12% (CIFD + Landing charges))

CESS (Education + Higher Education): 3% (Duty + Countervailing duty)

Additional CVD: 4% (CIFD + Landing charges + Countervailing duty + CESS)

Import duty & taxes when importing into Philippines

Overview

Import duty and taxes are due when importing goods into Philippines whether by a private

individual or a commercial entity. The valuation method is CIF (Cost, Insurance and

Freight), which means that the import duty and taxes payable are calculated on the complete

shipping value, which includes the cost of the imported goods, the cost of freight, and the

cost of insurance. In addition to duty, imports are subject to sales tax (VAT).

Duty Rates

Duty rates in Philippines vary from 0% to 65%, with an average duty rate of 10.5%. Some

products can be imported free of duty, e.g. laptops and other electronic products.

Sales Tax

Goods imported into Philippines are subject to VAT at a rate of 12% calculated over the CIF

value plus any applicable duty.

Minimum thresholds

When an import’s CIF value does not exceed US$15 it is exempt from duty. However, VAT

is applicable.

Other taxes and customs fees

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A few commodities, like passenger automobiles, jewellery, alcohol, tobacco, etc. may also be

subject to the payment of Ad Valorem Tax aside from the import duty and VAT. The rate of

Ad Valorem Tax depends on the make-up of the commodity such as the engine displacement

cost in case of automobiles, or alcohol content in case of beverages.

Free import

• 200 cigarettes or

• 50 cigars or

• 250 grammes of other tobacco products

• Up to 2 litres of Wines or alcoholic beverages

• 59 ml of perfume

• 250 ml toiletries

• Authorized personal goods

• An unlimited amount of foreign currency can be imported into the country. Sums

equalling US10000in local currency must be declared upon entry. Foreign travellers

cannot take more foreign currency with them than the amount they entered India with

but sums less than US 10000 generally will not need to be declared.

Prohibited

The following items are banned from entering or leaving the country unless under

certain circumstances or limitations.

• Illegal drugs

• Firearms and ammunition – unless permission has been obtained

• Knives and deadly weapons

• Pets and other live animals – unless permission has been obtained

• Birds and bird products –eggs and feathers

• Pigs and pig meat products

• Endangered plants

• Plants and plant products – unless permission has been obtained

• Radio transmitters

• Culturally important or valuable antiques

58

http://india.visahq.com/customs/

• Counterfeit money and goods

• Pornographic material

Restricted

• Species of wild life including ivory, musk and animal skins are prohibited from

leaving the country.

• Unless taken by a native of the country, Indian currency is expressly prohibited from

leaving India.

• Plants and plant products such as seeds or fruits are prohibited without prior

permission.

*Travellers of Indian origin returning home or visitors entering the country from

Pakistan, China or other countries may have different restrictions regarding the

amount and nature of items that can be imported into the country.

*Travellers of Pakistani origin will likely be required to undergo additional customs

procedures before being granted permission to enter or leave the country.

*All Indian currency is prohibited from being imported or exported out from the

country by foreign travellers. Indian residents going on or returning from a holiday

abroad can freely take or bring in up to Rs. 7500.

Free export

• No information available

Prohibited

The following items are banned from entering or leaving the country unless under

certain circumstances or limitations.

• Illegal drugs

• Firearms and ammunition – unless permission has been obtained

59

• Knives and deadly weapons

• Pets and other live animals – unless permission has been obtained

• Birds and bird products –eggs and feathers

• Pigs and pig meat products

• Endangered plants

• Plants and plant products – unless permission has been obtained

• Radio transmitters

• Culturally important or valuable antiques

• Counterfeit money and goods

• Pornographic material

Restricted

• No information available

Trade:

U.S. Exports to the Philippines Increase 13% in 2012

Despite record exports of $317.5 million (up 13 percent) in 2012, the Philippines

slipped one notch to become the 5th largest market for U.S. dairy products. U.S. dairy

exports in 2013 are expected to grow slightly (by about 2-3 percent), reaching $325

million by the end of the year. The top U.S. dairy exports to the Philippines in 2012

were nonfat dry milk powder ($142.7 million), buttermilk ($41.7 million) and whey

($34.4 million).






60



News of a late season drought in New Zealand (the top supplier to the Philippines)

and a lack of exportable supplies of skim milk powder (SMP) and whole milk powder

(WMP) from the EU led to a sharp rise in dairy prices in early 2013. Prices have since

come down but are still expected to remain relatively strong for the rest of the year.

The major country suppliers to the Philippines by volume are New Zealand with 46

percent share of total imports, the United States with 29 percent, and Australia at 8

percent. U.S. dairy exports to the Philippines have continued to rise dramatically due

in part to the weak U.S. dollar vis-à-vis major competitor countries, the strengthening

peso, as well as the supply problems in major dairy producing countries.

Skim Milk Powder (SMP) and Whole Milk Powder (WMP) imports currently

comprise about 56 percent of total dairy imports. SMP imports declined by five

percent while WMP imports increased 13 percent in 2012. Liquid milk imports fell 24

percent. Imports of butter and other dairy spreads also declined by 14 percent while

imports of cheese increased by 26 percent.

