ContentsIntroduction 3Overview of Current Economic Situation 4Overall Trade Relationship with Victoriaand Australia 5Victorian & Australian Food Exportsto the Philippines 6Food Consumption Trends 7Distribution Channels 8Market Access 9Opportunities for the Victorian Food Industry 10Dairy 10Grains 10Meat 10Prepared Foods 10Horticulture 10Conclusion 11Reference List 12List of tables and figuresTable 1: Population and economic data for the Philippines, 2007 3Figure 1: The Philippines 3Figure 2: Trends in export of selected food commodities from Australia to the Philippines 6Figure 3: Trends in export of selected food commodities from Victoria to the Philippines 6Figure 4: Typical Filipino Food Distribution Channels for Imported Australian Agrifood 8
Introduction 3The Philippines is one of the world’s fastest growing andyoungest populations, with 65% of its 96 million people under30 years of age.The gulf between the rich and poor is large with 30% ofFilipinos living below the poverty line (surviving on, or lessthan, $US 1 per day). In urban areas poverty afflicts 20% ofthe population whilst in rural areas it is 47%, which has ledto an estimated 10 million Filipinos being Overseas Workers.The Philippines has the highest level of English literacy inAsia (93%) and Christianity is the major religion (90%).The Philippines has a volatile political history with civilianunrest, coups and attempted coups a common situation.However, since 2001 the Government, a Republic Nationwith a democratically elected President (Gloria Macapagal-Arroyo, 2001-Current), has been relatively stable albeitwith continued high levels of corruption, lack of economiclegislation and judicial reforms, rapid population growth, andongoing insurgencies by terrorist and rebel groups whichcontinue to undermine this stability.The Philippines consists of over 7,100 islands with a totalland area of 300,000 km2, making it the second largestarchipelago in the world. It can be divided into three mainisland groups; Luzon (north), the Visayas (central) andMindanao (south). Four cities have populations exceedingone million, Quezon City, Manila, Calcooan City (all within thePhilippines National Capital Region - NCR) and Davao City. Figure 1: The Philippines Source: Maps.comIt is these metropolitan regions that present the opportunitiesfor Victorian agrifood products, particularly metropolitan increasing food self sufficiency is a major concern for theManila and NCR. Filipino government. Typically food produced from small landOver 50% of the Philippines land mass is classified as holdings is consumed by the household or traded at localagricultural land. Agricultural production is undertaken wet markets. Similarly, food produced from large agriculturalby small landholders who either lease or own their land estates results in the Philippines being a major produceror companies with vast agricultural estates. Due to rapid and exporter of sugar, rice, corn, tropical fruits (coconuts,population growth and escalating commodity prices, bananas, pineapples and mangoes), poultry and pork.Table 1: Population and economic data for the Philippines, 2007 (in comparison to Australia) National statistics (2007) Philippines Australia Size 300,000 km2 7,686,850 km2 Population 96 million 21 million Population growth 1.99% 0.801% GDP $US 300 billion $US 773 billion GDP per capita $US 3,200 $US 37,300 GDP growth rate 7.3% 3.9% Food self sufficiency <100% >100%
Overview of Current Economic Situation4 The Philippines economy is small and has one of the lowest The major industries contributing to the Philippines economy GDP per capita rates ($US3,200) in the whole of Asia. include Manufacturing (50%), Agriculture (15%), Overseas However, between 2003 and 2007, GDP grew by over 50% in Workers remittances (15%) and Services (10%). The Agrifood terms of its local currency and in 2007 real GDP grew at over sector employs over one-third of the population, and in 2007 7% (although in 2008 GDP dropped to 4% as a result of the accounted for 14% of its GDP. The landscape is dominated financial crisis), making it one of the world’s fastest growing by expansive estates that date back to colonisation, however economies. This has largely been driven by strong domestic a national land re-distribution program, which began in demand, economic reform, relative political stability, and the 1998, is currently underway transferring land ownership to successful exports of services (e.g. telecommunications, local residents. The Philippines remains a net importer of business outsourcing), labour, and manufactured goods and agrifood products with a trade deficit of $US 1.54 billion in resources. 2007. Wheat replaced rice as the most imported commodity followed by dairy ingredients in 2006, which are primarily Whilst the general macroeconomic outlook has improved used in the large processing sector. dramatically over recent years, with economic growth averaging 5% since Gloria Macapagal-Arroyo became The Philippines’ food processing sector is the most dominant President in 2001, the Philippines needs to continue its manufacturing sector in the country. It accounts for 40% economic reform agenda to ensure its long term fiscal of total manufacturing output, contributes 20% of GDP per stability and ‘catch up’ to other South East (SE) Asian annum and is growing at 8%-10% per annum. The sector economies. Continual reform and growth will be pivotal to comprises of fruits and vegetables, meat and poultry, flour alleviating poverty rates, which are currently growing due to and bakery, dairy products, fish and marine, beverages, the increasing population and unequal distribution of wealth. confectioneries, food condiments and seasonings, food supplements, bottled water, snack foods, fats and oils. This sector is heavily reliant on both domestically produced and imported agrifood products.
