Competitive Industry Report on the Philippines Market for Imported Meat and Poultry A Guide for Canadian Exporters *Abbreviated Prepared for: The Embassy of Canada in The Philippines & Office of Southeast Asia Regional Agri‐Food Trade Commissioner Agriculture and Agri‐Food Canada Prepared by: Stanton, Emms & Sia 80 Raffles Place, Level 36‐01 UOB Plaza 1, Singapore 048624 Tel: +65 6334 7030 Fax: +65 6223 2010 Email: emmsia@pacific.net.sg Website: http://stantonemmsandsia.foodandbeverage.biz March 2010 This report contains market information collected by Stanton, Emms & Sia. The Government of Canada assumes no liability for the accuracy and reliability of the market information and intelligence provided herein. *For the complete report, Canadians are invited to contact Ms. Yvette Buendia at the Embassy of Canada in the Philippines : yvette.buendia@international.gc.ca The Philippines Market for Imported Meat and Poultry 1.
Introduction This guide for Canadian exporters is prepared by Stanton, Emms & Sia for the Embassy of Canada in the Philippines and the ASEAN Agri‐Food Trade Commissioner, Agriculture and Agri‐
Food Canada. It covers the Philippine markets for:  fresh / chilled beef;  frozen beef;  fresh chilled pork;  frozen pork;  frozen pigs offal; and,  frozen chicken parts. It was researched in February and March 2010. The report was prepared to provide Canada’s ASEAN based Agrifood Team of Trade Commissioners and Canadian producers and exporters with an up‐to‐date understanding of the target market and opportunities in the Philippines for selected Canadian meat and poultry products. The main focus of the study is on the size and development trends of the markets for the selected products mentioned above, the basis of demand, the competitors and the basis of competition, and future prospects and opportunities for Canadian exporters. It should be noted that at the time of the research (March 2010), there was no Philippine data available on meat and poultry imports for the whole of 2009. 2.
Market size, nature of supply and development trends 2.1 Overview of domestic supplies There are currently two datasets available on livestock production in the Philippines. One shows the industry producing around 3.6 million tonnes of meat and poultry and being relatively stagnant. The other, that production is around 2.7 million tonnes and has been growing at around 2.7% per annum over the past 5 years (see Chart below). 1 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Production of Meat and Poultry in the Philippines – 2003 to 2008 Source: Government of the Philippines The bulk of meat and poultry production involves pork and chicken (see Chart below). Meat and Poultry Production in the Philippines by Product Type in 2008 Source: Government of the Philippines Locally produced meat and poultry is an important part of the Philippines economy, both at the level of rural SME producers and big businesses, which have a very strong competitive position in the market. There are industry reports of a slump in meat and poultry production in 2008, although this is not reflected in the datasets that are available. 2 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Trade sources comment that there is now growth in demand for halal meats in the Philippines because the Muslim population, which accounts for 5% of total population, is growing in size and also experiencing higher incomes. One of the country’s largest meat processors, Swift Foods (RFM Foods Corporation), has recently converted all of its sausage manufacturing to halal certified status. The rationale behind this conversion also includes the ASEAN Free Trade Area (AFTA) and halal meat export markets in Malaysia, Singapore, Brunei Darussalam and Indonesia’s key cities. The Middle East is also regarded as a very important target market, and Swift Foods has already launched its products in some countries in this region. According to the government, local meat and poultry products comprise around 94% of total consumption. Trade sources comment that 2009 was a more positive year for local producers because the price of inputs, e.g. animal feed, was lower due to the collapse of global commodity prices. 2.2 Overview of imported supplies of meat and poultry The Philippines has a large market for imported meat and poultry products. In 2008, it imported about 294,000 tonnes of meat and poultry products valued at C$ 354 million, up from 213,000 tonnes valued at C$ 229 million in 2004 (see Chart below). Trends in the Philippines Imports of Meat and Poultry – 2004 to 2008 (All Products) Source: Philippines External Trade Statistics for Imports 3 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Over the period between 2004 and 2008, import volumes grew at an average of about 7.5% per annum, driven by buoyant economic conditions, stronger end‐consumer demand for meat and poultry, shortfalls in local supplies of some products due to disease outbreaks, and improved market access arising from trade liberalisation by the government. These trends have taken place against a background where local meat and poultry products, especially those of the larger businesses and localised SME suppliers, are competitive within local market scenarios. The state of local competition is reflected in the profile of imports, because imports are generally higher in segments where local producers are challenged to meet local demand, e.g. lower cost beef and offal (see Chart below) Philippine Imports of Meat and Poultry Products in 2008 – 293,734 Tonnes Source: Philippines External Trade Statistics for Imports The Philippines is importing meat and poultry products from around 30 different countries and territories (see Chart below). 4 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Main Origins of the Philippines Imports of Meat and Poultry in 2008 – 293,734 Tonnes Source: Philippines External Trade Statistics for Imports Origins vary from Developing World countries, e.g. India, Brazil and China, to various Developed World countries, with Canada as the main player amongst them in 2008. 2.3 Review of markets for the specific products covered by the study 2.3.1 Overview of imports The Philippines imports of the specific products covered by this study were valued at a total of C$ 312 million in 2008, up from about C$ 197 million in 2004 (see Table below). Overview of Trends in the Value of Imports of the Products Covered by this Study Product 2004 2005
2006
2007 2008
C$ ‘000 C$ ‘000
C$ ‘000
