TABLE OF CONTENT

Sr.no 01 0 0# 0) 0+ 0* 00" 01 10 11 Particulars Summary of Sem III Summary of Sem I! Intro$uction to In$ian%P&ili''ines (airy In$ustry Intro$uction to Com'any S,OT Analysis of Com'any F(I in In$ia%P&ili''ines Policies an$ Norms of Im'ort%E.'ort /lo0al Strategies of Com'any Business O''ortunities Conclusion Bi0liogra'&y Page no. 01 0" 1" * " ++ *# -1 " "#

S23A45 OF 4EPO4T SE3 III

The Philippine investment in India is confined to the sectors of telecom, reprocessing of waste materials and human resources development. They also expand in the areas of investment in biotechnology, IT, health care, human resources development and energy sector. In order to further facilitate bilateral economic cooperation, various institutional mechanisms have been set up, which conduct regular meetings in both the countries. The Philippine investment in India is confined to the sectors of telecom, reprocessing of waste materials and human resources development. The two countries are also trying to expand the areas of investment in biotechnology, IT, health care, human resources development and energy sector.

Indias total tra$e with the Philippines stood at US !"# million in $##% with
Total Indian e.'orts at US &'# million, im'orts of US $"( million. The ma)or items of Indian exports to the Philippines are iron and steel manufactures and tools, fro*en buffalo meat, rice and wheat, electrical machinery, pharmaceutical products and Transport e+uipment. ,oth countries have been competing against each other in sectors such as ,usiness process outsourcing -,P./, 0edical care, 1gro2products and private businesses interaction.

(airy in$ustry in P&ili''ine Intro$uction

Philippines are the second largest agriculture importer in dairy products after wheat. Philippines are producing less than 34 of the dairy products it consumes in a year. There are two ma)or sectors that ma5e the Philippines are mil5 industry. 1 vast importing and processing sector and a small mil5 producing sectors. Importing and processing sector provide '(4 of mil5 to the Philippines and second sector provide remaining of the supply. .ut of '(4 of imported mil5 6#4 is in powder form.

3ar6et O''ortunity Increase in local 'ro$uction

7ocal production is growing at an annual rate of (4 Increase on local production from 3".6 thousand 0T in $##6 to 3&." in $##'. $#3# production forecasted at 3(.( thousand 0T.

Increase in consum'tion
Increase in per capita consumption from 3% 5g8yr in $##$ to 3' 5g8yr in $##'. Increase in total consumption of about 3!3!.% thousand 0T in $##6 to 3!($.% thousand 0T in $##' or an annual average increase of $4. $#3# consumption forecasted at 3!6%.$ thousand 0T.

PESTEL Analysis Political Factor Agro in$ustry

Philippines honesty scheme is pair of the Supreme 9ourt. There is a great level of criminality due to countrys unbalance and for that death penalty has been added to increase stability
3

(airy in$ustry
Since $##3 to current time, a number of trends in local dairy sector have help to increase speed growth. The law and the national development plan promote smallholder dairying, as contained in the following relevant provisions.

Economical Factor Agro in$ustry

:conomy has been on a solid path of economic expansion. The government has persuaded a series of govt reforms to increase the industry environment.

(airy in$ustry
The dairy mar5et generates sales amounting to US 3.3 billion annually. 1ustralia, ;ew <ealand and the US1 supply 6# percent of mil5 imports. In $##$, Philippines imported some $3( million 5g of mil5 and mil5 products at a cost of Php 3!." billion -US "&% million/.

Social factor Agro in$ustry

=ice and coconut is a main clip for a man serving of food for >ilipino men cannot have enough money to eat without rice. :n)oys food in restaurants Tipping is relatively common in restaurants , hotels.

(airy in$ustry
The >ilipino peoples en)oy mil5 with daily meals. The demand of mil5 and other things related with mil5 increased in day by day.

Tec&nological factor Agro in$ustry

Innovative =ainwater ?arvesting System-I=?S/@ to utili*e the patented plastic flexible piping connection for farming.

(airy in$ustry
Philippines still use old machineries to produce product with mil5. Therefore 0achineries for manufacturing have to Import from outside of Philippines. The advance machinery for ma5ing ice2creams is still not well developing. There is still lac5 of proper storage facility of ice2cream in bul5.

Ecological factor Agro in$ustry

1 number of volcanoes are dynamic, and the island has been sub)ect to constructive earth+ua5e. 1 marine temperature type of weather conditions and has two distinct season raining and dry season affects the industries.

(airy in$ustry
Type I @ Two different periods with extreme rain phase from Aune to September and a dry phase this lasts from three to six or seven months. Type II @ ;o dry period with a very distinct extreme rain period from Becember to >ebruary. Type III @ ;o distinct extreme rain phase with a short dry season lasting only from 32 "months.

Legal factor Agro in$ustry

0inimum age to be employed to wor5 in the Philippines one must be at least 3( years old. 7iberali*ed policy of Philippines.

(airy in$ustry
Presence of the ;B1 created under the ;ational Bairy Bevelopment 1ct of 3''( to ensure the +uic5er expansion of the Philippine dairy industry through policy trac5 and program application.

S,OT ANAL5SIS Strengt&s7 Agro in$ustry

5

Their economic development strength of agricultural products includes rice, corn, cassavas, mangoes, pineapples, coconuts, sugarcane, por5 and fish.

(airy in$ustry
To maximi*e their returns from a premium product, the organi*ations have to focus on supply fresh mil5 to the customer. The business should focus on the very clear, rising li+uid mil5 mar5et, which involves demand from middle to upper income group customers, the specialty coffee shops, and hotels.

,ea6nesses7 Agro in$ustry

Underdeveloped agriculture sector@ Philippines agriculture suffers from low productivity because of needs of irrigation system, rural infrastructure, post harvest facilities. Poor state of infrastructure@ below standard foundation or little organi*ation at all.

(airy in$ustry
Periodic vacillations in mil5 production pattern, area difference of mil5 supply and species2 wise variation -goat, cow, buffalo etc./ in mil5 +uality expected through mil5 plants maintain to pose serious handicaps.

O''ortunity7 Agro in$ustry

In Philippines there is a uni+ue scope for innovation in product growth, covering and presentation. :xpanding mar5et will creation of huge self2employment opportunities and )ob. :xporting flowers to India.

(airy in$ustry
9ompany can introduce value2added products li5e shri5hand, ice creams, paneer, 5hoa, dairy sweets, etc. This will lead to a greater existence and flexibility in the mar5et place beside by opportunity in the field of brand building.

T&reat7 Agro in$ustry

6

1 high population growth rate and unsustainable natural resources depletion. 7ittle access for poor people to productive assets and enterprise opportunities.

(airy in$ustry
The 0il5 vendors are un2organi*ed sector Today mil5 vendor are occupy the pride of place in the industry. Innovative Product can give either higher profit or higher loss also, so the ris5 in business is more.

Porter8s Fi9e Forces Analysis T&reat of ne: entrants to t&e in$ustry7 LO,
Some outstanding characteristics of the mil5 industry include stable growth, high profit, and comparatively stable mar5et share. Therefore, in order to enter the mar5et, companies must have an abundant source of capital to overcome such barriers as@ Pro$uct s'ecification@ 0ost ma)or dairy companies in the world have participated in Cietnams dairy mar5et, who have already had a certain and stable mar5et share. Large ca'ital re;uirement@ 9apital source must be abundant enough to cover advertisement and =DB expenses. Inter9ie: Philippines has traditionally been outside IndiaEs trade radar for a long time. :ven after our E7oo5 :astE policy was launched in the early 3''#Es, bilateral trade with the Philippines did not pic5 up whereas our trade with other countries such as Singapore, 0alaysia, Indonesia, Thailand and Cietnam grew rapidly. .ne reason is the aggressiveness shown by these countries as far as trade with India is concerned. Philippines on the other hand remained an onloo5er. 1lso missing in the Philippines is the presence of enough Indian companies with effective lobbying capacity bac5 home. If bilateral trade is to expand, Philippines has to reciprocate the interest shown by Indian businessmen. They could start by liberalising the visa regime for Indians further -some liberalisation under FoaI8:mbassy pressure has occurred in the last two years./

CONCL2SIONS

The agriculture sector has been a ma)or player in the Philippine economy. Gith changing national and global trends, the sector has identified a number of strategies to be competitive. 1 strategy that has helped alleviate poverty and increase productivity is crop diversification. The passage by the Philippine 9ongress of the 1griculture and >isheries 0oderni*ation 1ct in 3''! is a giant leap towards reaping the previous efforts of both government and private sectors on crop diversification planting one or more crops in2between a perennial crop.

S23A45 OF 4EPO4T SE3 III In$ian $airy In$ustry

The Indian dairy industry is rapidly growing, trying to 5eep pace with the galloping progress around the world. 1s he expands his overseas operations to India many profitable options await him. ?e may transfer technology, sign )oint ventures or use India as a sourcing centre for regional exports. The liberali*ation of the Indian economy bec5ons to 0;9Es and foreign investors ali5e. Indias dairy sector is expected to triple its production in the next 3# years in view of expanding potential for export to :urope and the Gest .Indian dairy sector contributes the large share in agricultural gross domestic products. Presently there are around !#,### village dairy cooperatives across the country. The co2operative societies are federated into 3!# district mil5 producers unions, which is turn has $$2state cooperative dairy federation. 0il5 production gives employment to more than !$mn dairy farmers.

3a<or Players
The pac5aged mil5 segment is dominated by the dairy cooperatives. Fu)arat 9o2 operative 0il5 0ar5eting >ederation -F900>/ is the largest player. 1ll other local dairy
8

cooperatives have their local brands ->or e.g. Fo5ul, Garana in 0aharashtra, Saras in =a)asthan, Cer5a in Pun)ab, Ci)aya in 1ndhra Pradesh, 1avin in Tamil ;adu, etc/. .ther private players include A H Bairy, ?eritage >oods, Indiana Bairy, Bairy Specialties, etc. 1mrut Industries, once a leading player in the sector has turned ban5rupt and is facing li+uidation

E.'ort Potential
India has the potential to become one of the leading players in mil5 and mil5 product exports. 7ocational advantage @ India is located amidst ma)or mil5 deficit countries in 1sia and 1frica. 0a)or importers of mil5 and mil5 products are ,angladesh, 9hina, ?ong Hong, Singapore, Thailand, 0alaysia, Philippines, Aapan, U1:, .man and other gulf countries, all located close to India. 7ow 9ost .f Production @ 0il5 production is scale insensitive and labour intensive. Bue to low labour cost, cost of production of mil5 is significantly lower in India.

(airy in$ustry in P&ili''ine Intro$uction

Philippines are the second largest agriculture importer in dairy products after wheat. Philippines are producing less than 34 of the dairy products it consumes in a year. There are two ma)or sectors that ma5e the Philippines are mil5 industry. 1 vast importing and processing sector and a small mil5 producing sectors. Importing and processing sector provide '(4 of mil5 to the Philippines and second sector provide remaining of the supply. .ut of '(4 of imported mil5 6#4 is in powder form.

3ar6et O''ortunity Increase in local 'ro$uction

7ocal production is growing at an annual rate of (4 Increase on local production from 3".6 thousand 0T in $##6 to 3&." in $##'. $#3# production forecasted at 3(.( thousand 0T.

Increase in consum'tion
Increase in per capita consumption from 3% 5g8yr in $##$ to 3' 5g8yr in $##'.
9

Increase in total consumption of about 3!3!.% thousand 0T in $##6 to 3!($.% thousand 0T in $##' or an annual average increase of $4. $#3# consumption forecasted at 3!6%.$ thousand 0T.

