Current Market Condition of Food and Beverages in the Philippines

The Philippines economy is small and has one of the lowest GDP per capita rates ($US3,200) in the whole of Asia. However, between 2003 and 2007, GDP grew by over 50% in terms of its local currency and in 2007 real GDP grew at over 7% (although in 2008 GDP dropped to 4% as a result of the financial crisis), making it one of the world’s fastest growing economies. This has largely been driven by strong domestic demand, economic reform, relative political stability, and the successful exports of services (e.g. telecommunications, business outsourcing), labour, and manufactured goods and resources.1

Euromonitor reports that the Philippine economy is growing at a healthy pace and steady rates of growth are expected in the medium term.  The real growth rate of the Gross Domestic Product, (GDP), grew 4.8% in 2012 to US$416.7 billion on a purchasing power parity, PPP, basis.  Real GDP should grow by 5% in 2013.  Though this represents a slowdown from the forecast of 5.5% in 2012, the economy will still be expanding faster than its potential.  Even though economic headwinds will likely slow exports of electronics, strong fiscal spending, low interest rates, and resilient remittances from overseas Filipinos will continue to drive the economy. 2

The Philippine retail sector continues to modernize and expand, fostering steady sales of a wide range of Food & Beverage, (F&B), products.  Supermarket chains are opening large, Western-style stores in Metro Manila, Cebu, Davao and other key provincial cities such as Bacolod, Cagayan de Oro and Iloilo.  At least some of the recent improvements in the retail sector can be attributed to the passage of the Retail Trade Liberalization Law in 2000, which allows foreign retailers to operate independently in the Philippines.  In response to liberalization, local supermarket chains undertook positive changes to modernize their stores, stream-line operations and broaden their line of imported products.  The retail sector is dominated by companies such as Metro Gaisano, Robinson's Supermarket, Rustan’s/ Shopwise Supercenters, SM Supermarket and S&R.3

Sales in the Philippine Hotel, Restaurant and Institutional (HRI) food service sector have grown by 99% over the past five years to an estimated US$4.25 billion in 2012.  Restaurants were the top contributors with US$3.7 billion (87%), hotels and resorts with US$377 million (9%), and catering and other food service institutions with US$163 million (4%) in estimated gross sales.4

A booming economy, the proliferation of malls and shopping centers throughout the country, and a growing influx of tourists have all contributed to this strong growth.  According to industry

1 http://www.dpi.vic.gov.au/agriculture/investment-trade/market-access-and-competitiveness/markets/philippines/analysis-of-the-food-sector-in-philippines2 http://www.foodexport.org/resources/countryprofiledetail.cfm?itemnumber=10303 http://www.foodexport.org/resources/countryprofiledetail.cfm?itemnumber=10304 http://www.foodexport.org/resources/countryprofiledetail.cfm?itemnumber=1030

interviews, roughly 25% of all consumer-oriented F&B product imports flow through this sector.5

According to the 2011 Annual Survey of Philippine Business and Industry on Hotels and Restaurants, the number of restaurants (including fast-food chains, casual dining outlets, cafes and bars) grew from 72,200 outlets in 2007 to 80,000 outlets in 2011, an increase of 11%.  It is anticipated that the number of restaurants will continue to grow by 2% to 5% annually as the Philippine economy continues to strengthen and major shopping malls throughout the country continue to flourish.6

Post anticipates continued growth in F&B import demand through 2013 (and beyond) across a wide spectrum of products, with some of the fastest growth potential in convenience, gourmet, and “healthy, natural, and organic” categories.7

There are over 11,000 food and beverage processing companies in the Philippines producing a wide variety of products that rely heavily on imported ingredients such as meat and poultry products, fish and marine products, dairy products, processed fruits and vegetables, seasonings, and fats and oils.  The small to medium size industries are mostly family-owned.  Unlike other countries in the region where multinationals dominate the food processing industry, local companies such as San Miguel, RFM Corporation and Universal Robina Corporation hold a large share of the Philippine food-processing sector.8

Food manufacturing, including food and beverage processing remains the Philippines' most dominant primary industry accounting for more than 40% of total output in manufacturing.  The industry contributes approximately 20% of GDP per year.9

Food and beverage manufacturing is an important component of the Philippine economy. In 2009, gross value added in food manufactures and beverage industries reached Php 903.7 billion at current prices, contributing 58 percent of total manufacturing output and 12 percent of the country's gross domestic product (GDP). In real terms, the sector contributed nearly half of total manufacturing output and 11 percent of GDP.10