Overall Trade Relationship with Victoria and Australia 5Recent economic liberalisation by the Philippines Government exports to the Philippines (2007-08) include; crude petroleumhas resulted in a trading system that’s relatively open and - $195 million, copper ores and concentrates - $159 million,has some of the lowest applied tariffs in the region. The medicaments (including veterinary) - $110 million and milkPhilippines is a member of the World Trade Organisation and cream - $106 million. Major Australian merchandise(WTO) and Association South East Asian Nations (ASEAN) imports from the Philippines (2007-08) include; crudeand as such are party to the Australian – ASEAN - New petroleum - $228 million, copper - $44 million, electronicZealand (AANZFTA), signed in February 2009 (see below machinery and parts, other $37 million, telecommunicationsfor further detail). Tariff rates for most consumer-oriented equipment - $35 million. Total trade in services betweenproducts range from 3%-15% and are undergoing unilateral Australia and the Philippines in 2007 comprised $266 millionreduction. However industries considered sensitive such in exports and $306 million in imports.as poultry, pork, potatoes and coffee are exempt and have The Australian Trade Commission (Austrade) has an office inminimum access volumes and significantly higher tariff rates the Philippines located in Manila with a focus on promotingapplied to them. exports of Australian food and beverage and agribusinessAustralia maintains a good bilateral trade and economic products and services. The Victorian Governmentrelationship with the Philippines. Two-way merchandise (Department of Primary Industries) is undertaking a Markettrade was valued at $2 billion in 2007-08, 13% higher than Driven Responses Project with a focus on new and emergingin 2006-07 and both governments consider there to be markets and accordingly a Market Development Manager withsignificant potential for growth. Major Australian merchandise responsibility for South East Asia including the Philippines. Image courtesy of Meat and Livestock Australia
Victorian & Australian Food Exports to the Philippines6 The Philippines has been, and to a large extent still is, an $AU million importer of agricultural commodities that are predominantly 140 used as raw materials in its large food manufacturing sector. Australian exports to the Philippines reflect this trend with 120 dairy, meat and cereal ingredients forming the majority of total agricultural trade (Figure 2). 100 The Philippines is Victoria’s 13th most valuable agrifood export market valued at $175 million in 2008, increasing 80 by 45% from 2007 (due largely to record commodity prices during 2008). However total value has decreased by $42 60 million since 2004, largely driven by a decrease in dairy exports due to price sensitivity and increased competition. 40 Despite this is also a reflection of the inherent volatility of trade with Philippines which is a very price sensitive market 20 and often viewed by exporters as a ‘spot’ market as opposed to a consistent long term export market. Dairy still remains 0 the major export industry from Victoria valued at $130 million, 2004 2005 2006 2007 2008 followed by red meat (mainly beef) $16 million and cereals valued at $13 million (Figure 3). Powdered milk Malt Beef Cheese and cream Australian food products are held in high regard in the Milled products Wheat Live animals Confectionery Philippines food manufacturing, retail and service sectors. They are perceived as being of very high quality and safe, Figure 2: Trends in export of selected food commodities but expensive. The Philippines is a particularly price sensitive from Australia to the Philippines Source: GTIS (2008) market, and as such Australia faces fierce competition from a number of agricultural commodity and food exporters from around the world. $AU million The United States of America (USA) is the major exporter of 140 agrifood commodities such as wheat, soy, dairy, meat and fruit as well a wide range of further value added food products 120 into the Philippines. The US has a long standing relationship with the Philippines due largely to their association during war time efforts spanning back to 1898. The Philippines 100 also imports similar products, but to a lesser extent, from New Zealand (NZ), Canada and the European Union (EU). 80 However due to the significant price sensitivity of Filipinos, countries such as China and other ASEAN nations are also 60 very prominent exporters to the Phillipines, trading in large volumes of low price products such as fruit (particularly from 40 China), vegetables, processed foods and dry goods. Due to the diversity and size of the Filipino market, there 20 are segments for the lowest value products (e.g. beef offal) through to high value products (e.g. primary beef cuts) and 0 Australian exports compete in all of these segments. In 2004 2005 2006 2007 2008 general agrifood commodities (e.g. wheat, dairy ingredients) Powdered milk compete in low value and high value segments in the food Cheese Wheat Beef and cream processing sector with all of the countries mentioned above Whey products Butter Ingredients (in addition to others). Conversely, Australian exports of further value added food products (eg. cheese, portion Figure 3: Trends in export of selected food commodities controlled lamb), generally targeted at higher value modern from Victoria to the Philippines Source: GTIS (2008) retailing and food service markets, compete with imported products from the US, Canada, NZ and the EU.