ALAS=A 3IL= CO4PO4ATION

Alas6a 3il6 Cor'oration >A3C? is the leading mil5 company in the Philippines. It has consistently maintained its leadership in the canned li+uid mil5 category -evaporated and sweetened condensed/, thus, paving the way into growing 1las5a into a mega2brand by competing in the powdered, ready2to2drin5, and creams mar5et, among others. In $##!, 109 further expanded its li+uid mil5 portfolio by licensing 9arnation and 0il5maid from ;estle and ac+uiring 1lpine, 7iberty and Hrem2Top. This development led to 109s move to a dominant position in the category. 1part from growing its core businesses, 109 endeavours to diversify and explore opportunities in related consumer product categories. In 0arch $#3$, 1las5a 0il5 9orporation partnered with =oyal >riesland 9ampina, the fifth largest dairy company in the world. 109 continues to further its mission of nourishing >ilipino dreams, bringing in affordable nutrition across different life stages to every >ilipino home for over &# years. It is committed in providing nutrition to >ilipino households, ensuring high +uality standards in its products, developing innovative mar5eting plans and programs, and promoting outdoor sports as part of a healthy lifestyle. To promote a healthy lifestyle and the brand 1las5a, 109 heavily invests in sports with its ownership of the 3&2time champion professional bas5etball team -1las5a 1ces/ in the Philippine ,as5etball 1ssociation -P,1/ while maintaining the 1las5a Power 9amp, a sports development program involving youth team sports li5e bas5etball and football and the organi*ing of the 3st 1las5a ,as5etball 9up and the 36th 1las5a >ootball 9upIthe single largest football tournament in the Philippines. 1side from the 1las5a grassroots sports program, in $#33, 109 partnered with the Ar. ;,1 PhilippinesIbringing in the most prestigious bas5etball camp in the country, ;,12 style. It aim to build participation and enhance s5ill development among players and coaches by focusing on fundamental s5ills and instill values such as Sportsmanship, Teamwor5, Positive Attitude, and 4espect or ST1= values. 1s the partnership enter its second

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agreement, the Ar. ;,121las5a program brings the Ar. G;,1 in the Philippines for the first time. In addition, 109 over the last four years is also the title sponsor of the Iron Hids triathlon races in the country. 1las5a Iron Hids is the )unior version of the Ironman. 109 loo5s beyond selling mil5J it sells nutrition and by doing so, the 9ompany and brand 1las5a is doing its part in nation building. Through youth sports development programs, 1las5a 0il5 is able to help nourish children for them to develop into champions in the field of interest and, in general, in life. Today, 1las5a is still best 5nown for its tagline KSa sustansiyatlasa, wala pa ring tatalosa 1las5aL -In nutrition and taste, nothing beats 1las5a/.

S,OT Analysis of Alas6a $airy

ST4EN/T@S 3. ;ew technological innovations are there by having higher operational efficiency in the actions ta5en by them. $. It is very well 5nown brand in Philippines. ". There is a great expertise in management which enables to perform managerial tas5 effectively and efficiently. &. There is availability of s5illed manpower. (. This dairy is part of =oyal >riesland 9ampina. The leading dairy company in the ;etherland. ,EA=NESSES 3. There is problem in decision ma5ing persuaded by the current events. $. This dairy having a high dependency on imported raw materials increases vulnerability against availability and price fluctuations. ". In terms of mar5eting strategy, ad campaigns are not eye catching. &. Some facilities need renovations. OPPO4T2NITIES 3. There is continuous growth in the Philippine economy in a year. $. There is a continuous growth of the population in the country.
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". 9ompetitors may be slow to adopt the technology. &. There should be growth in the value by using new e+uipments that the company will be using. (. :xporting of the 1las5a product in the different countries. T@4EATS 3. There is a local ma)or competitor named21ngel brand. $. :conomic problems experiencing in :urope. ". The increasing rate of raw material affects the whole dairy. &. :conomic problems li5e not enough infrastructures, increasing population affects the dairy itself in producing the products. (. Bifferent cost of utilities such as crude oil, diesel, electricity, water etc can be matter for arranging the dairy.

F(I ON IN(IA
India has been ran5ed at the second place in global foreign direct investments in $#3# and will continue to remain among the top five attractive destinations for international investors during $#3#23$ period, according to United ;ations 9onference on Trade and Bevelopment -U;9T1B/ in a report on world investment prospects titled, EGorld Investment Prospects Survey $##'2$#3$E. The $#3# survey of the Aapan ,an5 for International 9ooperation released in Becember $#3#, conducted among Aapanese investors, continues to ran5 India as the second most promising country for overseas business operations. 1 report released in >ebruary $#3# by 7eeds University ,usiness School, commissioned by UH Trade D Investment -UHTI/, ran5s India among the top three countries where ,ritish companies can do better business during $#3$23&. 1ccording to :rnst and MoungEs $#3# :uropean 1ttractiveness Survey, India is ran5ed as the &th most attractive foreign direct investment ->BI/ destination in $#3#. ?owever, it is ran5ed the $nd most attractive destination following 9hina in the next three years. 0oreover, according to the 1sian Investment Intentions survey released by the 1sia Pacific >oundation in 9anada, more and more 9anadian firms are now focusing on India as an investment destination. >rom 6 per cent in $##(, the percentage of 9anadian companies showing interest in India has gone up to 3".& per cent in $#3#.
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F(I IN P@ILIPPINES
The latest value for >oreign direct investment, net -,oP, current US / in Philippines was - 3,$(",###,###.##/ as of $#33. .ver the past % years, the value for this indicator has fluctuated between %$#,###,###.## in $##! and - $,636,###,###.##/ in $##%. Befinition@ >oreign direct investment are the net inflows of investment to ac+uire a lasting management interest -3# percent or more of voting stoc5/ in an enterprise operating in an economy other than that of the investor. It is the sum of e+uity capital, reinvestment of earnings, other long2term capital, and short2term capital as shown in the balance of payments. This series shows total net, that is, net >BI in the reporting economy from foreign sources less net >BI by the reporting economy to the rest of the world. Bata are in current U.S. dollars. 5ear !alue $##( $##% $##! $##6 $##' $#3# $#33 - 3,%%(,###,###.##/ - $,636,###,###.##/ %$#,###,###.## - 3,$6(,###,###.##/ - 3,%#&,###,###.##/ - %6$,###,###.##/ - 3,$(",###,###.##/ The Philippines moved up significantly on an annual index of business competitiveness and now ran5s !$nd out of 3"$ countries on the Gorld :conomic >orumEs enabling trade index, up from '$nd place two years ago. The Flobal :nabling Trade =eport $#3$ ran5s countries based on mar5et access, border administration, transport and communications infrastructure, and business environment. The Philippines showed the greatest improvement in the area of mar5et access, moving up (# places from %&th in $#3# to 3&th in $#3$. Improvement was also seen in the category of efficiency of import2export procedures.
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;et inflows of foreign direct investments ->BI/ to the Philippines for the first two months of $#3$ were 6(# million, three times higher than the ""( million during the same period in $#3$. Fross inflows for the first two months of $#3$ were '$! million. The PhilippinesE strong macroeconomic fundamentals are ma5ing the Philippines an attractive environment to invest at a time of continuing concerns over the sovereign debt crisis in some parts of :urope and the moderation in global activity

POLIC5 AN( NO43S Of IN(IA8S I3PO4T%EAPO4T

India allows imports of mil5 and mil5 products without +uantitative limitations, although tariff rate +uotas apply and an import permit is re+uired. ;>B0 imported above the T=N attracts a %# percent basic duty and above +uota butter oil imports are charged a "# percent basic duty .n Aune 33, $#3", the >ood Safety and Standards 1uthority of India extended the import prohibition on mil5 and mil5 products from 9hina for an additional year until Aune $$, $#3&. The ban includes mil5, mil5 products, chocolates and chocolate products, candies, confectionary, and food preparations made with mil5 or mil5 solids originating in 9hina.

P&ili''ine (airy Im'orts Bairy products are currently the countrys third largest agricultural import after wheat and soybean meal. Bespite an expanding food processing industry, total $#3" imports of dairy products are forecast to slightly decline from the previous years level of 3,'(( 0T -70:/ to 3,'## 0T -70:/ due to high global prices early in the year. Post expects imports in $#3& to increase slightly to $,### 0T -70:/ as growth in local demand will li5ely continue to exceed any increases in domestic supply.

/LOBAL SAT4ATE/5
171SH1 0I7H 9.=P.=1TI.; is one of the leading manufacturers of mil5 products in the Philippines. It has established a strong brand heritage among >ilipino consumers with its traditional li+uid canned mil5 products mar5eted under the 1las5a label. The 9ompany has li5ewise established a strong presence in the powdered mil5 business and a growing position in the U?T ready2to2drin5 and ready2to2use segments.
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Today, more than ever, 1las5a endeavours to maintain and reinforce its formidable position in the Philippine mil5 mar5et. Ge see5 to cater to a new Feneration of consumers by building on the strengths of our portfolio of trusted ,rands and capitali*ing on the possibilities created by a continually evolving consumer environment. >or over thirty years, 1las5a 0il5 9orporation has proven its worth as a company of people driven by a passion to deliver unparalleled value to its consumers and customers through its +uality products and superior services. Ge ta5e great pride in providing affordable nutrition for families across the country under a portfolio of trusted brands. Through all the years of our corporate existence, our strength in the industry has always been our people. Ge rely on them J their integrity, s5ills, talents, enthusiasm and commitment. ?olding ourselves to the highest standards ensures that we achieve our goals in a manner consistent with our corporate values.

B2SINESS OPPO4T2NITIES IN P@ILIPPINES

India and the Philippines en)oy healthy and cordial bilateral economic relations. .ur bilateral trade has steadily grown over the years 22 from 36# million in 3''6 to "!$ million in $##& 22 with Indian exports to the Philippines at $6" million and imports from the Philippines at 6' million. ?owever, it remains below potential. IndiaEs share in PhilippinesE global trade is a negligible #.&% per cent. .ur exports are #.! per cent of PhilippineEs global imports, and PhilippineEs exports to India are #.$$ per cent of their global exports. Philippines has traditionally been outside IndiaEs trade radar for a long time. :ven after our E7oo5 :astE policy was launched in the early 3''#Es, bilateral trade with the Philippines did not pic5 up whereas our trade with other countries such as Singapore, 0alaysia, Indonesia, Thailand and Cietnam grew rapidly. .ne reason is the aggressiveness shown by these countries as far as trade with India is concerned. Philippines on the other hand remained an onloo5er. 1lso missing in the Philippines is the presence of enough Indian companies with effective lobbying capacity bac5 home. If bilateral trade is to expand, Philippines has to reciprocate the interest shown by Indian businessmen. They could start by liberali*ing the visa regime for Indians further -some liberali*ation under FoI8:mbassy pressure has occurred in the last two years/.

15

The Philippines pharmaceutical mar5et heavily dependent on bul5 importation of basic raw materials, chemicals, semi2finished and finished products from the US, :urope, 9anada and 1ustralia, among others. 1nnual imports are about &(# million. 0anufacturing merely involves the formulation and processing of drugs and pharmaceuticals into various forms and dosages, repac5ing of imported bul5 drugs and pac5aging them for distribution. Since the bul5 of the imports are from multinational companies, medicine prices in the country are about ( to 3( times higher than those in India. There are two main reasons for the below2potential Indian pharma exports to the Philippines 22 a strong multinational lobby wor5ing against imports of inexpensive medicines from countries li5e India, and stringent registration procedures of the PhilippinesE ,ureau of >ood and Brugs. Ge in the embassy have been countering the mischief perpetrated by the multinational lobby, by ma5ing the government, companies and people aware of the high +uality and low2priced drugs available from India. Ge have enlisted the support of the Philippine International Trading 9orporation, a government agency, which has been importing medicines worth about 3.( million a year from India for the last few years. The PIT9 has been waging a war on the multinationals and has been promoting affordable2 priced medicines from India and other countries. These medicines are supplied to government hospitals and to the E,outi5a ;g ,ayanE retail outlets being set up by the Philippine government to ma5e medicines affordable to the poor. Ge have also put pressure on the ,>1B to simplify the registration procedure for Indian drugs and shorten the time ta5en. Ge have been able to have the time shortened from about two years to about a year. It is a prere+uisite for any drug imported into the Philippines to be registered with ,>1B first. There are now over (# Indian companies whose products are registered with ,>1B. 1t present, ma)or items of Indian exports to Philippines are@ fro*en buffalo meat -for processing/, pharmaceuticals, iron and steel manufactures and tools, textile yarn, petrochemicals, auto and motorcycle parts, cereals, organic chemicals, electronic components, etc. 0a)or imports from Philippines are@ semi2conductors, inorganic chemicals, auto parts, newsprint, minerals, garments and miscellaneous industrial products. There is potential for growth in our exports in pharmaceuticals, IT services, animal feed, iron and steel, auto parts, cereals, chemicals and mil5. 1s regards exports from the Philippine, potential exists in minerals, seaweed, processed foods and auto parts.