C$ ‘000 C$ ‘000
Fresh/chilled beef 226 434
402
99 59
Frozen beef 155,151 142,616
134,679
148,348 219,798
Fresh/chilled pork 10 ‐
15
59 ‐
Frozen pork 10,506 8,241
4,052
8,863 28,784
Pig’s offal 15,172 15,398
18,064
23,365 33,168
Frozen chicken parts 15,621 20,277
23,456
25,166 29,744
Total 196,686 186,966
180,668
205,900 311,553
Source: Philippine external trade statistics (Official classifications) 5 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Four of the markets covered by this study are large, one very large and all, except the fresh/chilled markets, have been growing over the past 5 years. The markets for fresh/chilled meats are very difficult to develop because of:  general price sensitivity in the meat and poultry markets and, for imports, related weaknesses in the Peso, the local currency;  strong competition from major businesses that control the market for fresh/chilled meats; and,  regulatory barriers and constraints, especially for products with Tariff Rate Quotas in place. 2.3.2 Fresh/chilled beef The Philippines has a very small market for imported fresh/chilled beef. Imports of such products amounted to just 29 tonnes valued at C$ 59,000 in 2008, down substantially from 206 tonnes valued at about C$ 226,000 in 2004 (see Table below). Total % change Philippine Imports of Fresh/Chilled Beef – 2004 to 2008 2004 2005
2006
2007 Tonnes Tonnes
Tonnes
Tonnes 206 307
250
31 ‐ 49.0%
(18.6%)
(87.6%) 2008
Tonnes
29
(6.5%)
Source: Philippines external trade statistics Imports of fresh/chilled beef have a minuscule share of the Philippines beef market, which involved consumption of around 292,000 tonnes in 2008. Trade sources comment that this demand scenario is highly unlikely to change in the foreseeable future. The key reasons being:  the structure of the Tariff Rate Quota for beef and its operational aspects, which make it more viable for an importer to bring in frozen beef. More information on the TRQ is provided in a following chapter of this briefing; and,  price sensitivity, so higher‐priced imported fresh/chilled beef only has limited opportunities. 6 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Challenges also exist because the Philippines cool chain distribution system has weaknesses, including in Metro Manila, which still make imports of fresh/chilled meat quite risky. The reality of the imported beef market today is that the Philippines is principally a market for frozen beef. It should be noted that imported beef is being retailed as chilled beef, alongside local beef in the higher end retailers in Metro Manila. It is not known whether this is imported fresh/chilled beef or defrosted frozen beef. The Table below provides a sample of some indicative prices of some of the beef cuts available in February 2010. Indicative Retail Prices of Chilled Beef in February 2010 Product Country of Origin and Peso Per Kilogram C$ Per Kilogram Brand Tenderloin Local (Farm Fresh) 775 17.37 Porterhouse Local (Farm Fresh) 500 11.20 T‐Bone Local (Farm Fresh) 450 10.08 Ribeye Local (Farm Fresh) 435 9.75 Sirloin Local (No brand) 290 6.50 Sirloin Australia * 378 8.47 Brisket Local (No brand) 212 4.75 Brisket Australia * 254 5.69 Shank Local (No brand) 200 4.48 Shank Australia * 264 5.92 Lean beef cubes Local (No brand) 218 4.88 Lean beef cubes Australia * 265 5.94 Minced beef ** Local (No brand) 169 or 187 3.79 or 4.19 Minced beef ** Australia * 189 or 205 4.23 or 4.59 Striploin, boneless Australia * 675 15.12 Striploin, boneless Local (No brand) 405 9.07 Shin, bone‐in Australia * 340 7.62 Yakiniku beef USA 229 5.13 *: These products are not being marketed using an Australian brand as would be the case in other ASEAN markets, e.g. Singapore (Australian corporate brands) or Malaysia (the “Aussie Beef” brand). **: The higher price is for lean minced beef. Source: Supermarkets and hypermarkets in Metro Manila As can be seen from the above, imported beef generally retails at a premium to the price of local beef, unless the local product is subjected to strong local branding. Trade sources comment that this situation is possible because there is a perception amongst Filipinos that foreign beef is of better quality than local beef. 7 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry 2.3.3 Frozen beef Frozen beef has the highest demand amongst imports of meat and poultry. This situation exists because there are major constraints over the production of beef in the Philippines, in a market environment where there is also high level demand for the product. The Philippines imports of frozen beef amounted to 112,066 tonnes valued at C$ 219.8 million in 2008, down slightly in an erratic manner from 113,730 tonnes valued at about C$ 155.2 million in 2004 (see Table below). Boneless Bone‐in Carcass or half carcass Total % change Philippine Imports of Frozen Beef – 2004 to 2008 2004 2005
2006
2007 Tonnes Tonnes
Tonnes
Tonnes 113,123 95,975
94,075
106,197 588 770
625
1,329 19 113,730 ‐ ‐
144
96,745
94,844
( 14.9)
( 2.0)
348 107,874 13.7 2008
Tonnes
109,281
2,468
317
112,066
3.9
Source: Philippines external trade statistics Boneless beef accounts for close to 100% of imports in most years. The Philippines is importing frozen beef from up to 18 countries, although the bulk of imports come from 6 countries. India is the market leader (see Tables below for market shares and import trends). 8 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Imports of Frozen Beef by Key Supply Country in 2008 ‐ 112,066 Tonnes Source: Philippines External Trade Statistics (All cuts) Trends in Imports of Frozen Boneless Beef from Key Supply Countries – 2004 to 2008 In Tonnes Source: Philippines External Trade Statistics India has long led the market because it is the lowest cost supplier of beef that is acceptable to users in the Philippine meat processing industry, which has very high volume demand for frozen beef. 9 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Trade sources comment that Indian beef (Carabeef) supply fell into shortfalls in 2008, mainly because of booming demand from the Islamic World. This tipped the equilibrium in its market and led to higher prices for Indian beef (see Table below). India Australia Brazil Canada New Zealand USA All imports Tonnes Philippine Imports of Frozen Boneless Beef: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008 2006 2007 2008 C$ Per % Market C$ Per % Market C$ Per % Market Tonne Share
Tonne
Share
Tonne Share
1,368 65.4
1,365 59.6
2,182 59.0
1,974 2.7
1,952 3.0
1,790 12.3