According to trade and industry contacts, imported dairy products are used as follows:

Skim Milk Powder: Recombined sweetened condensed milk, recombined UHT milk,

ice cream, infant and follow-on formulas, and medical nutrition formulas.

Whole Milk Powder: Recombined UHT milk, ice cream, infant and follow-on

formulas, medical nutrition formulas, and instant powdered milk.

Butter Milk Powder: Recombined sweetened condensed milk, ice cream, and

bakery.

Whey Powder: Recombined sweetened dairy creamer, ice cream, infant and follow-

on formulas, processed meat, processed food, confectionery, bakery, and animal feed.

Cheese Curd: Processed cheese, cheese spreads, and processed food.

Liquid Milk: Retail, primarily organic and extended shelf life (ESL) milk.

Cheese: Retail, quick service restaurants and fast food chains

Philippine Dairy Exports

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Total dairy exports declined 53 percent in 2012 with exports of milk and cream

comprising about 98 percent of the total volume. The main countries of destination

were Malaysia (43 percent), Thailand (23 percent) and Bangladesh (12 percent).

Exports in 2013 are expected to drop even lower due in part to increasing prices of

Philippine dairy products as a result of the stronger peso.

Policy:

The Philippine Department of Agriculture (DA) continues to make the development

of the Philippine dairy industry a priority with a special emphasis on improving local

supply of fresh milk. While the DA accepts that the Philippines cannot compete in the

powdered milk market, it believes that it can greatly augment the supply of fresh milk

to the market.

The NDA is the DA’s primary agency overseeing and aiding the development of the

Philippine dairy sector. The NDA aims to accelerate dairy herd build-up and milk

production, enhance the dairy business through delivery of technical services, increase

coverage of milk feeding programs and promote milk consumption.

At the heart of the NDA strategy is the Herd Build-Up Program. This program aims to

expand local dairy production through the importation of dairy animals, embryos and

equipment, and through the upgrading of local animals to dairy breeds via breeding

programs, the establishment of multiplier farms, and the preservation of existing

stocks. The following are sub-programs of the Herd Build-Up Program:

1. Save-the-Herd (STH) - Promotes animal trading, dairy enterprise enhancement and

herd conservation. Under this program, the STH partner receives a dairy animal from

NDA which he is obligated to rear, condition and impregnate according to prescribed

dairy husbandry management standards.

2. Herd Infusion - Includes importation of dairy stocks, diversification of sources and

local procurement of dairy animals.

3. Improved Breeding Efficiency - Breeding services to maximize the reproductive

capacity of dairy animals either through artificial insemination or natural (bull)

breeding.

4. Animal Financing - Tailoring of animal loan programs to the dairy business cycle

and identifying new sources of affordable loans.

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5. “Palit-Baka” Scheme or Dairy Animal Distribution - Refers to the program

whereby NDA distributes a potential dairy animal to an eligible participant who, in

turn, would eventually provide NDA with a female dairy animal as payment in kind.

6. Upgrading of Local Animals - Artificial insemination of local cattle with 100%

purebred Holstein-Friesian semen. Calves born from upgrading programs are

distributed to new farmers interested in dairying.

7. Breeding/Multiplier Farm Operations - Engaging and encouraging private-public

partnerships in producing local born dairy stocks.

8. Bull Loan – Loan program that provides purebred and crossbred dairy bulls to

regional field units of the Department of Agriculture or to other project partners for

semen production, collection and processing purposes.

ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) : The

AANZFTA was signed by Australia and New Zealand and the ten ASEAN members

in 2009. Since 2010, milk powder, cheese, whey and buttermilk from Australia and

NZ are able to enter the Philippines duty free; U.S. milk powder and whey has a MFN

duty of 1 percent; cheese 3-7 percent, and buttermilk 3 percent.

Marketing:

The greater Manila area remains as the major fresh milk market in the country and is

classified into business and consumer sectors. The business sectors include the

institutional and retail operations such as coffee shops, hotels, restaurants,

supermarkets and small retailers. The consumer sectors include households and

schools through the government milk feeding program.

The main targets of local milk processors are the institutional buyers, especially

coffee shops. Specialty coffee shops are good markets because of the continuing trend

towards coffee consumption as a lifestyle in the country. Locally sourced, fresh milk

dominates this market because of its superior foaming properties, as compared to

UHT milk. The major suppliers of fresh milk to coffee shops are processors from

Southern Luzon, particularly from Batangas and Laguna. Other suppliers to coffee

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shops produce UHT milk reconstituted from imported milk powder and packaged

under their own brand.

The specialty coffee shop industry is projected to sustain growth of 20 percent over

the next five years. Analysts attribute this expansion to the growing consumer

preference for specialty coffee and the improving image of coffee in general. (Food

and Agribusiness Monitor, University of Asia and the Pacific)

GLOBAL SATRATEGY

ALASKA MILK CORPORATION is one of the leading manufacturers of milk

products in the Philippines. It has established a strong brand heritage among Filipino

consumers with its traditional liquid canned milk products marketed under the Alaska label.

The Company has likewise established a strong presence in the powdered milk business and a

growing position in the UHT ready-to-drink and ready-to-use segments.

Today, more than ever, Alaska endeavours to maintain and reinforce its formidable

position in the Philippine milk market. We seek to cater to a new Generation of consumers by

building on the strengths of our portfolio of trusted Brands and capitalizing on the

possibilities created by a continually evolving consumer environment.