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O''ortunities in (airy Sector.

Aul. 3$ J 1s the demand for dairy products increases from the member nations of the 1ssociation of Southeast 1sian ;ations -1S:1;/ , Indias dairy sector seems poised to fill the gap, and can expect a large bump in its mil5 exports to the region in the near future. 0il5 consumption throughout the 1S:1; region, especially throughout the 1S:1; six ma)ors J which is made up of Indonesia, 0alaysia, the Philippines, Singapore, Thailand and Cietnam J has gone up in recent years than5s to increasing birth rates, improving diets, rapid urbani*ation and an increasingly health2conscious middle class in the countries. 1s a result, these countries have been increasingly dependent on the import of dairy products. K1cross 1sia, India is the only country with surplus mil5. 1bove all, OIndia hasP the location advantage to cater to the Southeast 1sian mar5et,L noted = S Sodhi, 0anaging Birector of Fu)arat 9ooperative 0il5 0ar5eting >ederation, which produces Indias 1mul mil5 brand. Indian s5immed mil5 powder -S0P/ reportedly costs around US ",&(# a ton. In comparison, competing nations such as 1ustralia and ;ew <ealand charge between US ",((#2US ",%(# a ton. KGe expect dairy consumption across the 1S:1;2% to grow $.&4 a year through to $#$#. This creates a re+uirement for an extra three billion liters of mil5,L said 0ichael ?arvey, analyst at 1ustralia2based food ban5 =aboban5. Indian S0P exports to the 1S:1; region is currently (### tons a year, but this number is expected to )ump to over 3#,### tons by the end of this year. Indias total mil5 powder exports are li5ely to touch 3##,### tons this year. The Indian government lifted the ban on the export of mil5 powder )ust last Aune. This development comes off the heels of recent news that 1ustralia and ;ew <ealand have been gunning to fill the mil5 export void in the 1S:1; region.

CONCL2SION

1s Philippines is agriculture based country )ust li5e an India, and importing its 6#4 of dairy products from other countries, so it is an vast opportunity for India in the dairy sector, because India is the world leader in 0il5 producing and exporting. India already having good trade relation with Philippines in other sectors, except dairy sector, Indian Fovernment has launched many policies to increase the bilateral trade between the 1S:1; countries, li5e K7..HI;F :1STL. =ecently Indian government lifted the ban on the export of mil5 powder to increase and encourage Indian dairy sector to increase export in 1S:1;.

17

In$ian $airy In$ustry

The Indian dairy industry is rapidly growing, trying to 5eep pace with the galloping progress around the world. 1s he expands his overseas operations to India many profitable options await him. ?e may transfer technology, sign )oint ventures or use India as a sourcing centre for regional exports. The liberali*ation of the Indian economy bec5ons to 0;9Es and foreign investors ali5e. Indias dairy sector is expected to triple its production in the next 3# years in view of expanding potential for export to :urope and the Gest .Indian dairy sector contributes the large share in agricultural gross domestic products. Presently there are around !#,### village dairy cooperatives across the country. The co2operative societies are federated into 3!# district mil5 producers unions, which is turn has $$2state cooperative dairy federation. 0il5 production gives employment to more than !$mn dairy farmers. Ghile world mil5 production declined by $ per cent in the last three years, according to >1. estimates, Indian production has increased by & per cent. The mil5 production in India accounts for more than 3"4 of the total world output and (!4 of total 1siaEs production. The top five mil5 producing nations in the world are India ,US1, =ussia, Fermany and >rance. Source@ :xport prospects for agro2based industries, Gorld Trade 9entre, 0umbai. Pro$uction of mil6 in In$ia Mear 3'6623'6' 3'6'23''# 3''#23''3 3''323''$ 3''$23''" 3''"23''& 3''&23''( 3''(23''% 3''%23''! 3''!23''6 3''623''' Production in million 0T &6.& (3.& (".! (%." (6.% %3.$ %".( %( %6.( !#.6 !&.!
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3'''2$###-:/ $###2$##3-T/

!6.3 63.#

Source@ B>PI, 1nnual =eport23'''2$### ,orl$Bs ma<or mil6 'ro$ucers 9ountry India Usa =ussia Fermany >rance Pa5istan ,ra*il U5 U5rania Poland ;ew <ealand ;etherland Italy 1ustralia 3''!2'6 !3 !3 "& $! $& $3 $3 3& 3( 3$ 33 33 3# ' 3''62'' - 1pprox./ !&.( !3 "" $! $& $$ $! 3& 3& 3$ 3$ 33 3# 3#

/ro:ing !olumes
The effective mil5 mar5et is largely confined to urban areas, inhabited by over $( per cent of the countryEs population. 1n estimated (# per cent of the total mil5 produced is consumed here. ,y the end of the twentieth century, the urban population is expected to increase by more than 3## million to touch "%& million in $### a growth of about &# per cent. The expected rise in urban population would be a boon to Indian dairying. Presently, the organi*ed sector both cooperative and private and the traditional sector cater to this mar5et. The consumer access has become easier with the information revolution. The number of households with TC has increased from $" million in 3'6' to &( million in 3''(. 1bout "& per cent of these households in urban India have access to satellite television channel.

Potential for furt&er gro:t&

.f the three 1Es of mar5eting 2 availability, acceptability and affordability, Indian dairying is already endowed with the first two. People in India love to drin5 mil5. ?ence no efforts are needed to ma5e it acceptable. Its availability is not a limitation either, because of the ample

19

scope for increasing mil5 production, given the prevailing low yields from dairy cattle. It leaves the third vital mar5eting factor affordability. ?ow to ma5e mil5 affordable for the large ma)ority with limited purchasing powerQ That is essence of the challenge. .ne practical way is to pac5 mil5 in small +uantities of $(# ml or less in polythene sachets. 1lready, the glass bottle for retailing mil5 has given way to single2use sachets which are more economical. 1nother viable alternative is to sell small +uantities of mil5 powder in mini2 sachets, ade+uate for two cups of tea or coffee.

3ar6eting Strategy for 000 A(

Two 5ey elements of mar5eting strategy for $### 1B are@ >ocus on strong brands and, product mix expansion to include U?T mil5, cheese, ice creams and spreads. The changing mar5eting trends will see the shift from generic products to the pac5aged +uasi, regular and premium brands. The national brands will gradually edge out the regional brands or reduce their presence. The brand image can do wonders to a productEs mar5eting as is evident from the words of Perfume Princess 9oco 9hannel@ In the factory, we pac5 perfumeR in the mar5et, we sell hopeS

Emerging (airy 3ar6ets

>ood service institutional mar5et@ It is growing at double the rate of consumer mar5et Befence mar5et@ 1n important growing mar5et for +uality products at reasonable prices Ingredients mar5et@ 1 boom is forecast in the mar5et of dairy products used as raw material in pharmaceutical and allied industries Parlour mar5et@ The increasing away2from2home consumption trend opens new vistas for ready2to2serve dairy products which would ride piggybac5 on the fast food revolution sweeping the urban India. India, with her si*able dairy industry growing rapidly and on the path of moderni*ation, would have a place in the sun of prosperity for many decades to come. The one index to the statement is the fact that the pro)ected total mil5 output over the next 3( years -3''(2$#3#/ would exceed 3&(!.% million tonnes which is twice the total production of the past 3( yearsS

3a<or Players
The pac5aged mil5 segment is dominated by the dairy cooperatives. Fu)arat 9o2operative 0il5 0ar5eting >ederation -F900>/ is the largest player. 1ll other local dairy cooperatives
20

have their local brands ->or e.g. Fo5ul, Garana in 0aharashtra, Saras in =a)asthan, Cer5a in Pun)ab, Ci)aya in 1ndhra Pradesh, 1avin in Tamil ;adu, etc/. .ther private players include A H Bairy, ?eritage >oods, Indiana Bairy, Bairy Specialties, etc. 1mrut Industries, once a leading player in the sector has turned ban5rupt and is facing li+uidation.

E.'ort Potential
India has the potential to become one of the leading players in mil5 and mil5 product exports. 7ocational advantage @ India is located amidst ma)or mil5 deficit countries in 1sia and 1frica. 0a)or importers of mil5 and mil5 products are ,angladesh, 9hina, ?ong Hong, Singapore, Thailand, 0alaysia, Philippines, Aapan, U1:, .man and other gulf countries, all located close to India. 7ow 9ost .f Production @ 0il5 production is scale insensitive and labour intensive. Bue to low labour cost, cost of production of mil5 is significantly lower in India.

Concerns in e.'ort com'etiti9eness are

Nuality @ Significant investment has to be made in mil5 procurement, e+uipments, chilling and refrigeration facilities. 1lso, training has to be imparted to improve the +uality to bring it up to international standards. Productivity @ To have an exportable surplus in the long2term and also to maintain cost competitiveness, it is imperative to improve productivity of Indian cattle. There is a vast mar5et for the export of traditional mil5 products such as ghee, paneer, shri5hand, rasgolas and other ethnic sweets to the large number of Indians scattered all over the world.

,&at $oes t&e In$ian (airy In$ustry &as to Offer to Foreign In9estorsC
India is a land of opportunity for investors loo5ing for new and expanding mar5ets. Bairy food processing holds immense potential for high returns. Frowth prospects in the dairy food sector are termed healthy, according to various studies on the sub)ect. The basic infrastructural elements for a successful enterprise are in place. Hey elements of free mar5et system raw material -mil5/ availability an established infrastructure of technology
21

supporting manpower

1n entrepreneurEs participation is li5ely to provide attractive returns on the investment in a fast growing mar5et such as India, along with an export potential in the 0iddle :ast, Singapore, 0alaysia, Indonesia, Horea, Thailand, ?ong Hong and other countries in the region. 1mong several areas of potential participation by ;=Is and foreign investors, the following list outlines a few promising opportunities

Biotec&nology7
Bairy cattle breeding of the finest buffaloes and hybrid cows 0il5 yield increase with recombinant somatotropin =ecombinant chymosin, acceptable to vegetarian consumers Bairy cultures, probiotics, dairy biologics, en*ymes and colouring materials for food processing >ermentation derived foods and industrial products alcohol, citric acid, lysine, flavour preparations, etc. ,io preservative ingredients based on dairy fermentation, vi*., ;isin, pediococcin, acidophilic, ,ulgarian contained in dairy powders.

(airy%foo$ 'rocessing e;ui'ment7

Potential exists for manufacturing and mar5eting of cost competitive food processing machinery of world2class +uality. Foo$ 'ac6aging e;ui'ment@ .pportunities lie in the manufacturing of both machinery and pac5aging materials that help develop brand loyalty and a clear edge in the mar5eting of dairy foods. (istri0ution c&annels7 >or refrigerated and fro*en food distribution, a world class cold chain would help in providing +uality assurance to the consumers around the region.

Pro$uct $e9elo'ment7
Bairy foods can be manufactured and pac5aged for export to countries where Indian food en)oys basic acceptance. The manufacturing may be carried out in contract
22

plants in India. 1n option to mar5et the products in collaboration with local establishments or entrepreneurs can also be explored. Products exhibiting potential include typical indigenous dairy foods either not available in foreign countries or products whose authenticity may be +uestionable. Fulab)amuns, ,urfi, Peda, =asagollas, and a host of other Indian sweets have good business prospects. Products typically foreign to India but indigenous to other countries could also be developed for export. Such products can be manufactured in retail pac5age si*es and could be produced from mil5 of sheep, goats and camel. 9ertain products are characteristically produced from mil5 of a particular species. >or example, >eta cheese is used in significant tonnage, in Iran. Sheep mil5 is traditionally used for authentic >eta cheese. 1ccordingly, IndiaEs goat and sheep herds can be utili*ed for the manufacture of such authentic products.