The industry has generally grown over the past five years, with real growth of 4.8 percent per year. The key growth drivers include the consumers' increasing demand for convenience, the growing number of working women (and hence, less time for home cooking), fast-paced and changing lifestyles, as well as the changing retail and distribution landscape.11

Table 1 - Total Family Spending on Processed Foods and Beverages, 2009 (in million pesos)

5 http://www.foodexport.org/resources/countryprofiledetail.cfm?itemnumber=10306 http://www.foodexport.org/resources/countryprofiledetail.cfm?itemnumber=10307 http://www.foodexport.org/resources/countryprofiledetail.cfm?itemnumber=10308 http://www.foodexport.org/resources/countryprofiledetail.cfm?itemnumber=10309 http://www.foodexport.org/resources/countryprofiledetail.cfm?itemnumber=103010 http://www.dpi.vic.gov.au/agriculture/investment-trade/market-access-and-competitiveness/markets/philippines/analysis-of-the-food-sector-in-philippines11 http://www.dpi.vic.gov.au/agriculture/investment-trade/market-access-and-competitiveness/markets/philippines/analysis-of-the-food-sector-in-philippines

Expenditure Item Amount Percent ShareCereal and cereal preparations 83,299 20.4

Other roots and tubers including preparations 2,732 0.7Processed fruits and vegetables 5,409 1.3

Meat and meat preparations 50,322 12.3Dairy products and eggs 74,536 18.3Fish and marine products 31,441 7.7

Coffee cocoa and tea 33,932 8.3Non alcoholic beverages 44,360 10.9

Food n.e.c* 60,365 14.8Alcoholic beverages 21,850 5.4

Total family spending 408,246 100Note: * Food not elsewhere classified; includes sugar products, cooking oil, margarine, sauces, other spices and seasoning and other food n.e.cSource of basic data: NSO Family Income and Expenditure Survey12

There were 882 processed food and beverage establishments2 with employment of 20 and over, according to the NSO's Annual Survey of Philippine Business Establishments, 2008. These establishments employed a total of 150,955 workers with value of output reaching nearly Php 640 billion. The figures include about 78 establishments engaged in the manufacture of beverages with total employment of 14,014 persons and value of output of about Php 93.6 billion.13

Meanwhile, there were some 80 processed food and beverage companies included in the Philippines' Top 1000 Corporations, with total gross revenues of close to Php 688 billion in 2009. About a fourth of the gross revenues were contributed by the leading companies in the manufacture of malts and liquors, some 14 percent by milk manufacturers (except infant's milk) and 12 percent by softdrink manufacturers.14

Partial list of players in the processed food and beverage industry

Processed foods - Milk and dairy products

Alaska Milk Corp. Arce Dairy, Inc. Fonterra Brands Philippines, Inc. Kraft Foods (Philippines), Inc. Magnolia, Inc. Nestle Philippines

12http://www.dpi.vic.gov.au/agriculture/investment-trade/market-access-and-competitiveness/markets/philippines/analysis-of-the-food-sector-in-philippines 13 http://www.dpi.vic.gov.au/agriculture/investment-trade/market-access-and-competitiveness/markets/philippines/analysis-of-the-food-sector-in-philippines14 http://www.dpi.vic.gov.au/agriculture/investment-trade/market-access-and-competitiveness/markets/philippines/analysis-of-the-food-sector-in-philippines

New Zealand Creamery, Inc. Unilever RFM Ice Cream, Inc. Yakult Philippines, Inc.

Sauces and condiments

Del Monte Philippines, Inc. HDR Foods Corp. Lorenzana Foods Corp. Marigold Commodities Corp. McCormick Philippines, Inc. Silver Swan Manufacturing Corp. Southeast Asia Food, Inc. / UFC Philippines, Inc.

Biscuits and cookies

Commonwealth Foods, Inc. Croley Foods Monde M. Y. San Corp. Monde Nissin Corp. Republic Biscuit Corp. URC

Snackfoods

Commonwealth Foods, Inc. Leslie Corp. Liwayway Marketing Corp. Regent Food Corp. Universal Robina Corp. (URC)

Beverages - Juices and teas

Cenmaco, Inc. Del Monte Philippines, Inc. Dole Philippines, Inc. Kraft Foods (Philippines), Inc. Marsman-Drysdale Foods Corp. Pepsi Cola Products Philippines, Inc. Philippine Beverage Partners, Inc. RFM Milk and Juice Division San Miguel Corporation The First Enterprises, Inc. URC Zest-O Corp.