1,486 28.8
1,327 33.9
1,617 12.0
1,731 0.1
1,127 0.3
1,647 7.4
1,137 1.6
1,071 1.7
1,382 6.2
1,595 0.8
2,118 1.0
2,013 2.5
1,418 100.0
1,370
100.0
1,970 100.0
94,844
107,874
112,066
Source: Derived from the Philippines External Trade Statistics The market has been growing despite the fact that landed costs of frozen beef from most countries, including the market leader, India, increased in 2008. This growth is underpinned by continued high demand from the meat processors for manufacturing beef for use in lower cost processed meat products, e.g. corned beef, sausages and burger patties. The demand for Indian beef remained strong because of supply chain inertia and strong relationships. This prevented a major switch away from Indian beef to other products. The higher price of Brazilian beef and freight costs also tended to support demand for Indian beef in 2008. The mainstream retail channels in the Philippines urban areas are not major channels for frozen beef. The main focus of the meat retailers in these channels is on marketing higher margin chilled beef, which may include defrosted imported frozen beef. 10 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry 2.3.4 Fresh/chilled pork The Philippines market for imported fresh/chilled pork is minuscule and is inherently unstable in its development trends. The country’s official import data indicates that no fresh/chilled pork was imported in 2008 (see Table below). Total Philippine Imports of Fresh/Chilled Pork – 2004 to 2008 2004 2005
2006
2007 Tonnes Tonnes
Tonnes
Tonnes 21 ‐
11
77 2008
Tonnes
‐
Source: Philippines external trade statistics This market is highly undeveloped because of the way in which pork imports are:  managed by the government under the Philippines WTO commitments, which include a Tariff Rate Quota (TRQ) and Minimum Access Volumes (MAV); and,  strategised for by importers of meat imports under the TRQs and MAVs. More information on the TRQs and MAVs are provided in a following chapter of this briefing. The other issue that severely undermines the market for imported fresh/chilled pork is the strength of the local pork producers in their local market and supply chain. As highlighted earlier, the Philippine pig industry produces in excess of 1.6 million tonnes of pork per annum. Fresh local pork is very widely available in the Philippines and there is a broad based perception in government and the industry that imported pork is not needed, unless there are shortfalls in supply which need to be filled to meet demand. Such demand is only filled by frozen pork and offal. Trade sources comment that imported fresh/chilled pork is not attractive because of its high price (pork is a basic staple meat), and complications in distributing it under the conditions that prevail in the Philippine channels. The Table below provides some indicative prices for local fresh pork, as retailed in mainstream supermarkets in February 2010. 11 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Retail Price of Fresh/Chilled Pork in February 2010 Product Peso Per Kilogram C$ Per Kilogram Belly 175 3.92 Steak 189 to 200 4.23 to 4.48 Chop 168 to 180 3.76 to 4.03 Minced pork 160 to 175 3.59 to 3.92 Front leg (Hock) 147 3.29 Ribs 199 to 225 4.46 to 5.04 Source: Leading supermarkets in Metro Manila 2.3.5 Frozen pork Philippine imports of frozen pork amounted to 29,817 tonnes valued at C$ 28.8 million in 2008, up in an erratic manner from 11,092 tonnes valued at about C$ 10.5 million in 2004 (see Table below). Boneless Bone‐in Carcass or half carcass Total % change Philippine Imports of Frozen Pork – 2004 to 2008 2004 2005
2006
2007 Tonnes Tonnes
Tonnes
Tonnes 6,912 5,348
3,797
8,419 4,106 1,349
365
1,093 74 11,092 ‐ 189
N
6,886
4,162
( 37.9%)
( 39.6)
55 9,567 129.9 2008
Tonnes
22,980
6,588
249
29,817
211.7
N: negligible. Source: Philippines external trade statistics Trade sources comment that the surge in frozen pork imports since the low point of 2006 resulted from a disease outbreak, e.g. PRRS. Disease is a key driver in the frozen pork market. Government officials comment that disease has created a situation where local pork supply remained constrained in 2009 and will likely be tight into 2011. While this is the case, imports will be in decline because pig inventories were already increasing in 2009. 12 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry As can be seen from the data in the Table above, the Philippines demand for frozen pork is mainly oriented around cuts other than hams, shoulders and other bone‐in cuts or and carcasses or half carcasses. The bulk of demand is for boneless cuts, and mainly variety meats. The Philippines is importing frozen pork from up to 18 countries, although the bulk of imports come 4 countries (see Tables below for market shares and import trends). Imports of Frozen Pork by Key Supply Country in 2008 ‐ 29,817 Tonnes Source: Philippines External Trade Statistics (All cuts, excludes pig’s offal) Trends in Imports of Frozen Boneless Pork from Key Supply Countries – 2004 to 2008 In Tonnes Source: Philippines External Trade Statistics (excludes pig’s offal) 13 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry As can be seen in the Chart above, the 2007‐2008 period saw a surge in imports of frozen boneless pork from 4 supply countries, namely the USA, Canada, France and Germany. USA Canada France Germany Belgium Spain Denmark Netherlands All imports Philippine Imports of Frozen Boneless Pork: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008 2006 2007 2008 C$ Per % Market C$ Per % Market C$ Per % Market Tonne Share
Tonne
Share
Tonne Share
1,094 11.1
917 11.9
981 44.8
560 18.0
1,013 21.8
956 20.7
1,655 21.8
1,017 30.7
962 16.7
705 22.3
732 24.7
910 10.0
541 3.8
533 1.3
888 2.0
640 3.2
1,071 1.1
787 2.0
1,346 4.3
1,096 4.2
767 8.1
426 8.0
649 2.6
692 0.8
984 100.0
932
100.0
966 100.0
3,797
8,419
22,980
Source: Derived from the Philippines External Trade Statistics (Excludes pig’s offal) Trade sources comment that North America was able to deal with the boom in demand for products in 2008 because of its large supply base, in particular the availability of variety meats. It also benefited from its close trading links with the Philippines. The USA dominated the trade because of its availability of supply and also response to meeting demand. The market for imported frozen bone‐in pork saw a similar surge in the 2007‐2008 period, although only involving products from the USA and Canada (see Chart below). 14 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Trends in Imports of Frozen Bone‐in Pork from Key Supply Countries – 2004 to 2008 (In Tonnes) Source: Philippines External Trade Statistics (excludes pig’s offal) The points made above about frozen boneless pork are also relevant to bone‐in pork, e.g. pork rib imports. They are the reason why North America was able to maximise on its opportunities. USA Canada France South Korea China Germany Denmark All imports Philippine Imports of Frozen Bone‐in Pork: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008 2006 2007 2008 C$ Per % Market C$ Per % Market C$ Per % Market Tonne Share