Ingre$ient manufacture7
:xport mar5ets for commodities li5e dry mil5, condensed mil5, ghee and certain cheese varieties are well established. These items are utili*ed as ingredients in foreign countries. These mar5ets can be expanded to include value2added ingredients li5e aseptically pac5aged cheese sauce and dehydrated cheese powders. C&eese sauce@ 9anned cheese sauce is made from real cheese to which mil5, whey, modified food starch, vegetable oil, colourings and spices may be added. 9heese sauce is useful in 5itchens for the preparation of omelette, sandwiches, entrees, and soups. In addition, cheese sauce is used as a topping on potatoes and vegetables and may be incorporated in pasta dishes. C&eese 'o:$ers@ 9heese powders are formulated for dusting or smearing of popular snac5s li5e potato chips, crac5ers, etc. They impart flavour and may be blended with spices. Gith the globali*ation of food items, an opportunity should open up for food service and institutional mar5ets.

Tec&nologyD$ri9en manufacturing units7

These plants would fulfil an essential need by providing a centrali*ed and speciali*ed facility for hire by the units which cannot )ustify capital investment but do need such services. Potential areas for state2of2the2art contract2pac5 units may conceivably
23

speciali*e in cheese slicing, or dicing line, cheese pac5aging, butter printing, and aseptic pac5aged fluid products.

Training centres for continuing e$ucation7

;=Is could set up technology transfer and updating centres for conducting seminars and wor5shops 2 catering to the needs of wor5ers at all levels of the dairy industry. ?ere technical, mar5eting and management topics can be offered to ensure that the manpower continues to ac+uire the latest 5now2how of their respective fields. The entrepreneurs need powerful tools to implement their plans. 1ppropriate investment and involvement by ;=Is can serve as a catalyst for IndiaEs dairy food industry leading to exploration of business potential in domestic and export trade. =is5 factors must be identified and managed by in2depth study of chosen areas so that chances of rewards are maximi*ed under the current liberali*ation climate.

In$ian >tra$itional? 3il6 Pro$ucts7

There are a large variety of traditional Indian mil5 products such as 0a55han 2 unsalted butter. Fhee 2 butter oil prepared by heat clarification, for longer shelf life. Hheer 2 a sweet mix of boiled mil5, sugar and rice. ,asundi 2 mil5 and sugar boiled down till it thic5ens. =abri 2 sweetened cream. Bahi 2 a type of curd. 7assi 2 curd mixed with water and sugar8 salt. 9hanna8Paneer 2 mil5 mixed with lactic acid to coagulate. Hhoa 2 evaporated mil5, used as a base to produce sweet meats. The mar5et for indigenous based mil5 food products is difficult to estimate as most of these products are manufactured at home or in small cottage industries catering to local areas. 9onsumers while purchasing dairy products loo5 for freshness, +uality, taste and texture, variety and convenience. Products li5e Bahi and sweets li5e Hheer, ,asundi, =abri are perishable products with a shelf life of less than a day. These products are therefore manufactured and sold by local mil5 and sweet shops. There are several
24

such small shops within the vicinity of residential areas. 9onsumer loyalty is built by consistent +uality, taste and freshness. There are several sweetmeat shops, which have built a strong brand franchise, and have several branches located in various parts of a city.

(airy in$ustry in P&ili''ine Intro$uction

Philippines are the second largest agriculture importer in dairy products after wheat. Philippines are producing less than 34 of the dairy products it consumes in a year. There are two ma)or sectors that ma5e the Philippines are mil5 industry. 1 vast importing and processing sector and a small mil5 producing sectors. Importing and processing sector provide '(4 of mil5 to the Philippines and second sector provide remaining of the supply. .ut of '(4 of imported mil5 6#4 is in powder form.

3ar6et O''ortunity Increase in local 'ro$uction

7ocal production is growing at an annual rate of (4 Increase on local production from 3".6 thousand 0T in $##6 to 3&." in $##'. $#3# production forecasted at 3(.( thousand 0T.

Increase in consum'tion
Increase in per capita consumption from 3% 5g8yr in $##$ to 3' 5g8yr in $##'. Increase in total consumption of about 3!3!.% thousand 0T in $##6 to 3!($.% thousand 0T in $##' or an annual average increase of $4. $#3# consumption forecasted at 3!6%.$ thousand 0T.

ALAS=A 3IL= CO4PO4ATION

Alas6a 3il6 Cor'oration >A3C? is the leading mil5 company in the Philippines. It has consistently maintained its leadership in the canned li+uid mil5 category -evaporated and sweetened condensed/, thus, paving the way into growing 1las5a into a mega2brand by competing in the powdered, ready2to2drin5, and creams mar5et, among others.

25

In $##!, 109 further expanded its li+uid mil5 portfolio by licensing 9arnation and 0il5maid from ;estle and ac+uiring 1lpine, 7iberty and Hrem2Top. This development led to 109s move to a dominant position in the category. 1part from growing its core businesses, 109 endeavours to diversify and explore opportunities in related consumer product categories. In 0arch $#3$, 1las5a 0il5 9orporation partnered with =oyal >riesland 9ampina, the fifth largest dairy company in the world. 109 continues to further its mission of nourishing >ilipino dreams, bringing in affordable nutrition across different life stages to every >ilipino home for over &# years. It is committed in providing nutrition to >ilipino households, ensuring high +uality standards in its products, developing innovative mar5eting plans and programs, and promoting outdoor sports as part of a healthy lifestyle. To promote a healthy lifestyle and the brand 1las5a, 109 heavily invests in sports with its ownership of the 3&2time champion professional bas5etball team -1las5a 1ces/ in the Philippine ,as5etball 1ssociation -P,1/ while maintaining the 1las5a Power 9amp, a sports development program involving youth team sports li5e bas5etball and football and the organi*ing of the 3st 1las5a ,as5etball 9up and the 36th 1las5a >ootball 9upIthe single largest football tournament in the Philippines. 1side from the 1las5a grassroots sports program, in $#33, 109 partnered with the Ar. ;,1 PhilippinesIbringing in the most prestigious bas5etball camp in the country, ;,12 style. It aim to build participation and enhance s5ill development among players and coaches by focusing on fundamental s5ills and instill values such as Sportsmanship, Teamwor5, Positive Attitude, and 4espect or ST1= values. 1s the partnership enter its second agreement, the Ar. ;,121las5a program brings the Ar. G;,1 in the Philippines for the first time. In addition, 109 over the last four years is also the title sponsor of the Iron Hids triathlon races in the country. 1las5a Iron Hids is the )unior version of the Ironman. 109 loo5s beyond selling mil5J it sells nutrition and by doing so, the 9ompany and brand 1las5a is doing its part in nation building. Through youth sports development programs, 1las5a 0il5 is able to help nourish children for them to develop into champions in the field of interest and, in general, in life. Today, 1las5a is still best 5nown for its tagline KSa sustansiyatlasa, wala pa ring tatalosa 1las5aL -In nutrition and taste, nothing beats 1las5a/.
26

S,OT Analysis of Alas6a $airy ST4EN/T@S

3. ;ew technological innovations are there by having higher operational efficiency in the actions ta5en by them. $. It is very well 5nown brand in Philippines. ". There is a great expertise in management which enables to perform managerial tas5 effectively and efficiently. &. There is availability of s5illed manpower. (. This dairy is part of =oyal >riesland 9ampina. The leading dairy company in the ;etherland.

,EA=NESSES
3. There is problem in decision ma5ing persuaded by the current events. $. This dairy having a high dependency on imported raw materials increases vulnerability against availability and price fluctuations. ". In terms of mar5eting strategy, ad campaigns are not eye catching. &. Some facilities need renovations.

OPPO4T2NITIES
3. There is continuous growth in the Philippine economy in a year. $. There is a continuous growth of the population in the country. ". 9ompetitors may be slow to adopt the technology. &. There should be growth in the value by using new e+uipments that the company will be using. (. :xporting of the 1las5a product in the different countries.

T@4EATS
3. There is a local ma)or competitor named21ngel brand. $. :conomic problems experiencing in :urope. ". The increasing rate of raw material affects the whole dairy. &. :conomic problems li5e not enough infrastructures, increasing population affects the dairy itself in producing the products.
27

(. Bifferent cost of utilities such as crude oil, diesel, electricity, water etc can be matter for arranging the dairy.

Tra$e7 2.S. E.'orts to t&e P&ili''ines Increase 1#E in 01

Bespite record exports of "3!.( million -up 3" percent/ in $#3$, the Philippines slipped one notch to become the (th largest mar5et for U.S. dairy products. U.S. dairy exports in $#3" are expected to grow slightly -by about $2" percent/, reaching "$( million by the end of the year. The top U.S. dairy exports to the Philippines in $#3$ were nonfat dry mil5 powder - 3&$.! million/, buttermil5 - &3.! million/ and whey - "&.& million/.

P&ili''ine (airy Im'orts

Bairy products are currently the countrys third largest agricultural import after wheat and soybean meal. Bespite an expanding food processing industry, total $#3" imports of dairy products are forecast to slightly decline from the previous years level of 3,'(( 0T -70:/ to 3,'## 0T -70:/ due to high global prices early in the year. Post expects imports in $#3& to increase slightly to $,### 0T -70:/ as growth in local demand will li5ely continue to exceed any increases in domestic supply.

;ews of a late season drought in ;ew <ealand -the top supplier to the Philippines/ and a lac5 of exportable supplies of s5im mil5 powder -S0P/ and whole mil5 powder -G0P/ from the :U led to a sharp rise in dairy prices in early $#3". Prices have since come down but are still expected to remain relatively strong for the rest of the year.

The ma)or country suppliers to the Philippines by volume are ;ew <ealand with &% percent share of total imports, the United States with $' percent, and 1ustralia at 6 percent. U.S. dairy exports to the Philippines have continued to rise dramatically due in part to the wea5 U.S. dollar vis2T2vis ma)or competitor countries, the strengthening peso, as well as the supply problems in ma)or dairy producing countries.

S5im 0il5 Powder -S0P/ and Ghole 0il5 Powder -G0P/ imports currently comprise about (% percent of total dairy imports. S0P imports declined by five percent while G0P imports increased 3" percent in $#3$. 7i+uid mil5 imports fell $&
28

percent. Imports of butter and other dairy spreads also declined by 3& percent while imports of cheese increased by $% percent.

1ccording to trade and industry contacts, imported dairy products are used as follows@ S6im 3il6 Po:$er7 =ecombined sweetened condensed mil5, recombined U?T mil5, ice cream, infant and follow2on formulas, and medical nutrition formulas. ,&ole 3il6 Po:$er7 =ecombined U?T mil5, ice cream, infant and follow2on formulas, medical nutrition formulas, and instant powdered mil5. Butter 3il6 Po:$er7 =ecombined sweetened condensed mil5, ice cream, and ba5ery. ,&ey Po:$er7 =ecombined sweetened dairy creamer, ice cream, infant and follow2 on formulas, processed meat, processed food, confectionery, ba5ery, and animal feed. C&eese Cur$7 Processed cheese, cheese spreads, and processed food. Li;ui$ 3il67 =etail, primarily organic and extended shelf life -:S7/ mil5. C&eese7 =etail, +uic5 service restaurants and fast food chains

P&ili''ine (airy E.'orts

Total dairy exports declined (" percent in $#3$ with exports of mil5 and cream comprising about '6 percent of the total volume. The main countries of destination were 0alaysia -&" percent/, Thailand -$" percent/ and ,angladesh -3$ percent/. :xports in $#3" are expected to drop even lower due in part to increasing prices of Philippine dairy products as a result of the stronger peso.

Policy7
The Philippine Bepartment of 1griculture -B1/ continues to ma5e the development of the Philippine dairy industry a priority with a special emphasis on improving local supply of fresh mil5. Ghile the B1 accepts that the Philippines cannot compete in the powdered mil5 mar5et, it believes that it can greatly augment the supply of fresh mil5 to the mar5et.

The ;B1 is the B1s primary agency overseeing and aiding the development of the Philippine dairy sector. The ;B1 aims to accelerate dairy herd build2up and mil5 production, enhance the dairy business through delivery of technical services, increase
29

coverage

of

mil5

feeding

programs

and

promote

mil5

consumption.