Food Consumption Trends 7Traditional food retail and service formats, particularly wetand dry markets and local ‘sari-sari’ stores are the mostcommonly frequented by Filipino consumers. Modern retailingand food service is very much in its infancy, but transformingquickly. These factors coupled with the large and growingdivide between the rich and poor result in very contrastingfood consumption trends in the Philippines. In general, locallyproduced and/or manufactured products and low-mediumpriced imported products are consumed via traditionalmarkets. Medium-high priced imported products arepredominantly found in foreign owned supermarkets and fivestar hotel restaurants in major urban centres such as Manila.The majority of food consumed in the Philippines ismanufactured by local companies, 11,000 in total (suchas San Miguel and RFM Corporation), that produce foodacross all major food sectors, such as noodles, processedmeat products (poultry, pork beef), processed fruit andvegetable products, dairy products and snack foods. Thesemanufactured foods combined with fresh fruit, vegetables,meat and rice form the staple diet for low-middle classFilipino’s, who are the dominant consumer segment in thePhilippines.However, middle-high income earners are demandingnon-traditional and imported ‘ready-to-eat’ foods and inturn are driving modernisation of the Filipino food retailingsector. The modern retail sector is undergoing significanttransformation with supermarkets, hypermarkets andconvenience stores developing rapidly, along with the qualityof product offered. The majority of retailers are local (lawsprohibiting international retailers operating in the Philippineswere only removed in 2000) and include SM Supermarkets/Hypermarkets, Robinsons, Rustans, Makro and Pricesmart.Modern retailing is a relatively new concept in the Philippinesand as such is primarily located in major urban centresalongside its customers.Despite this, the Philippines is widely regarded as one ofAsia’s most attractive retail growth markets. Continuedeconomic growth combined with a deregulated andhighly fragmented market, along with interest from majorinternational retailers such as Wal-Mart, Casino, Carrefourand Tesco, will accelerate growth and opportunities in thissector to satisfy the growing consumer demand for retailready food products in the medium-long term.Filipinos spend approximately 12% of total income eatingout and the sector is valued at $US3 billion, with growth of10%-15% in the last decade. Traditional food service formatsstill enjoy a majority market share in the Philippines, but themodern food service market, driven by convenience andprice and dominated by fast food restaurants/chains such asJolibee, McDonalds and ChowKing, is increasing its presencewith speed. High end restaurants and hotels are found inmetropolitan Manila and service wealthy local and expatriateconsumers. Both of these segments are heavily reliant uponimported foods.