Tonne
Share
Tonne Share
$920 42.1
866 13.8
968 68.0
$528 13.7
887 79.6
946 27.8
‐ ‐
740 2.4
906 1.1
‐ ‐
‐
N
1,096 1.1
‐ ‐
‐
‐
1,061 0.4
$416 10.4
451 1.5
‐ ‐
$1,169 22.6
‐
‐
‐ ‐
$860 100.0
871
100.0
966 100.0
N: Negligible. Source: Derived from the Philippines External Trade Statistics (Excludes pig’s offal) The reality of the market situation in the Philippines is that frozen pork, in particular variety meats, operate in a market where local pork dominates and imports only come in to deal with shortages. 15 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry There was no frozen imported pork carried in Philippine supermarkets or hypermarkets at the time of market observations in February 2010. 2.3.6 Pig’s offal, frozen Philippine imports of frozen pig’s offal amounted to 56,388 tonnes valued at C$ 33.2 million in 2008, up from 24,709 tonnes valued at about C$ 15.2 million in 2004 (see Table below). Pig’s offal, not liver Pig’s liver Total % change Philippine Imports of Pig’s Offal – 2004 to 2008 2004 2005
2006
Tonnes Tonnes
Tonnes
19,805 20,657
27,364
4,904 5,160
5,444
24,709 25,817
32,808
‐ 4.5
27.1
2007 Tonnes 38,589 6,124 44,713 36.3 2008
Tonnes
49,978
6,410
56,388
26.1
Source: Philippines external trade statistics Pig’s offal, whether local or imported, is in big demand from households, the food service industry and the meat processing industry. The market for imported frozen offal exists because competition for local pig’s offal from the above‐mentioned demand bases causes shortages in supply to exist on a permanent basis. Imports have grown because of larger shortages caused by disease outbreaks and a consequent reduction in the pig inventory. Frozen pig’s offal is imported from a large number of supply countries each year. This situation exists because buyers in the Philippines search the world for the lowest cost products. 16 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Imports of Frozen Pig’s Offal by Key Supply Country in 2008 ‐ 56,388 Tonnes Source: Philippines External Trade Statistics (All types of offal) Trends in Imports of Frozen Pig’s Offal and Variety Meats, Not Liver from Key Supply Countries – 2004 to 2008 (In Tonnes) Source: Philippines External Trade Statistics 17 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Trends in Imports of Frozen Pig’s Liver from Key Supply Countries – 2004 to 2008 (In Tonnes) Source: Philippines External Trade Statistics Demand has been resilient to increased prices. Imports have grown because pig’s offal is a necessity to keep the Philippines meat processing industry operating at high capacity. Canada USA France Germany Belgium South Korea Spain Denmark Netherlands Australia Ireland All imports Philippine Imports of Frozen Pig’s Offal and Variety Meats, Not Liver Review of Landed Cost Per Tonne and Market Share – 2006 to 2008 2006 2007 2008 C$ Per % Market C$ Per % Market C$ Per % Market Tonne Share
Tonne
Share
Tonne Share
537 25.6
530 22.0
620 23.4
574 12.8
509 16.0
572 19.8
547 9.9
531 12.0
585 10.1
587 10.7
530 9.7
547 8.8
506 11.6
473 12.6
487 8.8
529 13.5
485 9.1
518 8.3
518 5.4
517 6.8
571 5.9
667 2.5
527 3.9
610 5.8
460 2.6
528 3.1
675 4.6
518 2.6
531 2.0
671 2.0
535 1.0
532 1.3
584 1.5
543 100.0
513
100.0
582 100.0
Source: Derived from the Philippines External Trade Statistics 18 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Canada USA South Korea Australia Spain All imports Philippine Imports of Frozen Pig’s Liver: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008 2006 2007 2008 C$ Per % Market C$ Per % Market C$ Per % Market Tonne Share
Tonne
Share
Tonne Share
571 47.4
547 52.5
603 46.2
641 19.3
692 17.3
768 27.2
580 21.7
590 18.4
573 17.0
604 9.7
551 10.7
548 5.5
‐ ‐
‐
‐
509 2.5
590 100.0
580
100.0
639 100.0
Source: Derived from the Philippines External Trade Statistics There is no imported pig’s offal carried in any Philippine supermarket today. Local fresh/chilled pig’s liver is retailed at around Peso 115 (C$ 2.58) per kilogram. 2.3.7 Frozen chicken parts and offal The Philippines imports of frozen chicken parts and offal amounted to 44,617 tonnes valued at C$ 29.7 million in 2008, up in a consistent manner from 21,206 tonnes valued at about C$ 15.6 million in 2004 (see Table below). Total % change Philippine Imports of Frozen Chicken Parts and Offal – 2004 to 2008 2004 2005
2006
2007 Tonnes Tonnes
Tonnes
Tonnes 21,206 25,903
34,262
39,296 ‐ 22.1
32.2
14.7 2008
Tonnes
44,617
13.5
Source: Philippines external trade statistics 19 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Imports of frozen chicken parts and offal come from a sizeable number of countries, although only 4 countries are the dominant suppliers (see Charts below). Imports of Frozen Chicken Parts and Offal by Key Supply Country in 2008 ‐ 44,617 Tonnes Source: Philippines External Trade Statistics Trends in Imports of Chicken Parts and Offal from Key Supply Countries – 2004 to 2008 (In Tonnes) Source: Philippines External Trade Statistics 20 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry The market for frozen chicken parts and offal is underpinned by a high level of price sensitivity. The products being imported are deemed:  low cost staples (chicken wings), or value‐for‐money meat items (chicken legs and thighs); or,  low cost fillers to processed meats (manufacturing chicken meat and chicken offal) targeted at the Philippine mass market, which are mainly lower income group consumers. Canada USA Brazil Australia France Ireland Denmark All imports Philippine Imports Frozen Chicken Parts and Offal: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008 2006 2007 2008 C$ Per % Market C$ Per % Market C$ Per % Market Tonne Share
Tonne
Share
Tonne Share
662 26.2
623 27.0
647 32.7
753 54.1
747 44.9
710 30.0
553 7.9
506 13.1
700 19.6
510 9.5
447 13.0
546 13.1
443 0.1
‐
‐
701 1.8
‐ ‐
‐
‐
817 1.4
518 0.3
553 0.6
573 0.3
685 100.0