1t the heart of the ;B1 strategy is the ?erd ,uild2Up Program. This program aims to expand local dairy production through the importation of dairy animals, embryos and e+uipment, and through the upgrading of local animals to dairy breeds via breeding programs, the establishment of multiplier farms, and the preservation of existing stoc5s. The following are sub2programs of the ?erd ,uild2Up Program@

3. Save2the2?erd -ST?/ 2 Promotes animal trading, dairy enterprise enhancement and herd conservation. Under this program, the ST? partner receives a dairy animal from ;B1 which he is obligated to rear, condition and impregnate according to prescribed dairy husbandry management standards.

$. ?erd Infusion 2 Includes importation of dairy stoc5s, diversification of sources and local procurement of dairy animals. ". Improved ,reeding :fficiency 2 ,reeding services to maximi*e the reproductive capacity of dairy animals either through artificial insemination or natural -bull/ breeding.

&. 1nimal >inancing 2 Tailoring of animal loan programs to the dairy business cycle and identifying new sources of affordable loans. (. KPalit2,a5aL Scheme or Bairy 1nimal Bistribution 2 =efers to the program whereby ;B1 distributes a potential dairy animal to an eligible participant who, in turn, would eventually provide ;B1 with a female dairy animal as payment in 5ind.

%. Upgrading of 7ocal 1nimals 2 1rtificial insemination of local cattle with 3##4 purebred ?olstein2>riesian semen. 9alves born from upgrading programs are distributed to new farmers interested in dairying.

!. ,reeding80ultiplier >arm .perations 2 :ngaging and encouraging private2public partnerships in producing local born dairy stoc5s. 6. ,ull 7oan J 7oan program that provides purebred and crossbred dairy bulls to regional field units of the Bepartment of 1griculture or to other pro)ect partners for semen production, collection and processing purposes.

ASEANDAustraliaDNe: Fealan$ Free Tra$e Agreement >AANFFTA?7 The 11;<>T1 was signed by 1ustralia and ;ew <ealand and the ten 1S:1; members in $##'. Since $#3#, mil5 powder, cheese, whey and buttermil5 from 1ustralia and
30

;< are able to enter the Philippines duty freeR U.S. mil5 powder and whey has a 0>; duty of 3 percentR cheese "2! percent, and buttermil5 " percent.

3ar6eting7
The greater 0anila area remains as the ma)or fresh mil5 mar5et in the country and is classified into business and consumer sectors. The business sectors include the institutional and retail operations such as coffee shops, hotels, restaurants, supermar5ets and small retailers. The consumer sectors include households and schools through the government mil5 feeding program.

The main targets of local mil5 processors are the institutional buyers, especially coffee shops. Specialty coffee shops are good mar5ets because of the continuing trend towards coffee consumption as a lifestyle in the country. 7ocally sourced, fresh mil5 dominates this mar5et because of its superior foaming properties, as compared to U?T mil5. The ma)or suppliers of fresh mil5 to coffee shops are processors from Southern 7u*on, particularly from ,atangas and 7aguna. .ther suppliers to coffee shops produce U?T mil5 reconstituted from imported mil5 powder and pac5aged under their own brand.

The specialty coffee shop industry is pro)ected to sustain growth of $# percent over the next five years. 1nalysts attribute this expansion to the growing consumer preference for specialty coffee and the improving image of coffee in general. ->ood and 1gribusiness 0onitor, University of 1sia and the Pacific/

F(I In In$ia
India has been ran5ed at the second place in global foreign direct investments in $#3# and will continue to remain among the top five attractive destinations for international investors during $#3#23$ period, according to United ;ations 9onference on Trade and

31

Bevelopment -U;9T1B/ in a report on world investment prospects titled, EGorld Investment Prospects Survey $##'2$#3$E. The $#3# survey of the Aapan ,an5 for International 9ooperation released in Becember $#3#, conducted among Aapanese investors, continues to ran5 India as the second most promising country for overseas business operations. 1 report released in >ebruary $#3# by 7eeds University ,usiness School, commissioned by UH Trade D Investment -UHTI/, ran5s India among the top three countries where ,ritish companies can do better business during $#3$23&. 1ccording to :rnst and MoungEs $#3# :uropean 1ttractiveness Survey, India is ran5ed as the &th most attractive foreign direct investment ->BI/ destination in $#3#. ?owever, it is ran5ed the $nd most attractive destination following 9hina in the next three years. 0oreover, according to the 1sian Investment Intentions survey released by the 1sia Pacific >oundation in 9anada, more and more 9anadian firms are now focusing on India as an investment destination. >rom 6 per cent in $##(, the percentage of 9anadian companies showing interest in India has gone up to 3".& per cent in $#3#. India attracted >BI e+uity inflows of US $,#3& million in Becember $#3#. The cumulative amount of >BI e+uity inflows from 1pril $### to Becember $#3# stood at US 36%.!' billion, according to the data released by the Bepartment of Industrial Policy and Promotion -BIPP/. The services sector comprising financial and non2financial services attracted $3 per cent of the total >BI e+uity inflow into India, with >BI worth US $,6(" million during 1pril2Becember $#3#, while telecommunications including radio paging, cellular mobile and basic telephone services attracted second largest amount of >BI worth US 3,"$! million during the same period. 1utomobile industry was the third highest sector attracting >BI worth US 3,#%% million followed by power sector which garnered US 3,#$6 million during the financial year 1pril2Becember $#3#. The ?ousing and =eal :state sector received >BI worth US 3,#$& million. Buring 1pril2Becember $#3#, 0auritius has led investors into India with US (,!&% million worth of >BI comprising &$ per cent of the total >BI e+uity inflows into the country. The >BI e+uity inflows in 0auritius is followed by Singapore at US 3,&&' million and the US with US 3,#(( million, according to data released by BIPP.

,@O CAN IN!EST IN IN(IA

32

3. 1 non2resident entity -other than a citi*en of Pa5istan or an entity incorporated in Pa5istan/ can invest in India, sub)ect to the >BI Policy. 1 citi*en of ,angladesh or an entity incorporated in ,angladesh can invest in India under the >BI Policy, only under the Fovernment route. $. ;=Is resident in ;epal and ,hutan as well as citi*ens of ;epal and ,hutan are permitted to invest in the capital of Indian companies on repatriation basis, sub)ect to the condition that the amount of consideration for such investment shall be paid only by way of inward remittance in free foreign exchange through normal ban5ing channels. ". .9,s have been derecogni*ed as a class of Investors in India with effect from September 3%, $##". :rstwhile .9,s which are incorporated outside India and are not under the adverse notice of =,I can ma5e fresh investments under >BI Policy as incorporated non2resident entities, with the prior approval of Fovernment of India if the investment is through Fovernment routeR and with the prior approval of =,I if the investment is through 1utomatic route. &. -i/ 1n >II may invest in the capital of an Indian 9ompany under the Portfolio Investment Scheme which limits the individual holding of an >II to 3#4 of the capital of the company and the aggregate limit for >II investment to $&4 of the capital of the company. This aggregate limit of $&4 can be increased to the sectorial cap8statutory ceiling, as applicable, by the Indian 9ompany concerned by passing a resolution by its ,oard of Birectors followed by passing of a special resolution to that effect by its Feneral ,ody. The aggregate >II investment, in the >BI and Portfolio Investment Scheme, should be within the above caps. -ii/ The Indian company which has issued shares to >IIs under the >BI Policy for which the payment has been received directly into companys account should report these figures separately under item no. ( of >orm >92FP= -1nnex2321/ -Post2issue pattern of shareholding/ so that the details could be suitably reconciled for statistical8monitoring purposes. -iii/ 1 daily statement in respect of all transactions -except derivative trade/ have to be submitted by the custodian ban5 in floppy 8 soft copy in the prescribed format directly to =,I to monitor the overall ceiling8sectorial cap8statutory ceiling.
33

(. ;o person other than registered >II8;=I as per Schedules II and III of >oreign :xchange 0anagement -Transfer or Issue of Security by a Person =esident .utside India/ =egulations of >:01 3''', can invest8trade in capital of Indian 9ompanies in the Indian Stoc5 :xchanges directly i.e. through bro5ers li5e a Person =esident in India. %. 1 S:,I registered >oreign Centure 9apital Investor ->C9I/ may contribute up to 3##4 of the capital of an Indian Centure 9apital Underta5ing -IC9U/ and may also set up a domestic asset management company to manage the fund. 1ll such investments can be made under the automatic route in terms of Schedule % to ;otification ;o. >:01 $#. 1 S:,I registered >C9I can also invest in a domestic venture capital fund registered under the S:,I -Centure 9apital >und/ =egulations, 3''%. Such investments would also be sub)ect to the extant >:01 regulations and extant >BI policy including sectorial caps, etc. S:,I registered >C9Is are also allowed to invest under the >BI Scheme, as non2resident entities, in other companies, sub)ect to >BI Policy and >:01 regulations.

ENTITIES FO4 F(I

3. >BI in an Indian 9ompany -i/ Indian companies including those which are micro and small enterprises -0S:s/ can issue capital against >BI. $. >BI in Partnership >irm 8 Proprietary 9oncern@ 3. 1 ;on2=esident Indian -;=I/ or a Person of Indian .rigin -PI./ resident outside India can invest by way of contribution to the capital of a firm or a proprietary concern in India on non2repatriation basis providedR $. -a/ 1mount is invested by inward remittance or out of ;=:8>9;=-,/8;=. account maintained with 1uthori*ed Bealers 8 1uthori*ed ban5s -b/ The firm or proprietary concern is not engaged in any agricultural8plantation or real estate business or print media sector. -c/1mount invested shall not be eligible for repatriation outside India.

34

-i/ Investments with repatriation benefits@ ;=Is8PI. may see5 prior permission of =eserve ,an5 for investment in sole proprietorship concerns8partnership firms with repatriation benefits. The application will be decided in consultation with the Fovernment of India. -ii/ Investment by non2residents other than ;=Is8PI.@ 1 person resident outside India other than ;=Is8PI. may ma5e an application and see5 prior approval of =eserve ,an5 for ma5ing investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The application will be decided in consultation with the Fovernment of India. -iii/ =estrictions@ 1n ;=I or PI. is not allowed to invest in a firm or proprietorship concern engaged in any agricultural8plantation activity or real estate business -i.e. dealing in land and immovable property with a view to earning profit or earning income there from/ or engaged in Print 0edia. ". >BI in Centure 9apital >und -C9>/@ >C9Is are allowed to invest in Indian Centure 9apital Underta5ings -IC9Us/ 8Centure 9apital >unds -C9>s/ 8other companies, as stated in paragraph ".3.% of this 9ircular. If a domestic C9> is set up as a trust, a person resident outside India -non2resident entity8individual including an ;=I/ cannot invest in such domestic C9> under the automatic route of the >BI scheme and would be allowed sub)ect to approval of the >IP,. ?owever, if a domestic C9> is set2up as an incorporated company under the 9ompanies 1ct, 3'(%, then a person resident outside India -non2resident entity8individual including an ;=I/ can invest in such domestic C9> under the automatic route of >BI Scheme, sub)ect to the pricing guidelines, reporting re+uirements, mode of payment, minimum capitali*ation norms, etc. &. (. >BI in Trusts@ >BI in Trusts other than C9> is not permitted. >BI in other :ntities$@ >BI in resident entities other than those mentioned above is not permitted.

ENT45 4O2TES FO4 F(I

35

Investments can be made by non2residents in the e+uity shares8fully, compulsorily and 0andatorily convertible debentures8 fully, compulsorily and mandatorily convertible preference shares of an Indian company, through two routesR 3. The 1utomatic =oute@ under the 1utomatic =oute, the non2resident investor or the Indian company does not re+uire any approval from the =,I or Fovernment of India for the investment. $. The Fovernment =oute@ under the Fovernment =oute, prior approval of the Fovernment of India through >oreign Investment Promotion ,oard ->IP,/ is re+uired. Proposals for foreign investment under Fovernment route as laid down in the >BI policy from time to time, are considered by the >oreign Investment Promotion ,oard ->IP,/ in Bepartment of :conomic 1ffairs -B:1/, 0inistry of >inance.

