Competitive Industry Report on the Philippines Market for Imported Meat and Poultry [2010]

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: [email protected]

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 : [email protected]

The Philippines Market for Imported Meat and Poultry

1 Stanton, Emms & Sia (March 2010)

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).



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.



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



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


The Philippines is importing meat and poultry products from around 30 different countries and

territories (see Chart below).



Main Origins of the Philippines Imports of Meat and Poultry in 2008 – 293,734 Tonnes


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 59Frozen beef 155,151 142,616 134,679 148,348 219,798Fresh/chilled pork 10 ‐ 15 59 ‐Frozen pork 10,506 8,241 4,052 8,863 28,784Pig’s offal 15,172 15,398 18,064 23,365 33,168Frozen 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)



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).

Philippine Imports of Fresh/Chilled Beef – 2004 to 2008

2004 2005 2006 2007 2008

Tonnes Tonnes Tonnes Tonnes Tonnes

Total 206 307 250 31 29 % change ‐ 49.0% (18.6%) (87.6%) (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.



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 Brand

Peso Per Kilogram C$ Per Kilogram

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.



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).

Philippine Imports of Frozen Beef – 2004 to 2008

2004 2005 2006 2007 2008


Boneless 113,123 95,975 94,075 106,197 109,281Bone‐in 588 770 625 1,329 2,468Carcass or half carcass 19 ‐ 144 348 317

Total 113,730 96,745 94,844 107,874 112,066

% change ‐ ( 14.9) ( 2.0) 13.7 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).



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.



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).

Philippine Imports of Frozen Boneless Beef: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008

2006 2007 2008

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

India 1,368 65.4 1,365 59.6 2,182 59.0Australia 1,974 2.7 1,952 3.0 1,790 12.3Brazil 1,486 28.8 1,327 33.9 1,617 12.0Canada 1,731 0.1 1,127 0.3 1,647 7.4New Zealand 1,137 1.6 1,071 1.7 1,382 6.2USA 1,595 0.8 2,118 1.0 2,013 2.5 All imports 1,418 100.0 1,370 100.0 1,970 100.0

Tonnes 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.



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).

Philippine Imports of Fresh/Chilled Pork – 2004 to 2008

2004 2005 2006 2007 2008


Total 21 ‐ 11 77 ‐ 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.



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).

Philippine Imports of Frozen Pork – 2004 to 2008

2004 2005 2006 2007 2008


Boneless 6,912 5,348 3,797 8,419 22,980Bone‐in 4,106 1,349 365 1,093 6,588Carcass or half carcass 74 189 N 55 249

Total 11,092 6,886 4,162 9,567 29,817

% change ‐ ( 37.9%) ( 39.6) 129.9 211.7 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.



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)



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.

Philippine Imports of Frozen Boneless Pork: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008

2006 2007 2008

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

USA 1,094 11.1 917 11.9 981 44.8Canada 560 18.0 1,013 21.8 956 20.7France 1,655 21.8 1,017 30.7 962 16.7Germany 705 22.3 732 24.7 910 10.0Belgium 541 3.8 533 1.3 888 2.0Spain 640 3.2 1,071 1.1 787 2.0Denmark 1,346 4.3 1,096 4.2 767 8.1Netherlands 426 8.0 649 2.6 692 0.8 All imports 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).



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.

Philippine Imports of Frozen Bone‐in Pork: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008

2006 2007 2008

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

USA $920 42.1 866 13.8 968 68.0Canada $528 13.7 887 79.6 946 27.8France ‐ ‐ 740 2.4 906 1.1South Korea ‐ ‐ ‐ N 1,096 1.1China ‐ ‐ ‐ ‐ 1,061 0.4Germany $416 10.4 451 1.5 ‐ ‐Denmark $1,169 22.6 ‐ ‐ ‐ ‐ All imports $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.



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).

Philippine Imports of Pig’s Offal – 2004 to 2008

2004 2005 2006 2007 2008


Pig’s offal, not liver

19,805 20,657 27,364

38,589 49,978

Pig’s liver 4,904 5,160 5,444 6,124 6,410

Total 24,709 25,817 32,808 44,713 56,388

% change ‐ 4.5 27.1 36.3 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.



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)




Trends in Imports of Frozen Pig’s Liver from Key Supply Countries

– 2004 to 2008 (In Tonnes)


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.