For over thirty years, Alaska Milk Corporation has proven its worth as a company of

people driven by a passion to deliver unparalleled value to its consumers and customers

through its quality products and superior services. We take great pride in providing affordable

nutrition for families across the country under a portfolio of trusted brands. Through all the

years of our corporate existence, our strength in the industry has always been our people. We

rely on them – their integrity, skills, talents, enthusiasm and commitment. Holding ourselves

to the highest standards ensures that we achieve our goals in a manner consistent with our

corporate values.

The Alaska brand has always been associated with quality and nutrition. The

Company’s first generation of milk products are Alaska Evaporated Filled Milk and Alaska

Sweetened Condensed Filled Milk. Collectively known as the Classic Line, product usage has

since expanded from a nutritional beverage to a multi-purpose cooking ingredient. To address

the needs of the low-income earners for more affordable products, the Company also

developed a Value Line of evaporated and sweetened condensed creamers in the market.

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Priced competitively and with the same Alaska seal of quality, Alaska Evaporadaand

AlaskaCondensadaare the perfect enhancers for various food and beverage preparations.

Alaska is the undisputed market leader in both the Evaporated and Condensed Milk

Categories. Alaska has further strengthened its core business by acquiring / licensing the

liquid canned milk brands of Société Des Produits Nestlé S.A. In a deal signed on April 16,

2007, Alaska bought from Nestle the Alpine, Liberty and Krem-Top brands, including all

trademark properties. Also included in the deal is a long-term licensing agreement for AMC

to manufacture and sell the Carnation and Milkmaid brands for liquid canned milk products.

Each of these brands has a strong market position, a loyal customer base and a brand name

associated with quality. Today, Alaska has a dominant position in the liquid milk category,

accounting for about 80% of the market.

Alaska has taken its commitment in providing quality milk products a step further by

bringing to its consumers market leading brands. An alliance with Kellogg’s Asia Marketing,

Inc. awarded Alaska Milk Corporation exclusive distribution rights to Kellogg’s line of

ready-to-eat cereals in the Philippines, enhancing the nutritional value of Alaska milk

products. This partnership has developed a thrust of promoting the habit of having a

nutritious breakfast of cereals and milk, every morning, to start the day right.

Despite a challenging business environment brought about by uncertainties in both

global and domestic economies, total revenues for 2008 grew by 10% to P9.97 billion from

P9.08 billion the previous year. This robust performance was achieved on the back of strong

sales volume growth across the Company’s core milk products even while the market

contracted.

Combined sales volume of the Company’s portfolio of liquid canned milk products

posted a modest growth rate primarily realized from a full 12-month selling period for the

acquired and licensed liquid canned milk brands compared to 8½ months selling period in

2007. Marketing investments and promotional efforts in selected key areas were carried out

to drive consumption. Region specific communication campaigns were likewise developed to

help reinforce the regional heritage of the Carnation, Milkmaid, Alpine and Liberty brands.

Similarly, sales volumes of the Alaska brand were up year-on-year buoyed by the

strong off-take of the economy line - Alaska Evaporada and Alaska Condensada. Continuous

brand building initiatives, especially during high-demand seasons, stimulated consumption

notwithstanding the proliferation of lower-priced brands in the market. New advertising

materials and increased visibility in retail outlets reinforced top-of-mind awareness for the

Alaska brand, especially in the low price market sector.

65

In the face of growing competition in the mass market, a permanent price roll-back

for the Company’s line of Condensada brands was implemented in the last quarter of the

year. This strategic pricing decision underpins the Company’s direction towards providing

the middle and low-income earners with affordable nutrition. Shelf off-take of the entire

Condensada brands improved, reflecting consumers’ receptiveness to the price move.

The powdered milk business sustained its strong performance in 2008 with sales

volume posting double-digit growth year-on-year, outperforming the market’s contraction.

Demand for Alaska Powdered Filled Milk remained brisk owing to the improvements in

product availability. Various sales and distribution drives, supplemented by a new advertising

campaign, boosted consumption as well as market share expansion. To address the growing

needs of consumers on affordability, new packaging formats were made available in the

market.

We continue to see the powdered milk segment as one of the strong growth drivers to

our business. This is anchored on the country’s demographic profile, with 37% of the

population falling below the age of fourteen – our target market. In addition, consumption

trends indicate a strong preference for the more affordable powdered filled milk product,

which underscores our positioning in the category.

The Company’s portfolio of UHT products likewise performed strongly in 2008

alongside with the improvements in retail space and merchandising efforts. Selective

advertising support and volume-generating activities translated in market share gains for the

Alaska brand across the different UHT segments despite heightened media spending by our

competitors in support of their own brands.

Combined sales volume of the Company’s ready-to-drink UHT flavoured milk line

posted substantial growth this year following the re-launch of Alaska Choco. Alongside with

the improvement in taste, the product also features a new and more exciting packaging

design. Consumer off-take of Alaska Yamoo! was likewise brisk, with sales volume up year-

on-year.

Similarly, Alaska Fresh and Alaska Slim UHT milk achieved double-digit growth in

sales volume. These products continued to reap expanded consumer acceptance, aided by

selected promotional activities. Sales volume likewise grew on the back of the brand’s

pricing advantage.