Distribution Channels8 The food sector in the Philippines is extremely fragmented expensive. Maintaining cool chain distribution is a significant due to the excessive numbers of food retail and service issue and often leads to excessive spoilage, particularly for outlets; the convoluted supply chains; under-developed inter-island distribution. warehousing, distribution, cool chain and transport Distribution channels in the Philippines food processing, retail infrastructure; and the archipelagic nature of the country. and food service sectors resemble the disjointed nature of These factors lead to inefficient and costly distribution, the food sector. Figure 4 below depicts the flow of imported particularly outside of Manila. goods into the Philippines. As is illustrated, there are a In general, imported food from Australia enters the number of members in the supply chain with very limited Philippines in Manila, either at the Manila seaport (frozen product going direct to retail or food service. Most imported and shelf stable products) or the Ninoy Aquino International food moves into the food processing sector before making airport (fresh short shelf-life products). However, there are its way into the various food retail/service outlets. Likewise many other entry points into the Philippines including Cebu, imported ready-to-eat foods are typically imported by an Iloilo, Davao, Cagayan de Oro, and Zamboanga seaports and import/distribution company before further distribution. It is Diosdado Macapagal, Mactan-Cebu, and Francisco Bangoy rare for retailers, including modern retailers, to import directly. international airports. Although, in the medium-long term, direct importation is expected to increase particularly as global retailers enhance Once in the Philippines the main mode of freight is via road their presence in the Philippines. transport and “roll-on, roll-off” inter-island ferry shipping. Rail freight is poorly developed and air freight is generally too Australian supplier Australian consolidator Filipino Filipino food importer trader Filipino food processor Filipino Filipino Filipino major retailer wholesalers/ small retail distributors Filipino wet market Figure 4: Typical Filipino Food Distribution Channels for Imported Australian Agrifood Source: DPI, 2009
Market Access 9The Philippines’ Department of Agriculture and Bureau ofAgriculture and Fisheries (animal and horticultural products)and the Department of Health and Bureau of Food andDrugs (processed foods) are the main agencies tasked withdeveloping, regulating and enforcing food safety standards forall imported foods. Food products must be registered with therelevant agency, which can only be done by a Filipino entityand typically takes three months. Accordingly a reputableimporting company that best suits a Victorian company’sexporting needs is essential in the Philippines and crucial formarket access and market success.All imported foods and agricultural products are required tocomply with the Philippines food health and phytosanitarylaws. Similarly packaging, labelling and other specificstandard must be adhered to (for more detailed informationrefer to references packaging and labelling).AANZFTA provides for the progressive reduction or, formost products, elimination of tariffs facing Australian goodsexported to ASEAN countries, over a transition period. Thefollowing list is a summary of key sectoral outcomes for thePhilippines (for more detailed information refer to references,tariffs to ASEAN countries):Meat and livestock: existing liberal access for live bovineanimals will be guaranteed through tariffs bound at 0% orphased to 0% or 2.5%. Tariffs on most meat tariff lines arebound at 0% on entry-into-force (EIF) or phased to 0%,although some lines are subject to tariff reductions only, anda few lines are excluded from tariff commitments in somecountries.Fish: tariffs on the vast majority of tariff lines are bound at0% or phased to 0%, with tariffs on remaining lines mainlyreduced to 5% or less.Dairy products: tariffs on all tariff lines are bound at 0%on EIF or phased to 0%, except two lines that will be phasedto 5%.Grains: for most products tariffs are bound at 0% on EIF orphased to 0%. Rice is excluded from tariff commitments.Fruit and nuts: tariffs on most products phased to 0%Vegetables: Tariffs on most products phased to 0%, butthere will only be modest reductions on some products withhigh tariffs, including potatoes, celery, carrots, cauliflowers,broccoli and lettuce.Fruit and vegetable juices: prepared and processed fruitand vegetables: tariffs on all products are bound at 0% onEIF or phased to 0%.