597
100.0
667 100.0
Source: Derived from the Philippines External Trade Statistics There are no imported frozen chicken parts being retailed in the Philippines retail channels. All chicken sold in supermarkets and hypermarkets are local fresh/chilled products or local fresh products that have been frozen by the retailer. The only imported poultry available in supermarkets in Metro Manila are frozen turkey (U.S. origin) and frozen duck (U.S. origin). A sample of the prices of local fresh chicken parts and offal are provided in the Table below. 21 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Retail Prices of Fresh/Chilled Chicken in February 2010 Product Peso Per Kilogram C$ Per Kilogram Chicken drumstick, fresh/chilled 125 to 146 2.80 to 3.27 Chicken thigh, fresh/chilled 120 to 140 2.69 to 3.14 Chicken wings, fresh/chilled 146 3.27 Chicken breast, fresh/chilled 138 3.09 Chicken livers 128 2.87 Source: Sample of supermarkets in Metro Manila 3. The Philippines meat and poultry distribution channels 3.1 The retail channels The Philippines has highly fragmented channels for meat and poultry, which include:  the traditional channel, i.e. localised meat markets; and,  the modern trade, which includes supermarkets, hypermarkets and some cash and carry stores, e.g. Rustans, SM Mart, Robinsons, Landmark, and some smaller operators. Imported meat and poultry does not pass through the traditional channel. Such products are niche products in supermarkets, with the key identifiable product being beef. There was no evidence of any imported fresh/chilled pork, chicken parts or offal in the retail market at the time of the study, i.e. February 2010. It should be noted that:  market observations conducted in February 2010 found no evidence of any type of imported pork or chicken in the modern trade channels, in contrast to beef;  the meat channels in the modern trade are generally oligopolistic in nature. Some key points to note are as follows: o there is control over the meat trade in most of the Philippines modern retail channels. This control includes access to shoppers. This is underpinned by the activities of the local meat industry association; 22 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry o the retail channels are shared amongst the main meat and poultry companies because of a co‐operation agreement between them as association members; o the association members do not really compete against each other. In fact, they try to avoid competing on a head‐to‐head basis with each other; o this situation keeps the current retailers out of the meat trade. The bulk of fresh meat and poultry (including fresh processed meat) sales are made through Philippine corporate brand specific deli‐style points of sale, which are controlled by the key meat and poultry companies; o the association is also a very strong lobby with the government over meat market, industry, supply chain policy and imports; and, o some of the companies that run meat points of sale in the supermarkets do sell Australian and U.S beef under their own brand‐name, rather than using a foreign brand name to market the products. This situation makes it very difficult for foreign brands to break into the retail market, or to run effective country specific marketing activities in retail channels. The situation in the Philippines is therefore very different to that existing in most of the other ASEAN markets. In contrast to the situation in the fresh meat channels, the retail displays of frozen processed meats are generally more generic involving a number of different Philippine brands. 3.2 The food service industry The food service industry has very strong demand at mass urban market level. The key channels at this level in the market are the fast food and casual dining restaurants, most of which operate in chains. The key fast food chains operate on a nationwide basis and include:  Jollibee Foods Corp, with over 600 outlets (Annual sales: C$ 505 million in 2008);  McDonalds, which is the McDonald’s group’s largest chain in ASEAN with about 300 outlets (Annual sales: C$ 187 million);  KFC, with 166 outlets; and, 23 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry 
Some smaller fast food chains, including Wendy’s (around 40 outlets) and Burger King brand (22 outlets). These outlets use a range of meat and poultry items on their menus. Trade sources comment that they are a key demand base for imported beef and chicken parts. The other restaurants that use imported meat and poultry are based in hotels, operate as chains of outlets, or are single site specialty restaurants, e.g. European, North and South American and Mexican outlets. Some key points to note are as follows:  according to Department of Tourism, the Philippines has 21 Deluxe Class (5 star) hotels and 15 First Class (4 Star) hotels. All of these have some form of demand for imported meat and chicken, especially steaks, including those sourced from the USA, Canada, Australia and New Zealand. These hotels are used by the USA and Australia for promotional activities that do cover meats, especially beef; and  the casual dining chains that operate in the Philippines include Pancake House (68 outlets), Kenny Rodgers Roasters (35 outlets) and Delifrance Bistro (26 outlets). There are a sizeable number of American‐style outlets, e.g. Tony Roma’s and Racks, that have demand for steaks, ribs and chicken. Some other key points to note are as follows:  fresh/chilled beef has its market in high end restaurants, including 4 and 5 star hotels, foreign branded restaurant chains and single site high end restaurants, e.g. European and Japanese food outlets. This is the market that is being targeted by the USA;  there is currently no evidence of fresh/chilled pork or frozen pork in the food service market. Trade sources advise that U.S. pork has been promoted in some of the higher end restaurants, including hotels, in the past;  food service buyers are generally price sensitive because of the state of the consumer market, which is highly price sensitive. Trade sources comment that buyers in the food service industry will shift from one source to another if they can, when pricing changes and impacts negatively on the profitability of their menu; 24 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry 