/2I(ELINES FO4 CONSI(E4ATION OF F(I P4OPOSALS B5 FIPB7

The following guidelines are laid down to enable the >IP, to consider the proposals for >BI and formulate its recommendations. 3. 1ll applications should be put up before the >IP, by its Secretariat within 3( days and it should be ensured that comments of the administrative ministries are placed before the ,oard either prior to8or in the meeting of the ,oard. $. Proposals should be considered by the ,oard 5eeping in view the time frame of thirty -"#/ days for communicating Fovernment decision. ". In cases in which either the proposal is not cleared or further information is re+uired in order to obviate delays presentation by applicant in the meeting of the >IP, should be resorted to. &. Ghile considering cases and ma5ing recommendations, >IP, should 5eep in mind the sectorial re+uirements and the sectorial policies vis2T2vis the proposal -s/. (. >IP, would consider each proposal in its totality.

36

%. The ,oard should examine the following while considering proposals submitted to it for consideration@ -i/ whether the items of activity involve industrial licence or not and if so the considerations for grant of industrial licence must be gone intoR -ii/ whether the proposal involves any export pro)ection and if so the items of export and the pro)ected destinationsR -iii/ Ghether the proposal has any strategic or defence related considerations.

!. Ghile considering proposals the following may be prioriti*ed@ -i/ -ii/ -iii/ Items falling in infrastructure sectorR Items which have an export potentialR Items which have large scale employment potential and especially for rural peopleR -iv/ -v/ Items which have a direct or bac5ward lin5age with agro business8farm sectorR Items which have greater social relevance such as hospitals, human resource development, life saving drugs and e+uipmentR -vi/ Proposals which result in induction of technology or infusion of capital.

6. The following should be especially considered during the scrutiny and consideration of proposals. -i/ The extent of foreign e+uity proposed to be held -5eeping in view sectorial caps if anyR -ii/ :xtent of e+uity from the point of view whether the proposed pro)ect would amount to a holding company8wholly owned subsidiary8a company with dominant foreign investment-i.e. !%4 or more/ )oint ventureR

37

-iii/

Ghether the proposed foreign e+uity is for setting up a new pro)ect -)oint venture or otherwise/ or whether it is for enlargement of foreign8;=I e+uity or whether it is for fresh induction of foreign e+uity8;=I e+uity in an existing Indian companyR

-iv/

In the case of fresh induction offerings8;=I e+uity and8or in cases of enlargement of foreign8;=I e+uity, in existing Indian companies whether there is a resolution of the ,oard of Birectors supporting the said induction8enlargement of foreign8;=I e+uity and whether there is a shareholders agreement or notR

-v/

In the case of induction of fresh e+uity in the existing Indian companies and8or enlargement of foreign e+uity in existing Indian companies, the reason why the proposal has been made and the modality for induction8enhancement -i.e. whether by increase of paid up capital8authori*ed capital, transfer of shares -hostile or otherwise/ whether by rights issue, or by what modalityR

-vi/ -vii/

Issue8transfer8pricing of shares will be as per S:,I8=,I guidelinesR Ghether the activity is an industrial or a service activity or a combination of bothR

-viii/

Ghether the items of activity involves any restriction by way of reservation for the 0icro D Small :nterprises sectorR

-ix/ -x/

Ghether there are any sectorial restrictions on the activityR Ghether the proposal involves import of items which are either ha*ardous8banned or detrimental to environment -e.g. import of plastic scrap or recycled plastics/.

'. ;o condition specific to the letter of approval issued to a non2resident investor would be changed or additional condition imposed subse+uent to the issue of a letter of approval. This would not prohibit changes in general policies and, regulations applicable to the industrial sector.
TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (Financial years) 38

Amount 4u'ees in crores >2SG in million? 4an6s Country 00"D01 >A'rilD 3arc&?

001D 3arc&?

010D11 > Cumulati9e A'rilD 3arc&? Inflo:s >A'ril 800 D 3arc& H11?

Eage to total Inflo:s >in terms of 2S G? &$ 4 '4 !4 (4 &4 &4 &4 $4 $4 34 D

10>A'rilD

01U=ITIUS SI;F1P.=:

(#,6''-33,$$'/ 3(,!$! -",&(&/ 6,##$ -3,6#$/ ",6&# -6%&/ ",'$$ -66"/ 3,66' -&#(/ (,'6" -3,$6!/ $,!(# -%$'/ $,#'6 -&%!/ 3,3"" -$(!/ 1 #J0 + > -J##1?

&',%"" -3#,"!%/ 33,$'( -$,"!'/ ',$"# -3,'&"/ ",#'& -%(!/ &,$6" -6''/ (,%!# -3,36"/ !,!$6 -3,%$!/ $,'6# -%$%/ 3,&"! -"#"/ ",#3! -%$'/ 1 #J1 0 > +J"#)?

"3,6(( -%,'6!/ !,!"#

$&$,!%3 -(&,$$!/ ($,6!%

# ) + * " 1 10

U.S.1. U.H. ;:T?:=71;BS A1P1; 9MP=US F:=01;M >=1;9: U.1.:.

-3,!#(/ -33,6'(/ (,"(" &$,(&$ -',&&'/ -3,3!#/ ",&"& $',&"" -%,%"'/ -!((/ (,(#3 $(,%$! -(,!##/

-3,$3"/ !,#%" $",'(6 -(,$!%/ -3,(%$/ &,3!3 $3,'&6 -&,63$/ -'3"/ '#6 -$##/ 3","!% -$,'''/ ","&' -!"&/ 3,(%' -"&3/ ""J+ 0 >11J) -? 3#,$%! -$,$%&/ 6,('$ -3,6'#/ +"0J>1 1J-1*?

TOTAL F(I INFLO,S I

SECTORS ATTRACTING

IG EST FDI EQUITY INFLOWS

Amount in 4s. crores >2SG in million? 4an6s Sector 00"D01 >A'rilD 001D 010D11 Cumulati9e Eage to Inflo:s total
39

10>A'rilD > A'rilD

3arc&?

3arc&? 3arc&? >A'ril 800 D Inflo:s 3arc& H11? >in terms of 2S G? $3 4

S:=CI9:S S:9T.=-financial D non2 financial/ 9.0PUT:= S.>TG1=:

$6,(3% -%,3"6/ !,"$' -3,%!!/ 33,!$! -$,((6/ 3$,%$3 -$,6#3/ 6,!'$ -$,#$6 (,$3$ -3,3($/ &,"6$ -'6(/ &,3(!

$#,!!% -&,"("/ &,"(3 -'3'/ 3$,""6 -$,((&/ 3",(6% -$,6&&/ 3",(3% -$,6%$/ (,!(& -3,$#6/ %,'#6 -3,&"!/ 3,'"( -&#!/ 3,"$6 -$!$/ 3,!#! -"%$/

3(,("' -",&#"/ ",(!3 -!6&/ !,(&% -3,%%(/ (,3&' -3,3$!/ (,#!! -3,3$(/ %,##6 -3,""3/ (,!#' -3,$($/ (,#(( -3,3#(/ $,%$3 -(!&/ 3,63# -"'6/

3$#,!!3 -$!,##!/ &!,!## -3#,!$"/ &6,$$# -3#,(6'/ &",3'$ -',%"$/ &#,!!# -',3!6/ $%,6"3 -(,'$!/ $%,!3$ -(,'##/ 36,&'( -&,$"(/ 3",!"( -",3("/ 3",#!6 -$,6'$/

64 64

D?1=BG1=: T:7:9.00U;I91TI.;S -radio paging, cellular mobile, basic telephone services/ ?.USI;F D =:17 :ST1T: 9.;ST=U9TI.; 19TICITI:S -including roads D highways/ 1UT.0.,I7: I;BUST=M P.G:= 0:T177U=FI917

) +

!4 !4

* " 1 10

(4 (4 "4 $4 $4

I;BUST=I:S -'%3/ P:T=.7:U0 D ;1TU=17 3,'"3-&3$/ F1S 9?:0I917S-other than fertili*ers/ ",&$!-!&'/

IN(IAN ECONO35 4ecent Tren$s in In$ian Economy

U The Indian economy has emerged with remar5able rapidity from the slowdown caused by the global economic crisis and emerged stronger in $#33.The Indian economy is estimated to grow at 6.% per cent in $#3#233 as compared to the growth rate of 6.# per cent in $##'23#.
40

The growth rate of 6.% per cent in FBP during $#3#233 has been due to the robust growth rates of over 6 per cent in the sectors of manufacturing, construction, trade, hotels, transport and communication, financing, insurance, and, real estate and business services. U The agriculture, forestry and fishing sector is li5ely to show a growth of (.& per cent during $#3#233, as against the previous yearEs growth rate of #.& per cent. 1ccording to the Bepartment of 1griculture and 9ooperation -B19/ of Fovernment of India, production of food grains and oilseeds is expected to grow by %.( per cent and 33.' per cent, respectively, as compared to the previous agriculture year. The production of cotton and sugarcane is also expected to rise by &3.$ per cent and 3(.$ per cent, respectively, in $#3#233. 1mong the horticultural crops, production of fruits and vegetables is expected to increase by &.3 per cent and ".6 per cent, respectively, during the year $#3#233. U The growth in mining and +uarrying and manufacturing sectors during $#3#233 is expected to be %.$ and 6.6 per cent respectively over previous year. 1ccording to the latest estimates available of the Index of Industrial Production -IIP/,mining and manufacturing registered growth rates of 6.# per cent and 3#.# per cent respectively during 1pril2;ovember, $#3#. The estimated growth rate for construction sector is 6.# per cent in $#3#233. The 5ey indicators of construction sector, namely, cement production and steel consumption have registered growth rates of &.& per cent and 6.6 per cent, respectively during 1pril2 Becember, $#3#. U The estimated growth in the trade, hotels, transport and communication sectors during $#3#233 is placed at 33.# per cent, mainly on account of growth of 3&.' per cent in passengers handled in civil aviation, $3." per cent in air cargo handled and &#.' per cent in stoc5 of telephone connections. The sales of commercial vehicles witnessed an increase of "&.3 per cent per cent in 1pril2Becember, $#3#. The financing, insurance, real estate and business services sectors are expected to show a growth rate of 3#.% per cent during $#3#233, on account of 3&.# per cent growth in aggregate deposits and $$.% per cent growth in ban5 credit during 1pril2 ;ovember $#3# -against the respective growth rates of 36.% per cent and 3#.3 per cent in the corresponding period of previous year/. The growth rate of community, social and personal services during $#3#233 is estimated to be (.! per cent. U IndiaEs per capita income, often used to measure a countryEs standard of living, increased by 3&.( per cent during $##'23# to US 3#"6.$ as compared to US '#%.' in $##62#'.

41

/ro:t& in /ross (omestic Pro$uct

1nnual growth by economic activity in Fross Bomestic Product -FBP/ for the year $#3#233, released by the 9entral Statistics office -9S./ of Fovernment of India

S.No.

In$ustry

/(P at Factor Cost Percentage c&ange o9er > 010D11? at $##&2#( prices -US billion/ 're9ious year at current at at prices -US $##&2 current #( prices $".$ 36.$ 3&.( 6.% 3!.# 3%.! $%.( 33." 1".#

1 # ) + * "

1griculture, forestry D fishing 0ining D +uarrying 0anufacturing :lectricity, gas D water supply 9onstruction Trade, hotels, transport D communication >inancing, insurance, real estate D business services 9ommunity, social D personal services Total /(P

3($.&$ $&."$ 3!#.6! $#.&' 6&.(! $'3."% 36!.6' 3&3.6! 10-#.-1

billion/ prices $'(.$( (.& &#.3" %.$ $$6.#' 6.6 $$.3( (.3 3$'.$3 6.# "!'.%( 33.# $6(.'! $3%.6! 1+1-.)1 3#.% (.! ".*

Source@ 9entral Statistics .ffice -9S./, 0inistry of Statistics D Programme Implementation, Fovernment of India.