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 Tonne

% Market Share

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

Canada 537 25.6 530 22.0 620 23.4USA 574 12.8 509 16.0 572 19.8France 547 9.9 531 12.0 585 10.1Germany 587 10.7 530 9.7 547 8.8Belgium 506 11.6 473 12.6 487 8.8South Korea 529 13.5 485 9.1 518 8.3Spain 518 5.4 517 6.8 571 5.9Denmark 667 2.5 527 3.9 610 5.8Netherlands 460 2.6 528 3.1 675 4.6Australia 518 2.6 531 2.0 671 2.0Ireland 535 1.0 532 1.3 584 1.5 All imports 543 100.0 513 100.0 582 100.0 Source: Derived from the Philippines External Trade Statistics



Philippine Imports of Frozen Pig’s Liver: Review of Landed Cost Per Tonne and Market Share – 2006 to 2008

2006 2007 2008

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

Canada 571 47.4 547 52.5 603 46.2USA 641 19.3 692 17.3 768 27.2South Korea 580 21.7 590 18.4 573 17.0Australia 604 9.7 551 10.7 548 5.5Spain ‐ ‐ ‐ ‐ 509 2.5 All imports 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).

Philippine Imports of Frozen Chicken Parts and Offal – 2004 to 2008

2004 2005 2006 2007 2008


Total 21,206 25,903 34,262 39,296 44,617 % change ‐ 22.1 32.2 14.7 13.5 Source: Philippines external trade statistics



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


Trends in Imports of Chicken Parts and Offal from Key Supply Countries

– 2004 to 2008 (In Tonnes)




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.

Philippine Imports Frozen Chicken Parts and Offal:

Review of Landed Cost Per Tonne and Market Share – 2006 to 2008

2006 2007 2008

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

C$ Per Tonne

% Market Share

Canada 662 26.2 623 27.0 647 32.7USA 753 54.1 747 44.9 710 30.0Brazil 553 7.9 506 13.1 700 19.6Australia 510 9.5 447 13.0 546 13.1France 443 0.1 ‐ ‐ 701 1.8Ireland ‐ ‐ ‐ ‐ 817 1.4Denmark 518 0.3 553 0.6 573 0.3 All imports 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.



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;



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,



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;



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);



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;

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;

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.



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 Tariff Rate

Applied Active Quota

Tariff Rate Out of Quota

ASEAN‐Australia‐New Zealand FTA

% % %

020110 Carcasses or half‐carcasses of bovine animals, fresh or chilled

10 ‐ ‐ 0% (2012)

020120 Fresh or chilled bovine cuts, with bone in (excl. carcasses and 1/2 carcasses)

10 ‐ ‐ 0% (2012)

020130 Fresh or chilled bovine meat, boneless

10 ‐ ‐ 0% (2012)

020210 Frozen bovine carcasses and half‐carcasses

10 ‐ ‐ 0% (2012)

020220

Frozen bovine cuts, with bone in (excl. carcasses and half‐carcasses)

10 ‐ ‐ 0% (2012)

020230 Frozen, boneless meat of bovine animals

10 ‐ ‐ 0% (2012)

020311 Fresh or chilled carcasses and half‐carcasses of swine

30 or 35 Yes 40 20% in 2012, phasing down to

0% in 2020.

020312 Fresh or chilled hams, shoulders and cuts thereof of swine, with bone in

30 or 35 Yes 40 20% in 2012, phasing down to

0% in 2020.

020319 Fresh or chilled meat of swine (excl. carcasses and half‐carcasses, and hams, shoulders and cuts thereof, with bone in)

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.



HS Code Description Tariff Rate Applied

Active Quota

Tariff Rate Out of Quota

ASEAN‐Australia‐New Zealand FTA

020321 Frozen carcasses and half‐carcasses of swine


2020.

020322 Frozen hams, shoulders and cuts thereof of swine, boneless


2020.

020329 Frozen meat of swine (excl. carcasses and half‐carcasses, and hams, shoulders and cuts thereof, boneless)


2020.

020641 Frozen edible livers of swine

5 or 7 ‐ ‐ 5% until 2014, then 4% into perpetuity.

020649 Edible offal of swine, frozen (excl. livers)

10 ‐ ‐ 0% from 2012

020714

Frozen cuts and edible offal of fowls of the species Gallus domesticus

40 or 5 Yes 40 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.



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 heading No. 01.05, fresh, chilled or frozen

23,490

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.



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.



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 World

Developed World *

Top 3 Developed World Supply Countries and Their Market Shares **

Tonnes % Share % Share Leader *** No 2 No 3

Beef, fresh chilled

29 The market for fresh/chilled beef is serviced by local suppliers, which include some very powerful and large locally owned meat companies.

Beef, frozen

112,066

70% 30% Australia (13%)

Canada (7%) New Zealand (7%)



Pork, fresh/chilled

Nil The market for fresh/chilled pork is serviced by local suppliers, which include some very powerful and large locally owned meat companies.

Pork, frozen 29,817

0.4% 99.6% USA (50%) Canada (22%)

France (13%)

Pig’s offal, frozen

56,388 0.5% 99.5% Canada (26%)

USA (21%) France (9%)

Chicken parts and offal, frozen

44,617 20% 80% Canada (33%)

USA (30%) Australia (13%)

*: 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”.



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.



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:



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‐

[email protected].

Documents

Competitive Industry Report on the Philippines Market for Imported Meat and Poultry [2010]