In line with our continuing effort to expand the Company’s portfolio of products in

other segments within the dairy market, Alaska Yoghurt Drink was launched in April 2008.

66

Alaska Yoghurt Drink is an alternative ready-to-drink beverage, cultured with yoghurt

starters and is initially available in strawberry and blueberry flavors.

Alaska Crema All-Purpose Cream entered the year with a slow start as consumer

demand for the product declined following the selling price increases in 2007. With all

indications and factors ushering a continued slowdown in the brand’s off-take, a temporary

price roll-back was implemented for Alaska Crema beginning May 2008.

Capitalizing on seasonal opportunities, promotional efforts for the brand were

likewise executed in the fourth quarter of the year to spur consumption and renew consumer

awareness for the brand. As a result, sales volume of Alaska Crema surged, mitigating the

volume decline early in the year.

CHANGES ACCOUNT POLICIES & DISCLOSURES:

The accounting policies adopted are consistent with those of the previous financial year,

except for the adoption of the following Philippine Interpretations from IFRIC starting

January 1, 2008:

• Philippine Interpretation IFRIC 11, PFRS 2 - Group and Treasury Share Transactions,

requires arrangements whereby an employee is granted rights to an entity’s equity

instruments to be accounted for as an equity-settled scheme by the entity even if (a) the entity

chooses or is required to buy those equity instruments (e.g., treasury shares) from another

party, or (b) the shareholders of the entity provide the equity instruments needed.

• Philippine Interpretation IFRIC 12, Service Concession Arrangements, covers contractual

arrangements arising from entities providing public-to-private service concession

arrangements if control of the assets remains in public hands but the private sector operator is

responsible for construction activities, as well as for operating and maintaining the public

sector infrastructure. As the Company has no public-to-private concession arrangements, the

interpretation has no impact on its financial position or performance.

• Philippine Interpretation IFRIC 14, PAS 19 - The Limit on a Defined Benefit

Asset, Minimum Funding Requirements and their Interaction, provides guidance on how to

assess the limit on the amount of surplus in a defined benefit scheme that can be recognized

as an asset under PAS 19, Employee Benefits. The adoption of the above interpretations did

not have any impact on the financial position or performance of the Company.

67

FUTURE CHANGES IN ACCOUNTING POLICIES:

The Company did not early adopt the following standards, Philippine Interpretations and

amendments that have been approved but are not yet effective:

• Revised PFRS 2, Share-based Payment, becomes effective for financial years beginning on

or after January 1, 2009. It restricts the definition of a vesting condition to condition that

includes an explicit or implicit requirement to provide services. Any other conditions are non-

vesting conditions, which have to be taken into account to determine the fair value of the

equity instruments granted. In case the award does not vest as a result of a failure to meet a

non-vesting condition that is within the control of either the entity or the counterparty, it must

be accounted for as a cancellation. The Company is currently assessing the impact of the

revised standard on the financial statements.

• Revised PFRS 3, Business Combination, and Revised PAS 27, Consolidated and Separate

Financial Statements, become effective for financial years beginning on or after July 1, 2009.

Revised PFRS 3 introduces a number of changes in the accounting for business combinations

occurring after this date that will impact the amount of good will recognized, the reported

results in the period that an acquisition occurs, and future reported results. Revised PAS 27

requires that a change in the ownership interest of a subsidiary be accounted for as an equity

transaction. Therefore, such transaction will no longer give rise to goodwill, nor will it give

rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses

incurred by the subsidiary as well as the loss of control of a subsidiary. The changes

introduced by the revised PFRS 3 must be applied prospectively and will affect future

acquisition and transactions with minority interests while the revised PAS 27 must be applied

retrospectively subject to certain exceptions. The Company assessed that the adoption of the

revised standards will have no impact on the financial statements.

• PFRS 8, Operating Segments, becomes effective for financial years beginning on or after

January 1, 2009, and will replace PAS 14, Segment Reporting. It adopts a full management

approach to reporting segment information. The information reported would be that which

management uses internally for evaluating the performance of operating segments and

allocating resources to those segments. Such information may be different from that reported

in the balance sheets and statements of income and companies will need to provide

explanations and reconciliations of the differences. The Company is currently assessing the

impact of this standard on the financial statements.

68

• Revised PAS 1, Presentation of Financial Statements, becomes effective for financial years

beginning on or after January 1, 2009. The standard separates owner and non-owner changes

in equity. The statement of changes in equity will include only details of transactions with

owners, with all non-owner changes in equity presented as a single line. In addition, the

standard introduces the statement of comprehensive income, which presents all items of

income and expense recognized in profit or loss, together with all other items of recognized

income and expense, either in one single statement, or in two linked statements. The revision

also includes changes in titles of some of the financial statements to reflect their function

more clearly, although not mandatory for use in the financial statements. The Company is

currently assessing the impact of the revised standard on the financial statements.

• Revised PAS 23, Borrowing Costs, becomes effective for financial years beginning on or

after January 1, 2009. The standard requires capitalization of borrowing costs when such

costs relate to a qualifying asset. A qualifying asset is an asset that necessarily takes a

substantial period of time to get ready for its intended use or sale. The Company is currently

assessing the impact of the revised standard on the financial statements.