Opportunities for the Victorian Food Industry10 Even though the Philippines presents a number of challenges including its high price sensitivity, it also presents significant opportunities for Victorian agrifood exporters in the short, medium and long term. Due to the level of economic development, population growth and importance of the food manufacturing sector in the Philippines, export of agrifood commodities such as dairy ingredients, wheat and meat products pose as very good long term prospects. Higher priced value-added products such as ready-to-eat retail products and fresh produce will increasingly develop into substantial opportunities, more so in the medium to long term and this will be driven by growing consumer demand and modernisation of the retail, and to a lesser extent, the food service sectors. Dairy Dairy ingredients represent the bulk of the value and volume of Victoria’s food exports to the Philippines. Milk powders, cheddar, whey and butter amongst others will remain long term growth opportunities, which will also be aided by the lack of development in the Filipino dairy industry. Filipinos are the largest per capita consumer of dairy products in Asia and with increases in household incomes there is large scope to further increase demand for value-added products such as, cheeses, yoghurts and desserts as per capita consumption is still well below that of western countries. Prepared Foods (Ingredients) Specialised ingredients such as manufacturing grade herbs Grains and spices, fats and oils and confectionaries are vital inputs Grains, particularly wheat, are a major imported commodity to the Filipino food manufacturing sector. Imported directly into the Philippines. Whilst not truly reflected in the export by manufacturers, or more commonly by traders, these figures due to confidentiality agreements, a large volume of products tend to be more niche in nature but offer Victorian Australian wheat is imported for the manufacture of noodles food exporters (with the capability to be flexible) good and flour for other bakery products. There is a very large opportunities in the short to long term to supply into the wheat milling industry in the Philippines which relies solely Philippines food manufacturing sector. on imported products. The short to long term opportunities for wheat exports to the Philippines are very good and this market offers good opportunities for Victorian and Australian Horticulture (Fruit) wheat exporters in the new deregulated wheat market. Technically the only Australian fruit with access into the Philippines is processed fruit and due to the domestic and import competition very little Australian product is exported Meat into the market. However, there is a considerable volume The Philippines is self sufficent in pork and poultry and is a of table grapes and citrus (no tropical fruits) from Australia strong exporter of these products. However, the opportunities that enters the Philippines via a grey channel that is widely for red meat, particularly beef, are good. Manufacturing grade recognised in the market. Discussions are taking place beef, offals and trim for processing into products for fast food government to government and in the event market access chains and retail meat products offer very good short to long is granted for fruit product, significant opportunity exists for term opportunities. Primary and secondary cuts of meat are Victorian exporters of table grapes, citrus and to a lesser currently supplying niche high-end food service and retail extent stone fruit. Fruit is a very large part of the Filipino diet, outlets. However over the medium to long term the demand particularly for special occasions. for higher quality beef and lamb products can be expected to grow with the enhanced modern retail offer and growing high- end food service sector.
Conclusion 11 The Philippines is currently a good market for Victorian agrifood exporters with the potential for growth in the medium to long term. This potential will be achieved if the fundamentals driving demand can outweigh the challenges that the Philippines faces. The drivers of demand have been the strong consistent economic growth (current global financial crisis aside), continual economic and trade reform (e.g. AANZFTA), political stability, strong domestic demand, young population, the growing appetite for non-traditional foods and a very strong food manufacturing sector. The challenges include the maintenance of economic and political stability, continual economic growth to alleviate poverty, poor transport and cool chain infrastructure and corruption. Currently major opportunities exist for agrifood commodities such as dairy ingredients, wheat and meat. It is anticipated that, for the foreseeable future, this demand will continue and potentially, experience growth. Filipinos have a growing demand for western style food products and with sizeable exposure to multinational fast food chains, high-end dining (for those who can afford it) and the increasing presence of modern retailing and international retailers, the demand for value added ready-to-eat and high value fresh food products will develop.
Reference List12 • Australian Department of Foreign Affairs and Trade (DFAT): http://www.dfat.gov.au/geo/philippines/philippines_brief. html http://www.dfat.gov.au/trade/fta/asean/aanzfta/ http://www.dfat.gov.au/trade/fta/asean/aanzfta/factsheets/ index.html • Department of Primary Industries Victoria (DPI); Food and Fibre Report 2008, www.dpi.vic.gov.au • Euromonitor International; Philippines Country Fact File: www.euromonitor.com • Google: http://images.google.com.au/ • Planet Retail; Grocery retailing in the Philippines: www.planetretail.net/markets • United States Central Intelligence Agency (CIA): https://www.cia.gov/library/publications/the-world- factbook/ • United States Department of Agriculture (USDA); GAIN Reports RP8049, RP8015, RP8041, RP7064, RP8043: http://www.fas.usda.gov/scriptsw/attacherep/default.asp Packaging and labelling • Bureau of Animal Industry (Department of Agriculture): http://bai.da.gov.ph/baimainframe.html • Bureau of Plant Industry (Department of Agriculture): http://bpi.da.gov.ph/services.html • Bureau of Food and Drugs (Department of Health): http://www.bfad.gov.ph • Bureau of Agriculture & Fisheries Product Standards (Department of Agriculture): http://www.bafps.da.gov.ph Tariffs to ASEAN countries • Department of Foreign Affairs and Trade: http://www.dfat.gov.au/trade/fta/asean/aanzfta/ • Department of Foreign Affairs and Trade: http://www.dfat.gov.au/trade/fta/asean/aanzfta/factsheets/ index.html