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food service companies do not wish to tie themselves to country of origin because this makes their buyers very inflexible when attempting to buy the lowest priced acceptable meat or poultry for use in their menu items; and, fast food companies have big demand for chicken drumsticks of consistent quality, which cannot be satisfied in sufficient quantities by local producers. 3.3 The meat and meat processing industry 3.3.1 The cattle, pig and poultry industry The Philippines cattle, pig and poultry industry has two broad sectors within it:  the commercial sector, which is relatively concentrated around medium to large companies with a national or regional (island specific) orientation. Many of the businesses in this segment are integrated operators and have significant industrial power bases in the Philippines, e.g. the giant San Miguel Corporation, and so have very strong bargaining power in the local market and distribution channels; and,  the backyard sector, which is highly fragmented and localised, and revolves around small and micro‐sized family owned businesses. The backyard sector rarely interacts with imported meat and poultry because its products mainly operate in the traditional meat markets, and not supermarkets or hypermarkets. 3.3.2 The meat and poultry processing industry Key players in the meat and poultry production industry are integrated along the supply chain from farms to retailing. Trade sources comment that the most important demand base for imported meat and poultry is the Philippines processed meat industry. Some key points to note are as follows:  the industry produces: o canned meats and poultry: corned beef, sausages (Vienna‐type), meat loaf, local ready meals in cans, luncheon meat and liver spread (a paté type product); 25 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry o frozen processed meat and poultry: sausages, chicken nuggets, burger patties and bacon; and o fresh/chilled processed meats: sausages, bacon, ham and corned beef; 
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the sausage industry is using mixed meats in its products, e.g. pork and chicken; pork skin is used by snack producers, e.g. pork crackling (fried rind) snacks. This industry is highly price sensitive because of its target market, the mass market on a nationwide basis; Bovine variety meats and offal are in big demand due to large shortfalls in local supply. There is also sizeable demand for pork variety meats and offal, and chicken offal. This demand covers a wide range of meats, offcuts, byproducts (fats) and offals that are not in high volume demand in Canada; corned beef is a massive user of imported beef, offal and fat. It is a captive market for foreign bovine inputs because its demand far outstrips local supply, and will continue to do so in future. Liver spread is a big user of beef and pork liver and other variety meats. Traditionally, there is very high demand for Indian buffalo meat, but due to higher prices of this product, corned beef manufacturers are using more variety meats in their corned beef, e.g. frozen cattle hearts. This shift in inputs has been facilitated by USMEF and its marketing programs; 
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chicken offal (hearts, livers and gizzard) and MDM chicken is in demand as low priced inputs by the meat processing industry. Latent demand for these products is reported to be very big, if the price is right; aside from pig skin, mentioned above, the Philippines meat processing industry has demand for meat from pig heads and feet, pig tails, fat, and the full range of edible offals; and as mentioned earlier, one sausage manufacturer has recently altered strategy so that it will only produce Halal sausages. This is not a new strategy because most, if not all, canned corned beef made in the Philippines is halal certified. Some trade sources believe that halal will become even more important as the Philippines meat companies start to interact more with the ASEAN Free Trade Area opportunities. Exports of Philippine canned processed meats are already accessing Malaysian supermarket channels. 26 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry 4. The Philippines regulatory environment for imported meat and poultry in overview The Philippines has a complex and protectionist regulatory environment for meat and poultry. This was established by its GATT Uruguay Round commitments, which established today’s WTO compliant Tariff Rate Quotas and related tariff structures, Minimum Access Volumes and Special Safeguards on a range of sensitive products, including meat and poultry. The Table below provides an overview of the Philippines MFN tariffs and the import duties that will apply under the recently ratified ASEAN‐Australia‐New Zealand Free Trade Agreement (AANZFTA). HS Code Description 020110 Carcasses or half‐
carcasses of bovine animals, fresh or chilled Fresh or chilled bovine cuts, with bone in (excl. carcasses and 1/2 carcasses) Fresh or chilled bovine meat, boneless Frozen bovine carcasses and half‐carcasses Frozen bovine cuts, with bone in (excl. carcasses and half‐carcasses) Frozen, boneless meat of bovine animals Fresh or chilled carcasses and half‐carcasses of swine Fresh or chilled hams, shoulders and cuts thereof of swine, with bone in Fresh or chilled meat of swine (excl. carcasses and half‐carcasses, and hams, shoulders and cuts thereof, with bone in) 020120 020130 020210 020220 020230 020311 020312 020319 Tariff Rate Applied % 10 Active Quota ‐ Tariff Rate Out of Quota % ‐ ASEAN‐Australia‐
New Zealand FTA % 0% (2012) 10 ‐ ‐ 0% (2012) 10 ‐ ‐ 0% (2012) 10 ‐ ‐ 0% (2012) 10 ‐ ‐ 0% (2012) 10 ‐ ‐ 0% (2012) 30 or 35 Yes 40 30 or 35 Yes 40 20% in 2012, phasing down to 0% in 2020. 20% in 2012, phasing down to 0% in 2020. 30 or 35 Yes 40 For in‐quota 30% until 2019, then 24% from 2020. For out‐of quota, 40% until 2019, then 32% from 2020. 27 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry HS Code Description Tariff Rate Applied 30 or 35 Active Quota Yes Tariff Rate Out of Quota 40 020321 Frozen carcasses and half‐carcasses of swine 020322 Frozen hams, shoulders and cuts thereof of swine, boneless 30 or 35 Yes 40 020329 Frozen meat of swine (excl. carcasses and half‐
carcasses, and hams, shoulders and cuts thereof, boneless) 30 or 35 Yes 40 020641 Frozen edible livers of swine 5 or 7 ‐ ‐ 020649 Edible offal of swine, frozen (excl. livers) Frozen cuts and edible offal of fowls of the species Gallus domesticus 10 ‐ ‐ 40 or 5 Yes 40 020714 ASEAN‐Australia‐