• PAS 32, Financial Instruments: Presentation, and PAS 1, Presentation of

Financial Statements – Put table Financial Instruments and Obligations

Arising on Liquidation (Amendments), become effective for financial years beginning on or

after January 1, 2009. The amendment to PAS 32 requires certain put table financial

instruments and obligations arising on liquidation to be classified as equity if certain criteria

are met. The amendment to PAS 1 requires disclosure of certain information relating to put

table instruments classified as equity. The Company does not expect that these amendments

will have an impact on its financial statements.

• PAS 39, Financial Instruments: Recognition and Measurement – Eligible

Hedged Items (Amendment), becomes effective for financial years beginning on or after July

1, 2009. The amendment addresses the designation of a one-sided risk in a hedged item, and

the designation of inflation as hedged risk or portion in particular situations. It clarifies that

an entity is permitted to designate a portion of the fair value changes or cash flow variability

of a financial instrument as a hedged item. The Company does not expect that this

amendment will have an impact on its financial statements.

• Philippine Interpretation IFRIC 13, Customer Loyalty Programmes, became effective for

financial years beginning on or after July 1,2008. It requires customer loyalty award credits to

be accounted for as a separate component of the sales transactions in which they are granted

and therefore part of the fair value of the consideration received is allocated to the award

69

credits and deferred over the period that the award credits are fulfilled. As the Company has

no customer loyalty schemes, the interpretation has no impact on its financial position or

performance.

• IFRIC 16, Hedges of a Net Investment in a Foreign Operation, became effective for

financial years beginning on or after October 1, 2008. The interpretation is to be applied

prospectively. It provides guidance on the accounting for a hedge of a net investment and in

identifying foreign currency risks that qualify for hedge accounting in the hedge of a net

investment, where within the group, the hedging instruments can be held in the hedge of a net

investment and how an entity should determine the amount of foreign currency gain or loss,

relating to both the net investment and the hedging instrument, to be recycled on disposal of

the net investment. The Company assessed the adoption of the interpretation will have no

impact on the financial statements.

In May 2008, the International Accounting Standards Board issued its first omnibus of

amendments to its standards, primarily with a view to removing inconsistencies and

clarifying wording. The Company did not early adopt the following amendments to standards

that will become effective for financial years beginning on or after January 1, 2009:

• Amendment to PFRS 7, Financial Instruments: Disclosures, removes the reference to total

interest income as a component of finance costs.

• Amendment to PAS 1, Presentation of Financial Statements, provides that assets and

liabilities classified as held for trading in accordance with PAS 39, Financial Instruments:

Recognition and Measurement, are not automatically classified as current in the balance

sheet.

• Amendment to PAS 8, Accounting Policies, Change in Accounting

Estimates and Errors, clarifies that only the implementation guidance that is an integral part

of a PFRS is mandatory when selecting accounting policies.

• Amendment to PAS 10, Events after the Reporting Period, clarifies that dividends declared

after the end of the reporting period are not obligations.

• Amendment to PAS 16, Property, Plant and Equipment, requires items of property, plant

and equipment held for rental that are routinely sold in the ordinary course of business after

rental are transferred of inventory when rental ceases and they are held for sale. It also

replaces the term “net selling price” with “fair value less cost to sell”.

• Amendment to PAS 18, Revenue, replaces the term “direct costs” with “transaction costs”

as defined in PAS 39.

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• Amendment to PAS 19, Employee Benefits, revises the definition of past service costs,

return on plan assets, and short-term and other long term employee benefits. The standard has

been revised such that amendments to plans that result in a reduction in benefits related to

future services are accounted for as curtailment. It deletes the reference to the recognition of

contingent liabilities to ensure consistency with PAS 37, Provisions, Contingent Liabilities

and Contingent Assets.

• Amendment to PAS 23, Borrowing Costs, revises the definition of borrowing costs to

consolidate the two types of items that are considered components of borrowing costs into

one - the interest expense calculated using the effective interest rate method calculated in

accordance with PAS 39.

SHARE-BASED PAYMENT TRANSACTIONS:

The key executives and members of management of the Company are granted options

to purchase shares, subject to restrictions, terms and conditions provided in the Executive

Employee Stock Option Plan (EESOP). The cost of equity-settled transactions, for awards

granted after November 2002, is measured by reference to the fair value at the date on which

they are granted. The fair value is determined using an appropriate pricing model, further

details of which are disclosed.

The cost of equity-settled transactions is recognized with a corresponding increase in

the stockholders’ equity, over the period in which the performance and/or service conditions

are fulfilled, ending on the date on which the relevant employees become fully entitled to the

award (vesting date). The cumulative expense recognized for equity settled transactions at

each reporting date until the vesting date reflects the extent to which the vesting period has

expired and the Company’s best estimate of the number of equity instruments that will

ultimately vest. The amount reflected in the statements of income represents the movement in

cumulative expense recognized as of the beginning and end of the period. No expense is

recognized for awards that do not ultimately vest.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date

of cancellation and any expense not recognized for the awards is recognized immediately.

The dilutive effect of outstanding options is reflected as additional share dilution in the

computation of earnings per share.