Economic Sur9ey 010D11

1ccording to the :conomic Survey $#3#233, tabled in Parliament on >ebruary $(, $#33 by the Union >inance 0inister, 0r Pranab 0u5her)ee, the economy is expected to grow at 6.% per cent in $#3#233 and is expected to be around ' per cent in the next fiscal year. The growth has been broad based with a rebound in the 1griculture sector which is expected to grow around (.& per cent. 0anufacturing and Services sector have registered impressive
42

gains. The Survey reports that the industrial output growth rate was 6.% per cent while the manufacturing sector registered a growth rate of '.3 per cent in $#3#233.

The main highlights of the survey are@ U :conomy expected to grow at 6.% per cent in $#3#233 and ' per cent in next fiscal U Frowth broad based with rebound in 1griculture, continued momentum in manufacturing and private services U >undamentals strong with savings and investments up, exports rising rapidly and inflation falling U 1griculture li5ely to grow at (.& per cent in $#3#233 U Industrial output grows by 6.% per cent U 0anufacturing sector registers '.3 per cent growth U :xports in 1prilJBecember $#3# up by $'.( per cent U Imports in 1prilJBecember $#3# up by 3' per cent U Trade gap narrowed to US 6$.#3 billion in 1pril2Becember $#3# U (' per cent rise in ;et ,an5 9redit U Social programme spending stepped up by ( percentage points of FBP over past ( years U '.! per cent growth of FBP at mar5et prices U Production of foodgrains estimated at $"$.3 million tonnes U >orex =eserves estimated at US $'!." billion U Fross >iscal Beficit stands at &.6 per cent of FBP POTENTIAL FO4 IN!EST3ENT IN IN(IA India presents a vast potential for overseas investment and is actively encouraging the entrance of foreign players into the mar5et. India is also one of the few mar5ets in the world, which offers high prospects for growth and earning potential in practically all areas of business. Indias biotechnology sector is set to become a 3# billion industry by $#3(, 90B of ,iocon 7td, Hiran0a*umdar2Shaw said . She expects the industry to grow to ( billion by next year. In $##62#' it was $.(3 billion. KIndias biotechnology industry is at an inflexion point, and has attained a critical mass, 0a*umdar2Shaw said. It now has a platform from where it can leapfrog and deliver exponential growth, she said. India is also becoming the vaccine capital. 9linical trials, agri2biotech and bio2fuels are becoming opportunities. There
43

are a lot of growth drivers and trigger points which, she said, will deliver in the next five years. Gith the launch of video telephony, by ,S;7 and Sai Info Systems -SIS/, will boost demand for broadband connection, Sam Pitroda, advisor to Prime 0inister on public information, infrastructure and innovations, expects the number to hit 3## million in next five years. VThe service is expected to revolutioni*e the telecom sector and ta5e it to the next level. Flobally with video phones have become an integral part of life. The service will be provided and mar5eted by SIS while the connectivity for the service will be provided by ,S;7. ,S;7 will also mar5et it as another value added service to its large broadband customer base,V said Ci)ay 0andora, director, SIS. Tumbling voice tariffs contributing to the declining average revenue per user -1=PU/ rates, will result in S0S volumes to reach 3'3.% billion in India by $#3", predicts Fartner. ,y $#3", the country would have more than !(# million mobile connectionsR therefore the S0S usage per user would essentially drop ?owever, overall large base of mobile connections would support this S0S volume. Strong organic growth continues in 1sias developing mar5ets, with marginal subscribers turning to low2cost messaging as an entry2level service.In the mature mar5ets of the 1sia2Pacific region, S0S has seen sustained healthy growth as a result of steady price declines and increasingly generous S0S and data bundles,WV said 0adhusudan Fupta, senior research analyst at Fartner. S0S contributes around 64 to value added services -C1S/, which in turn contributes 3#23$4 of an operators revenue. The Indian auto sector is li5ely to witness an overall growth of 3#423$4 in sales during $#3# and a faster recovery in expected in passenger vehicle -PC/ volumesIof 3$42 3&4Icompared with (42%4 for the commercial vehicle -9C/ segment. The positive outloo5 for demand could result in a sharp increase in capex plans, which could offset the positive impact on credit profiles of higher volumes and lower inventories, said >itch =atings. The PC rebound has been supported by an improving li+uidity scenario and restoration of consumer confidenceR modest growth in industrial production, together with the government stimulus, has brought about stability in 9C sales, though at lower levels than for PCs.Bomestic 9C sales grew by $$."4 during 1pril2Becember $##' compared with same period in $##6, building on the recovery in demand beginning N& #'. ?owever, growth trends have distinctly varied within the 9C segment 2 depending on the tonnage capacity and end2use, as light commercial vehicles -79Cs/ have been able to maintain their ground while medium and heavy commercial vehicles -0D?9Cs/ continued to face pressure due to the decline in industrial output.The 0D?9C segment is now stabilising with the higher
44

industrial production, while the 79C segment is showing a more rapid recovery. >itch expects the full2year $#3# numbers to reveal moderate growth in the range of (42%4 for domestic sales, with the first few months being driven by regulatory guidelines. The Union food processing ministry has set a target of attracting investments to the tune of =s 3 la5h crore in the sector by $#3(.Subodh Hant Sahai, Union food processing minister, said@ KGe are expecting investments of =s 3 la5h crore in the next five years. Ge are planning to increase food processing to $#4 of the total fruits and vegetable produced in the country. K1ccording to him, food processing has grown by 3#4 in India while value2 added products have grown by 3#23(4 in the last five years. Ge are loo5ing at a growth of "(4 in value2added production by $#3(,L Sahai said. The $"& million tonne per annum -mtpa/ Indian cement industry, which witnessed a double digit despatch growth in Becember $##' and an overall growth than5s to infrastructure and real estate pro)ects, is set to add &".$ mtpa capacity during the next 3( months -Aanuary $#3# to 0arch $#33/.South India, which has already started feeling the heat of oversupply, will add the maximum capacity of 3!.% million tonne during that period. The next in line is the northern region, which will add '.% mt. The western, central and eastern regions will add ' mt, " mt and & mt, respectively. KThe southern mar5et with 36 players having capacity of 3mtpa or more is the most fragmented one in India. 9apacities of three new players -=aghuram 9ement, Aaya)yothi and ASG 9ement with more than $ mtpa each/ will stabilise in the next %2' months. Gith sharp price cuts, new producers may find it difficult to brea5 even, and this would li5ely to prompt some consolidation. 1ll the three new producers are unli5ely to participate in consolidation,L A =adha5rishnan, analyst with II>7, said in his report. The healthcare industry in the country, which comprises hospital and allied sectors, is pro)ected to grow $"4 per annum to touch !!2billion mar5 by $#3$ from the current estimated si*e of "( billion, according to a Mes ,an5 and 1ssocham report. The sector has registered a growth of '."4 between $###2$##', comparable to the sectorial growth rate of other emerging economies such as 9hina, ,ra*il and 0exico. The growth in the sector would be driven by healthcare facilities, both private and public sector, medical diagnostic and path labs and the medical insurance sector. .f the sum, diagnostic and pathology services would account for $.( billion in $#3$, more than double its estimated current si*e of 3billion. The growth in the segment is expected to be driven by consolidation in the industry and increasing insurance penetration among the countrys population. ?ealthcare facilities,
45

inclusive of public and private hospitals, the core sector, around which the healthcare sector is cantered, would continue to contribute over !#4 of the total sector and touch a figure of (&.! billion by $#3$.The medical insurance sector would account for another the next three years, up from the estimated current si*e of 3 billion. Steve Hing, 9:. of <enith .pt media Gorldwide feels that new and emerging advertising mar5ets li5e India and 9hina will power the global industrys recovery, on the bac5 of positive signals from developed mar5ets li5e US, :urope. KIndia, with an approximate 3#4 growth, will certainly be in the top ten advertising mar5ets in absolute dollar terms by $#3(,L he told. <enith .pt media, the worlds third largest media2buying agency and an enterprise under the Paris2based Publicist Froup is upbeat about India. It has brought fresh business worth 3## million in the country this year. India figures amongst <enith .pt medias $# largest mar5ets globally, but over the past five years, it has been among the top three fastest growing ones. K0ost of our mar5ets are between 3( to $# years old, so despite being here for only five years, this mar5et has responded very well. .ur focus here will be on winning local clients, apart from the international ones. ,y the next five years, we will have considerably closed the gap on the top two mar5et leaders here,L Hing said. " billion in

A$9antage In$ia
U GorldWEs largest democracy with 3.$ billion people. U Stable political environment and responsive administrative set up. U Gell established )udiciary to enforce rule of law. U 7and of abundant natural resources and diverse climatic conditions. U =apid economic growth@ FBP to grow by 6.(4 in $#3#233X and '.#4 in $#3323$. U IndiaWEs growth will start to outpace 9hinaWEs within three to five years and hence will become the fastest large economy with '23#4 growth over the next $#2$( years -0organ Stanley/. U Investor friendly policies and incentive based schemes.
46

U Second most attractive >oreign Birect Investment ->BI/ location in the world@ India received a total of US $(.' billion of >BI in $##'23#. U ?ealthy macro2economic fundamentals@ Investment rate is expected to be "!4 in $#3#233 and "6.&4 in $#3323$ while Bomestic Savings rate is expected to be "&4 in $#3#233 and "%4 in $#3323$. U IndiaWEs economy will grow fivefold in the next $# years -0cHinsey/. U 9ost competitivenessR low labour costs. U Total labour force of nearly ("# million. U 7arge pool of s5illed manpowerR strong 5nowledge base with significant :nglish spea5ing population. U Moung country with a median age of "# years by $#$(@ IndiaWEs economy will benefit from this WVdemographic dividendWV. U The proportion of population in the wor5ing age group -3(2(' years/ is li5ely to increase from approximately (64 in $##3 to more than %&4 by $#$3. U ?uge untapped mar5et potential. U The urban population of India will double from the $##3 census figure of $'#m to approximately ('#m by $#"# -0cHinsey/. U Progressive simplification and rationali*ation of direct and indirect tax structures. U =eduction in import tariffs. U >ull current account convertibility. U 9ompliance with GT. norms. U =obust ban5ing and financial institutions. VX IndiaEs financial year is from 1pril to 0arch. $#3#233 above means 1pril $#3#20arch $#33.V
47

In$ian Economy
India has undergone a paradigm shift owing to its competitive stand in the world. The Indian economy is on a robust growth tra)ectory and boasts of a stable annual growth rate, rising foreign exchange reserves and booming capital mar5ets among others.Indian economy is estimated to grow at 6.% percent in $#3#233 as compared to the growth rate of 6.# percent in $##'23#. These FBP figures are based at factor cost at constant -$##&2#(/ prices in the year $#3#233.The growth rate of 6.% per cent in FBP during $#3#233 has been due to the robust growth rates of over 6 per cent in the sectors of manufacturing, construction, trade, hotels, transport and communication, financing, insurance, and, real estate and business services. 1griculture sector registered a growth rate of (.& percent in $##'23#. 1 growth rate of 36." percent is estimated for FBP at current prices in the year $#3#233.

Agriculture Sector
The agriculture, forestry and fishing sector is li5ely to show a growth of (.& per cent in its FBP during $#3#233, as against the previous years growth rate of #.& per cent.The estimate of FBP from agriculture in $#3#233,according to the Bepartment of 1griculture and 9ooperation -B19/,production of foodgrains and oilseeds is expected to grow by %.( per cent and 33.' per cent, respectively, as compared to the previous agriculture year. The production of cotton and sugarcane is also expected to rise by &3.$ per cent and 3(.$ per cent, respectively, in $#3#233. 1mong the horticultural crops, production of fruits and vegetables is expected to increase by &.3 per cent and ".6 per cent, respectively, during the year $#3#233.

In$ustry Sector
The growth in FBP for mining and +uarrying and manufacturing sectors during $#3#233 is expected to be %.$ and 6.6 percent respectively over previous year. 1ccording to the latest estimates available on the Index of Industrial Production -IIP/, the index of mining and manufacturing registered growth rates of 6.# per cent and 3#.# per cent during 1pril2
48

;ovember, $#3#. The estimated growth rate for construction sector is 6.# percent in $#3#233. The 5ey indicators of construction sector, namely, cement production and steel consumption have registered growth rates of &.& per cent and 6.6 per cent, respectively during 1pril2 Becember, $#3#.