New Zealand FTA For in‐quota 30% until 2019, then 24% from 2020. For out‐of quota, 40% until 2019, then 32% from 2020. For in‐quota 30% until 2019, then 24% from 2020. For out‐of quota, 40% until 2019, then 32% from 2020. For in‐quota 30% until 2019, then 24% from 2020. For out‐of quota, 40% until 2019, then 32% from 2020. 5% until 2014, then 4% into perpetuity. 0% from 2012 For Chicken Livers: 10% in 2010, phasing down to 0% in 2015. For Wings, Thighs and Other Offal: 40% until 2019, then 32% from 2020. Source: Philippine Government commitments to the WTO and AANZFTA. It should be noted that:  the ASEAN Free Trade Area is now in full force. In 2011, the market will be fully open, i.e. 0% import duty and no non‐tariff restrictions, to ASEAN‐content meat, poultry and processed meats from all of the ASEAN member states. 28 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry There are two different viewpoints about the ASEAN Free Trade Area (AFTA) within the meat and poultry industry: o one negative, which is supported by a high degree of anger at successive governments for opening up the meat and poultry markets to “any form of competition”; and, o the other positive, with meat producers foreseeing new opportunities for their products in the other ASEAN member states. While this is the case, most Philippine meat and poultry producers have not yet started to consider the implications of AFTA on their industry or their company. The companies that do have AFTA in their strategies are San Miguel Corporation and RFM Corporation/Swift Foods. The Table below provides an overview of the current Minimum Access Volumes that still apply to the products that are deemed sensitive by the Philippine government. Minimum Access Volumes (MAV) for Beef, Pork and Poultry in the Philippines HS Group Metric Tonnes 0201 Meat of bovine animals, fresh or chilled 5,570 0202 Meat of bovine animals, frozen 158,502 0203 Meat of swine, fresh, chilled or frozen 54,210 0207 Meat and edible offal of the poultry of 23,490 heading No. 01.05, fresh, chilled or frozen Note: MAVs also exist for goat meat (not within the scope of this study). Source: Department of Agriculture, Philippines (February 2010) It should be noted that the Special Safeguards (SSGs) are well entrenched in Philippine government policy. The SSGs would almost certainly be implemented if imports were deemed to have a negative impact of the Philippine meat and livestock industry. Trade sources comment that the above referenced TRQ and MAVs make the meat and poultry markets that are affected by them irrational in terms of the normal interaction between supply and demand forces. The MAV allocations, which enjoy the reduced tariff rates, are allocated to Philippine companies on an annual basis. 29 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry According to some trade sources, the allocations are still not wholly transparent and there are occasions where it is difficult to know exactly how much of the MAV has been used. It should be noted that the Philippines government has just started a process of a detailed review of its tariff regime in consultation with its local industries. This exercise, started in February 2010, and is expected to continue for the next 12 to 18 months, depending on the level of debate with players in the more sensitive industries, e.g. meat and poultry. As can be seen from the above Table of tariffs, there are different tariffs arising from the TRQ, which also apply under the AANZFTA. The AANZFTA does, however, provide a range of benefits to Australia and New Zealand, versus the situation for Canada. For example, by 2012, beef from these two countries will enjoy 0% market access, when compared to the MFN of 10% that will apply to Canadian beef. The other regulatory provisions for meat and poultry imported from countries, such as Canada, are reported to be quite straight forward:  the Department of Agriculture’s Bureau of Animal Industry (BAI) is responsible for regulating the flow of domestic and imported animals and animal products in the country;  another Department of Agriculture agency, known as the National Meat Inspection Service (NMIS), is required to ensure that imported meat and meat products are produced under acceptable conditions and systems. This agency liaises with overseas agencies on permissions for their country’s abattoirs / exporters to trade in meat, poultry and offal with the Philippines;  only Philippine registered companies that are accredited by the Department of Agriculture as meat importers are permitted to import meat and poultry into the Philippines. These companies have to operate within the confines of the relevant TRQ and MAVs; and,  an import license is required for all imports of meat, poultry and offal to the Philippines. This license is part of the Philippines food health and safety procedures for such products, which come into effective operation in the case of animal disease outbreaks in foreign countries, e.g. at the time of the BSE outbreak in North America. The accredited importer is required to obtain a Veterinary Quarantine Clearance (VQC) certificate prior to the importation of meat and meat products into the Philippines. This clearance is reported to act as the import license. 30 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry 5. Key suppliers and their market shares 5.1 The scenario in the meat and poultry market and its impact on country of origin Throughout this report, it has been mentioned that Philippine buyers tend to search the world for the lowest cost and best product for their requirements. Price is very important because the Philippines only has a small middle and upper income segment within its 86 million persons, i.e. around 10 million persons. Today, demand for meat and poultry is highly segmented and incorporates a range of different products from different countries of origin. This situation provides opportunities for:  premium and better quality, higher priced meats and poultry from the Developed World; and  lower cost alternative meats and poultry from the Developing World, e.g. India, and, to a lesser extent, Brazil and China. India is the largest supplier of the products covered by this study because of the larger volumes of beef that it is exporting to the Philippines. 