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PENSION BENEFITS:

The Company has a funded, non-contributory defined benefit retirement plan

administered by a Board of Trustees covering all permanent employees. The cost of

providing benefits under the defined benefit plan is determined using the projected unit credit

actuarial valuation method. This method reflects service rendered by employees to the date of

valuation and incorporates assumptions concerning employees’ projected salaries. Pension

expense includes current service cost, interest cost, and Expected return on plan assets,

amortization of unrecognized past service costs, recognition of actuarial gains (losses) and

effect of any curtailments or settlements. Past service cost is amortized over a period until the

benefits become vested.

The portion of the actuarial gains and losses is recognized when it exceeds the

corridor (10% of the greater of the present value of obligation or market related value of the

plan assets) at the previous reporting date, divided by the expected average remaining

working lives of active plan members. The defined benefit liability is the aggregate of the

present value of the defined benefit obligation at balance sheet date and any actuarial gains

and losses not recognized, reduced by past service cost not yet recognized and the fair value

at balance sheet date of plan assets out of which the obligations are to be settled directly. If

such aggregate is negative, the asset is measured at the lower of such aggregate or the

aggregate of cumulative unrecognized net actuarial losses and past service cost and the

present value of any economic benefits availed in the form of refund from the plan or

reductions in the future contributions to the plan.

If the asset is measured at the aggregate of cumulative unrecognized net actuarial

losses and past service cost and the present value of any economic benefits available in the

form of refunds from the plan or reductions in the future contributions to the plan, net

actuarial losses of the current period and past service cost of the current period are recognized

immediately to the extent that they exceed any reduction in the present value of those

economic benefits. If there is no change or an increase in the present value of the economic

benefits, the entire net actuarial losses of the current period and past service cost of the

current period are recognized immediately.

Similarly, net actuarial gains of the current period after the deduction of past service

cost of the current period exceeding any increase in the present value of the economic

benefits stated above are recognized immediately if the asset is measured at the aggregate of

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cumulative unrecognized net actuarial losses and past service cost and the present value of

any economic benefits available in the form of refunds from the plan or reductions in the

future contributions to the plan. If there is no change or a decrease in the present value of the

economic benefits, the entire net actuarial gains of the current period after the deduction of

past service cost of the current period are recognized immediately.

FOREIGN CURRENCY TRANSACTIONS:

Transactions in foreign currencies are initially recorded in the functional currency rate

at date of the transaction. Monetary assets and liabilities denominated in foreign currencies

are translated at the functional currency rate of exchange at balance sheet date. All

differences are taken to the statements of income. All exchange rate differences, including

those arising on the settlement of monetary items at rates different from those at which they

were recorded, are recognized in the statements of income in the year in which the

differences arise, except for foreign currency differences arising from financial assets

designated as cash flow hedge.

TAXES:

Current Tax: Current tax assets and liabilities for the current and prior periods are measured

at the amount expected to be recovered from or paid to the taxation authorities. The tax rates

and tax laws used to compute the amount are those that are enacted or substantively enacted

at balance sheet date.

Deferred Tax: Deferred tax is provided, using the balance sheet liability method, on

temporary differences at balance sheet date between the tax bases of assets and liabilities and

their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except

when the deferred tax liability arises from the initial recognition of goodwill or of an asset or

liability in a transaction that is not a business combination and, at the time of the transaction,

affects neither the accounting income nor taxable income or loss.

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Deferred tax assets are recognized for all deductible temporary differences to the

extent that it is probable that taxable income will be available against which the deductible

temporary differences can be utilized except when the deferred tax asset relating to the

deductible temporary difference arises from the initial recognition of an asset or liability in a

transaction that is not a business combination and, at the time of the transaction, affects

neither the accounting income nor taxable income or loss.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and

reduced to the extent that it is no longer probable that sufficient taxable income will be

available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred

tax assets are reassessed at each balance sheet date and are recognized to the extent that it has

become probable that future taxable income will allow the deferred tax assets to be

recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to

apply in the year when the asset is realized or the liability is settled, based on tax rates and tax

laws that have been enacted or substantively enacted at balance sheet date.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right

exists to offset current tax assets against current tax liabilities and the deferred taxes relate to

the same taxable entity and the same taxation authority.

Sales Tax: Revenue, expenses and assets are recognized net of the amount of sales tax

except:

• Where the sales tax incurred on a purchase of assets or services is not recoverable from the

taxation authority, in which case the sales tax is recognized as part of the cost of acquisition

of the asset or as part of the expense item as applicable; and

• Receivables and payables that are stated with the amount of sales tax included.

The net amount of sales tax recoverable from, or payable to, the taxation authority is included

as part of “Prepaid expenses and other current assets” or “Income tax payable” accounts in

the balance sheets.

PROVISIONS:

Provisions are recognized when the Company has a present obligation (legal or

constructive) as a result of a past event, it is probable that an outflow of resources embodying

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economic benefits will be required to settle the obligation and a reliable estimate can be made

of the amount of the obligation. If the effect of the time value of money is material,

provisions are determined by discounting the expected future cash flows at a pre-tax rate that

reflects current market assessment of the time value of money and, where appropriate, the

risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is

recognized as interest expense. Where the Company expects a provision to be reimbursed, the

reimbursement is recognized as a separate asset but only when the receipt of the

reimbursement is virtually certain.