Alcoholic beverages

Asia Brewery, Inc. Diageo Philippines, Inc. Distileria Bago, Inc. Emperador Distillers, Inc. Ginebra San Miguel San Miguel Corporation Tanduay Distillers, Inc.

Processed fish

A. Tung Chingco Mfg Corp. Ayala Seafoods Bagumbuhay Industrial Century Canning Corp. Chattrade Enterprises Columbus Seafoods Corp. Maunlad Canning Corp. Universal Canning Corp.

Processed fruits and vegetables

Dalisay Sweets Del Monte Philippines, Inc. Dole Philippines, Inc. Florence Foods Corp. Jo-na's International Philippines, Inc. Queen Food Mfg. Ram Food Products, Inc.

Noodles and macaroni

Monde-Nissin Corp. Nestle Philippines Nissin – URC URC Zest-O Corp.

Processed meat

A. Tung Chingco Mfg. Corp. CDO Foodsphere Pacific Meat Co., Inc.

Swift Foods, Inc. The Purefoods-Hormel Company, Inc.

Bottled water

Asia Brewery, Inc. Coca-Cola Bottlers Philippines Inc. Nestle Philippines, Inc. Philippine Spring Water Resources Inc. URC Waters Unlimited, Inc.

Coffee

Commonwealth Foods, Inc. Nestle Philippines, Inc. San Miguel Corp. Universal Robina Corp.

Softdrinks

Asiawide Refreshments Corp. Coca Cola Bottlers Philippines, Inc. Cosmos Bottling Corp. Interbev Philippines, Inc. Pepsi Cola Products Philippines, Inc.

Source: Center for Food and Agri Business, University of Asia and the Pacific15

Most of the companies are located in Luzon, catering to the large Metro Manila market, which has a night population of about 11.5 million in 2010. The daytime/work day population could be about 14 million. Some are concentrated in Mindanao such as in the case of fish canning, seaweed processing and pineapple processing.16

Philippine processed foods and beverages are among the country's leading export products. In 2009, exports amounted to US$1.2 billion with a robust growth of 11.6 percent per annum from only US$782 million in 2005. Shipments consisted mainly of processed fruits and vegetables, fish and seafood preparations, sugars and sugar confectionery, cereal, flour, starch, milk preparations and products, and dairy products, and edible animal products. The key markets include the United States (US), Asian countries like Japan, South Korea, Indonesia, Malaysia, Thailand, Taiwan, Singapore and Vietnam, as well as countries in the Middle East such as Iran and the United Arab Emirates.

15 http://www.ats-sea.agr.gc.ca/ase/6212-eng.htm16 http://www.ats-sea.agr.gc.ca/ase/6212-eng.htm

Meanwhile, imports grew by 9.8 percent per year to nearly US$2 billion in 2009 from a little over US$1.4 billion in 2005. The leading product categories include dairy products, eggs, honey, edible animal products, miscellaneous edible preparations, meat and edible meat offal, cereal, flour, starch, milk preparations and products, and milling products, malt, starches, inulin and wheat gluten. The major country suppliers include New Zealand, Australia, US, India, Thailand and Ireland.

The trade balance has consistently been negative, with imports outpacing exports by nearly US$800 million per annum during the last five years.17

The Philippines is a net importer of processed foods and beverages, just like most of its Association of Southeast Asian Nations (ASEAN) neighbours. In 2009, its imports outpaced exports by US$789 million, the third highest deficit after Singapore (US$962) and Malaysia (US$960). It paled in comparison to Thailand, Indonesia and Vietnam, which managed to post trade surpluses.

Table 2 - Processed foods and beverages: Trade Balances of ASEAN Countries, 2009

(in US$ millions)Country Exports Imports BalanceBrunei 2 169 (168)

Cambodia 33 486 (453)Indonesia 4 420 2 734 1 686

Laos 35 216 (181)Malaysia 3 386 4 346 (960)Myanmar 43 484 (441)

Philippines 1 195 1 984 (789)Singapore 4 094 5 056 (962)Thailand 12 173 1 964 10 210Vietnam 3 606 3 048 559

Source of basic data: International Trade Centre (ITC)18

17 http://www.ats-sea.agr.gc.ca/ase/6212-eng.htm18 http://www.ats-sea.agr.gc.ca/ase/6212-eng.htm