5.2 Overview of the involvement of Canada and its main competitors As can be seen from the information in the Table below, Canada is doing well as a supplier of the meat and poultry products covered by this study. As highlighted earlier in this report, Canada supplied 20% of all imported meat and poultry products in 2008. Review of the Competitive Position of Canada’s Direct Competitors in 2008 Product Imports Developing Developed Top 3 Developed World Supply Countries World World * and Their Market Shares ** Tonnes % Share % Share Leader *** No 2 No 3 Beef, fresh 29 The market for fresh/chilled beef is serviced by local suppliers, which chilled include some very powerful and large locally owned meat companies. 70% 30% Australia Canada (7%) New Zealand Beef, frozen 112,066 (13%) (7%) 31 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Pork, fresh/chilled Pork, frozen Nil The market for fresh/chilled pork is serviced by local suppliers, which include some very powerful and large locally owned meat companies. 29,817 0.4% 99.6% USA (50%) Pig’s offal, 56,388 frozen Chicken 44,617 parts and offal, frozen 0.5% 99.5% 20% 80% Canada (26%) Canada (33%) Canada (22%) USA (21%) France (13%) USA (30%) Australia (13%) France (9%) *: OECD countries. **: Share of total imports. ***: Amongst the Developed World countries. Source: Philippines External Trade Statistics It should be noted that the main alternative (Developing Country) suppliers are based in:  India, for frozen beef; and, Indian beef is supported by its lower price, functionality as a value‐for‐money meat manufacturing input, and relationships between exporters and importers, which are longstanding. The other factor that is important is the halal status of its meat, which is now required for corned beef manufacture because all canned corned beef products made in the Philippines are halal certified; and,  Brazil for frozen chicken parts and offal. These two countries, and China (still a minor player today), have a disruptive influence in the market. Trade sources comment that their products are viewed as “OK”, although there are some concerns about them, which are not generally spoken about. The key selling point is price and “acceptable quality”. 32 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry 6. Conclusion for Canada and its exporters 6.1 Growth forecasts and scenarios for imported meat and poultry Producers of meat and poultry are generally positive about the demand for their products over the next 3 to 5 years. At present, there are some shorter term concerns about:  the real impact of the global economic crisis on the Philippines into the longer term. Trade sources comment that this has not been revealed yet, especially the impact of China’s economic position and power on the Philippines industry, jobs, export earnings and inward investments; and,  the outcome of the 2010 Philippine presidential election on future government policies and development of the economy. There are some mixed opinions on this issue, although the main concern is that change could undermine the positive changes that have been seen in the broader economy over the past 5 years. This has been a period when the Philippines experienced the fastest rates of economic growth in its recent history. The meat and poultry processors, food service and retailers generally believe that the next 3 to 5 years will be positive for their businesses, albeit under conditions of continuing high price sensitivity. The main growth drivers are cited as:  natural population growth, which will be very important for lower priced cuts and products; and  economic growth based on current forecasts, which suggest that the Philippines will grow at rates of between 3% and 5% per annum over the next 3 years, subject to the outcome of the Presidential election and situation regarding periodic major natural disasters, e.g. typhoons, earthquakes, etc. 33 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry Meat importers believe that there will continue to be shortfalls in local supply of beef (major shortfall), pork variety meats and pig’s offal, and chicken parts and offal. This, combined with the above drivers, and the new FTAs, will provide solid support for higher volumes of imports. While the government is promoting the production of more meat and poultry, and investments are going into new inventories, demand will outstrip supply, especially for inputs to the processed meats that are consumed by the mass market, i.e. the C and D socio economic groups (as referenced earlier in this report). While the ASEAN Free Trade Area and its next stage development, namely the ASEAN Economic Community, could start to alter competitive scenarios in some segments of the Philippines food industry, it is unknown whether these FTAs will have major short or medium term impacts on the Philippines meat and poultry industry, i.e. as a demand base for imported manufacturing meats. Change may come faster, if the retail industry is liberalised and new foreign investment enters it. Foreign retailers would almost certainly seek new sourcing opportunities arising from the FTAs. The existing industry appears to have sufficient power to defend itself against large imports of meat and poultry from the other ASEAN countries. Additionally, there are weaknesses in the ASEAN pig and cattle industries that undermine a major reorientation towards exports on an ASEAN regional basis. Having stated this, it is, however, possible that some AFTA threats might develop for the Philippines chicken industry from the strong, well organised and industrialised poultry industry in Thailand, although at the present time this industry is still focused elsewhere. Demand for meat and poultry in the broader Philippines market is forecast by trade sources to grow at between 3% and 7% per annum over the next 3 to 5 years, depending on the state of economic growth over this period. The TRQ and MAV is likely to continue in place for non‐ASEAN content meat, e.g. Canadian products, over the next 3 to 5 years, unless the new President decides to change top line policy. This will still impact negatively on the ability of Canadian exporters to initiate supply push marketing activities in the Philippines. While this is the case, demand will still exist from importers who require products for: 34 Stanton, Emms & Sia (March 2010) The Philippines Market for Imported Meat and Poultry  inputs to their processing plants; and,  items for the food service industry. Canadian producers with other products related to opportunities in the markets profiled in this report, and who would like more market information or contacts, may contact the Agri‐Food Trade Commissioner at the Embassy of Canada in the Philippines at: infocentre‐
manila@international.gc.ca. 35 Stanton, Emms & Sia (March 2010)