CONTINGENCIES:

Contingent liabilities are not recognized in the financial statements. They are

disclosed in the notes to financial statements unless the possibility of an outflow of resources

embodying economic benefits is remote. A contingent asset is not recognized in the financial

statements but is disclosed in the notes to financial statements when an inflow of economic

benefits is probable.

Events After Balance Sheet Date Post year-end events that provide additional

information about the Company’s position at balance sheet date (adjusting events) are

reflected in the financial statements. Post year-end events that are not adjusting events are

disclosed in the notes to financial statements when material.

EARNINGS PER SHARE (EPS):

Basic EPS is calculated by dividing the net income for the year by the weighted

average number of shares outstanding during the year. Diluted EPS is computed by dividing

net income by the weighted average number of shares outstanding during the year, adjusted

for the effects of dilutive stock options. Stock options are deemed to have been converted into

shares on the date when the options were granted.

SEGMENT REPORTING:

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For purposes of segment reporting, the Company does not have other reportable

segment other than milk manufacturing.

Alaska Milk Corporation

VisionIs to be a leading consumer foods company with a diversified portfolio of consumer food

brands and products that are market leaders in their respective categories.

Mission

Product Development

We will continue to build on the strengths and competitive attributes of the ALASKA brand

and develop its full marketing potential. We will develop new products and identify market

opportunities, mindful of our task to be responsive to the ever changing and growing needs of

our consumers.

Customer Service

Customer relationship is an integral part of building the Alaska business. We aim to provide

our partners in trade the best and most efficient service, making use of leading edge

technology to ensure timely product availability and accessibility. We strive to know and

understand our customers fully to bridge the gap between what they need and what we can

give.

Quality

Ultimately, the consumer whom we serve and their level of satisfaction with our products

become our final judge and jury. We are committed to deliver high quality milk and other

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consumer food products from production to consumption. We will respond to the call to

deliver higher quality nutrition to every Filipino home.

People

We recognize that our people, the Alaska Team Members, are one of our most important

assets and we are committed to promote their safety and welfare. Their wealth of experience,

ideas, dedication and strong work ethic lay the foundation for the Company’s continued

success. It is our goal as much as it is theirs, to pursue and reach their full potentials through

continuing education, training, and skills-enhancement programs. We challenge each

individual by providing the opportunity to contribute to the Company’s endeavors.

Profitable Growth

Growth that creates value for our shareholders is paramount. We will deploy our resources on

investment opportunities that are within our core competence and yield excellent returns

relative to its risks and which are consistent with our growth objectives.

Social Responsibility

We recognize our role in nation building by promoting the protection of the environment and

taking part in various community-building projects that help enhance and uplift the quality of

life of the underprivileged and the marginalized sectors of our society.

Corporate Social Responsibility

Alaska Gives Back

While unceasingly leading the milky way, Alaska remains committed in its share in nation-

building.

More than a roof

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Located in Bayan-Bayanan, San Pedro, Laguna, the Alaska Gawad Kalinga Village shelters

more than 120 families. In addition, AMC also paved way for livelihood opportunities.

Programs such as furniture and bag-making and Alaska-enriched yema, polvoron, and

pastillas products were introduced to the community. Now, Alaska provides trainings,

supplies raw materials and assists in the marketing and sales of the community’s finished

products.

Alaska believes that providing decent homes and livelihood programs marks the beginning of

the transformation of a person, a family, and a community towards progress and

development. Long after the last brick has been laid, Alaska Milk will continue to support its

adopted community assuring them not only of a “roofed” community but also a brighter

future.

Alaska and Children’s Hour

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http://www.alaskamilk.com/v2/wp-content/gallery/corporate-social-responsibility/alaska-031011-0011.jpg



http://www.alaskamilk.com/v2/wp-content/gallery/corporate-social-responsibility/dsc0178.jpg

Alaska Milk Corporation and Children’s Hour have enjoyed a shared mission and a long

collaboration in creating a brighter future for Filipino children. Children’s Hour is a non-

profit organization that raises funds through the power of one hour. These funds are then

deployed to carefully selected projects that help children in the areas of education, nutrition,

shelter, protection, and total development in the form of grants.

Since 1999, AMC have participated in the Children’s Hour fund raising campaign, which

taps individuals to donate one hour worth of their salary once a year to programs committed

to the welfare and development of Filipino children. AMC is one of the first companies to

join Children’s Hour campaign and has been recognized as one of the Top 20 contributors.

Alaska Milk looks forward to a continuing partnership with Children’s Hour in “making the

world a better place, one hour at a time.”

Milestones

In 1972, Alaska began caring for the Filipino family by providing quality milk products for

good nutrition and health. Since then, it has shown its caring in other ways: through programs

that promote sports development, campaigns that foster good values among children and

product innovations aimed at enhancing the Filipino’s health and welfare. It is this

commitment to the Filipino that has made Alaska a leading brand. Now in 2012, the mission

of nourishing Filipino dreams grows stronger than ever, as Alaska looks forward to the next

40 years.

BUSINESS OPPORTUNITIES

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India and the Philippines enjoy healthy and cordial bilateral economic relations. Our bilateral trade has steadily grown over the years -- from $180 million in 1998 to $372 million in 2004 -- with Indian exports to the Philippines at $283 million and imports from the Philippines at $89 million.

However, it remains below potential. India's share in Philippines' global trade is a negligible 0.46 per cent. Our exports are 0.7 per cent of Philippine's global imports, and Philippine's exports to India are 0.22 per cent of their global exports.

Philippines has traditionally been outside India's trade radar for a long time. Even after our 'Look East' policy was launched in the early 1990's, bilateral trade with the Philippines did not pick up whereas our trade with other countries such as Singapore, Malaysia, Indonesia, Thailand and Vietnam grew rapidly.

One reason is the aggressiveness shown by these countries as far as trade with India is concerned. Philippines on the other hand remained an onlooker. Also missing in the Philippines is the presence of enough Indian companies with effective lobbying capacity back home.

If bilateral trade is to expand, Philippines has to reciprocate the interest shown by Indian businessmen. They could start by liberalising the visa regime for Indians further (some liberalisation under GoI/Embassy pressure has occurred in the last two years).

The Philippines pharmaceutical market heavily dependent on bulk importation of basic raw materials, chemicals, semi-finished and finished products from the US, Europe, Canada and Australia, among others. Annual imports are about $450 million.

Manufacturing merely involves the formulation and processing of drugs and pharmaceuticals into various forms and dosages, repacking of imported bulk drugs and packaging them for distribution. Since the bulk of the imports are from multinational companies, medicine prices in the country are about 5 to 15 times higher than those in India.

There are two main reasons for the below-potential Indian pharma exports to the Philippines -- a strong multinational lobby working against imports of inexpensive medicines from countries like India, and stringent registration procedures of the Philippines' Bureau of Food and Drugs. We in the embassy have been countering the mischief perpetrated by the multinational lobby, by making the government, companies and people aware of the high quality and low-priced drugs available from India.

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We have enlisted the support of the Philippine International Trading Corporation, a government agency, which has been importing medicines worth about $1.5 million a year from India for the last few years.

The PITC has been waging a war on the multinationals and has been promoting affordable-priced medicines from India and other countries. These medicines are supplied to government hospitals and to the 'Boutika Ng Bayan' retail outlets being set up by the Philippine government to make medicines affordable to the poor.

We have also put pressure on the BFAD to simplify the registration procedure for Indian drugs and shorten the time taken. We have been able to have the time shortened from about two years to about a year. It is a prerequisite for any drug imported into the Philippines to be registered with BFAD first. There are now over 50 Indian companies whose products are registered with BFAD.

At present, major items of Indian exports to Philippines are: frozen buffalo meat (for processing), pharmaceuticals, iron and steel manufactures and tools, textile yarn, petrochemicals, auto and motorcycle parts, cereals, organic chemicals, electronic components, etc.

Major imports from Philippines are: semi-conductors, inorganic chemicals, auto parts, newsprint, minerals, garments and miscellaneous industrial products.

There is potential for growth in our exports in pharmaceuticals, IT services, animal feed, iron and steel, auto parts, cereals, chemicals and milk. As regards exports from the Philippine, potential exists in minerals, seaweed, processed foods and auto parts.

Opportunities in Dairy Sector

Jul. 12 – As the demand for dairy products increases from the member nations of the Association of Southeast Asian Nations (ASEAN) , India’s dairy sector seems poised to fill the gap, and can expect a large bump in its milk exports to the region in the near future.

Milk consumption throughout the ASEAN region, especially throughout the ASEAN six majors – which is made up of Indonesia, Malaysia, the Philippines, Singapore, Thailand and

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Vietnam – has gone up in recent years thanks to increasing birth rates, improving diets, rapid urbanization and an increasingly health-conscious middle class in the countries. As a result, these countries have been increasingly dependent on the import of dairy products.“Across Asia, India is the only country with surplus milk. Above all, [India has] the location advantage to cater to the Southeast Asian market,” noted R S Sodhi, Managing Director of Gujarat Cooperative Milk Marketing Federation, which produces India’s Amul milk brand.

Indian skimmed milk powder (SMP) reportedly costs around US$3,450 a ton. In comparison, competing nations such as Australia and New Zealand charge between US$3,550-US$3,650 a ton.

“We expect dairy consumption across the ASEAN-6 to grow 2.4% a year through to 2020. This creates a requirement for an extra three billion liters of milk,” said Michael Harvey, analyst at Australia-based food bank Rabo bank.

Indian SMP exports to the ASEAN region is currently 5000 tons a year, but this number is expected to jump to over 10,000 tons by the end of this year. India’s total milk powder exports are likely to touch 100,000 tons this year.

The Indian government lifted the ban on the export of milk powder just last June. This development comes off the heels of recent news that Australia and New Zealand have been gunning to fill the milk export void in the ASEAN region.

CONCLUSION

As Philippines is agriculture based country just like an India, and importing its 80% of dairy products from other countries, so it is an vast opportunity for India in the dairy sector,

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because India is the world leader in Milk producing and exporting. India already having good trade relation with Philippines in other sectors, except dairy sector, Indian Government has launched many policies to increase the bilateral trade between the ASEAN countries, like “LOOKING EAST”. Recently Indian government lifted the ban on the export of milk powder to increase and encourage Indian dairy sector to increase export in ASEAN.

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compelet gcsr 2003

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