Ser9ices Sector
The estimated growth in FBP for the trade, hotels, transport and communication sectors during $#3#233 is placed at 33.# per cent, mainly on account of growth during 1pril2 ;ovember, $#3#233 of 3&.' per cent in passengers handled in civil aviation , $3." per cent in air cargo handled and &#.' per cent in stoc5 of telephone connections. The sales of commercial vehicles witnessed an increase of "&.3 per cent per cent in 1pril2Becember, $#3#. The financing, insurance, real estate and business services sector is expected to show a growth rate of 3#.% per cent during $#3#233, on account of 3&.# per cent growth in aggregate deposits and $$.% per cent growth in ban5 credit during 1pril2 ;ovember $#3# -against the respective growth rates of 36.% per cent and 3#.3 per cent in the corresponding period of previous year/. The growth rate of community, social and personal services during $#3#233 is estimated to be (.! per cent.

Ne: Pro<ects
U Private e+uity fund I7D>S Investment 0anagers -II07/ is estimated to have invested US "## million in real estate and urban infrastructure pro)ects in $#3#. U 9lose to ;alagarh in Solan district, Babhota is set to be the latest industrial area to be developed by the ?imachal Pradesh government, say officials. The state government has already issued a notification and as5ed the state land ac+uisition officials to ac+uire $,#$# bighas of land at ,aghota to be developed into industrial plots. U =am5y :states and >arms 7imited, the real estate arm of the =am5y Froup, is contemplating to enter Indian mar5et by Auly $#33. The company is evaluating on land ac+uisitions in Hol5ata and ,hubaneswar.

49

U 9hennai2based CF; Bevelopers Pvt 7td has entered into a )oint venture with private e+uity firm Pragnya >und to initiate a new residential pro)ect with an investment of US $#.#% million in the city. U 1scends has entered into an agreement with a Aapanese consortium of 0i*uho 9orporate ,an5 -09,/ and AF9 9orporation to develop integrated townships in India, according to a press release from 1scends. The integrated township is li5ely to be in 9hennai, which has attracted investment by a number of companies from Aapan. 1scends of Singapore will be the master developer. U Fodre) FroupWEs real estate company, Fodre) Properties and >rontier ?ome Bevelopers, has launched a residential pro)ect in Furgaon with )oint venture partner 08s. >rontier ?ome Bevelopers Pvt. 7td. This is a debut residential pro)ect in the national capital region -;9=/ for Fodre) Properties. U Shristi Infrastructure Bevelopment 9orporation will invest US &&&.! million over the next three years in seven small cities in Gest ,engal, Tripura and =a)asthan. The money would be used to build integrated townships, healthcare facilities, hospitality and sports facilities, retail malls, logistics hubs and commercial and residential complexes. U =ealty ma)or 1nsal Properties D Infrastructure 7td plans to invest about US ""#.6 million over the next three years on expansion of its existing integrated townships and to develop a group housing pro)ect in ?aryana. U Cision India =eal :state, a closely2held business group in the US, is investing US ( million in Fem FroupWEs upcoming residential pro)ect in 9hennai. This will be the first )oint development pro)ect for the US company that is proposing to invest US 3## to US $## million over the next three years on pro)ects, especially in the logistics arena. U =ealty ma)or :mbassy Property Bevelopments has entered into a )oint venture with 0H 7and ?olding, a 0alaysian company that speciali*es in pre2fabricated affordable housing, to build pro)ects in the affordable housing segment. The proposed pro)ect entails an investment of over US 3.$ billion. U Thai real estate developer Pru5sa Flobal plans to invest US $36 million in pro)ects in India and launched its first residential pro)ect in the country at ,angalore in .ctober $#3#.

50

U The International >inance 9orporation -I>9/ is in tal5s with several real estate developers to create large affordable housing pro)ects in India. >or >M2#' and >M23# -fiscal year ending Aune "#/, I>9Es highest exposure has been in India. .ut of the US ".( billion that I>9 has committed in India, US $.(2$.% billion have been disbursed. I>9 will continue to invest roughly US 3 billion in India every year for the next two or three years.

F(I IN P@ILIPPINES
The latest value for >oreign direct investment, net -,oP, current US / in Philippines was - 3,$(",###,###.##/ as of $#33. .ver the past % years, the value for this indicator has fluctuated between %$#,###,###.## in $##! and - $,636,###,###.##/ in $##%. Befinition@ >oreign direct investment are the net inflows of investment to ac+uire a lasting management interest -3# percent or more of voting stoc5/ in an enterprise operating in an economy other than that of the investor. It is the sum of e+uity capital, reinvestment of earnings, other long2term capital, and short2term capital as shown in the balance of payments. This series shows total net, that is, net >BI in the reporting economy from foreign sources less net >BI by the reporting economy to the rest of the world. Bata are in current U.S. dollars.

5ear !alue
$##( $##% $##! $##6 $##' $#3# $#33 - 3,%%(,###,###.##/ - $,636,###,###.##/ %$#,###,###.## - 3,$6(,###,###.##/ - 3,%#&,###,###.##/ - %6$,###,###.##/ - 3,$(",###,###.##/ The Philippines moved up significantly on an annual index of business competitiveness and now ran5s !$nd out of 3"$ countries on the Gorld :conomic >orumEs enabling trade index, up from '$nd place two years ago. The Flobal :nabling Trade =eport $#3$ ran5s countries based on mar5et access, border administration, transport and communications infrastructure, and business
51

environment. The Philippines showed the greatest improvement in the area of mar5et access, moving up (# places from %&th in $#3# to 3&th in $#3$. Improvement was also seen in the category of efficiency of import2export procedures. ;et inflows of foreign direct investments ->BI/ to the Philippines for the first two months of $#3$ were 6(# million, three times higher than the ""( million during the same period in $#3$. Fross inflows for the first two months of $#3$ were '$! million. The PhilippinesE strong macroeconomic fundamentals are ma5ing the Philippines an attractive environment to invest at a time of continuing concerns over the sovereign debt crisis in some parts of :urope and the moderation in global activity.

P&ili''ines /(P 01
0oodyEs 1nalytics has upped Philippines FBP for $#3$ to &.!4, which is stronger than expected. The government announced today that the Philippine economy expanded %.& percent in the first three months of the year. This is attributed to the reforms being underta5en by the 1+uino government that continue to attract foreign investment. The Philippines has so far received six upgrades from 0oodyEs Investors Service since President ,enigno 1+uino III assumed power. The Philippines has the strongest FBP growth in Southeast 1sia and the second strongest in 1sia behind 9hina. The ,ang5o Sentralng Pilipinas on Thursday reported that net inflow of >BIs reached !%% million in Aanuary compared with the $3& million registered in the same period the previous year.

T&e P&ili''ines Largest (irect Foreign In9estment In$ustries Outsourcing

=eal :state 0anufacturing 1griculture 0ining Infrastructure =etail

4e'ort @ig&lig&ts7
52

Producing less than one percent of its growing dairy re+uirement of 3.6$ million metric tons -00T/ in $#3", the Philippines is a ma)or global importer of dairy products, especially mil5 powder. Bespite an expanding food processing industry, high prices in early $#3" are expected to result in total annual imports remaining at $#3$ levels of )ust under $ 00T. 0a)or suppliers are ;ew <ealand -&% percent/, the United States -$' percent/, and 1ustralia -6 percent/. U.S. dairy exports to the Philippines are forecast to reach a record "$( million in $#3", up from the $#3$ record of "3! million. Ghile mil5 powder exports dominate this category, there has also been strong growth in U.S. whey and buttermil5 sales. Bairy products are the countrys third largest agricultural import after wheat and soybean meal.

Pro$uction7
The country produces less than one percent of its total annual dairy re+uirement and imports the balance. Bata from the Philippine ;ational Bairy 1uthority -;B1/ shows that local dairy production was at 36,&(# metric tons -0T/ in $#3$, up from 3%,&(# 0T in $#33. The value of dairy production in $#3$ amounted to P(%# million - 3" million/. 7ocal mil5 production is pro)ected to reach 3',### 0T in $#3" and will li5ely continue expanding on an annual basis due to strong demand for fresh mil5 and growing dairying capabilities.

1s of Aune $#3", the ,ureau of 1gricultural Statistics estimated the nations total dairy herd at 3',%'# dams and does, an increase of over 3# percent from the previous year. These were comprised of dairy cattle -',6&!/, water buffalo -6,$6!/ and dairy goats -3,((%/. Bairy cattle numbers increased in $#3" due in most part to the ongoing government herd build2up programs and the growing number of dairy multiplier farms of the ;B1. Bairy cattle numbers are expected to continue increasing by about 3,###23,(## head per year for the next several years.

The average Philippine mil5 production per animal -6 liters8day/ remains low due mainly to poor feed and management practices. 1ccording to various sources, the average daily mil5 yield in the United States is around "# liters8day and about $# liters8day in the United Hingdom. 1ccording to the ;B1, the average farm gate price of mil5 as of Auly $#3" was P"#.""8liter - #.!#8liter/. ,y contrast the corresponding

53

farm gate price of mil5 in the U.S. is about #."!8liter - 3%.'# hundred weight/ as of Auly $#3".

There are four main types of dairy farms in the Philippines@ individual smallholder producers -who consume and sell locally what they produce/, smallholder cooperatives -who deliver their mil5 to a collection point for transport to a processing plant/, commercial farms -which supply processors/, and government farms -which supply school and rural community feeding programs/.

In answer to the countrys cold chain challenges and limited production, a significant amount of Philippine fluid mil5 supply is actually Ultra ?igh Temperature -U?T/ mil5 reconstituted from imported mil5 powder.

Consum'tion7
;B1 estimates $#3" domestic dairy re+uirements to be at 3,6$# 00T. 1ccording to >1. estimates, annual per capita mil5 consumption in the Philippines is at $$ 5g, compared with Thailand at $% 5g, 0alaysia at ($ 5g and the United States at $6! 5g. Gith a strong economy and a growing population of roughly 3## million in $#3", the Philippines is a large and rapidly expanding mar5et for mil5 and mil5 products. .ther factors contributing to the long term trend of strong growth in local dairy consumption are expanding cold chain capacity, an increase in the number of supermar5ets, and a blossoming food processing industry. In addition, the strong peso -the Philippine currency has appreciated by almost $( percent since $##&/ and the wea5 U.S. dollar vis2T2vis competitor countries ma5e the Philippine mar5et attractive for U.S. dairy exporters.

1ccording to the ;B1, half of smallholder mil5 production goes to school and community mil5 feeding programs and the rest to local commercial sales or household consumption. Gith dairy production in the country being more community2based, maintaining the +uality of fresh mil5 is a challenge due to the lac5 of processing and distribution systems, and a dependable, continuous cold chain. >resh fluid mil5 in a mid2range 0anila supermar5ets sells for P'#23$# per liter - $.$#2$.'"/.

54

POLICIES AN( NO43S OF I3PO4T%EAPO4T Trade Policy

India allows imports of mil5 and mil5 products without +uantitative limitations, although tariff rate +uotas apply and an import permit is re+uired. ;>B0 imported above the T=N attracts a %# percent basic duty and above +uota butter oil imports are charged a "# percent basic duty. 1lthough India allows mil5 and mil5 product imports, in most cases both import permits and sanitary certificates are re+uired. >or the import of livestoc5 products -including mil5 and mil5 products/, an applicant has to apply at least "# days in advance with form 18, -Bepartment of 1nimal ?usbandry and Bairying/. :xports of U.S. dairy products to India are effectively prohibited under Indias current dairy sanitary import protocol. Imported dairy products, li5e domestic dairy products, must adhere to all relevant food safety laws and +uality standards. These include the +uality standards set by the ,ureau of Indian Standards -,IS/ as well as the food safety standards covered in the >ood Safety and Standards =egulation, $#33. .n ;ovember $3, $#3$, India revised its tariff rate +uota -T=N/ on dairy products falling under harmoni*ed system -?S/ code #&#$3# and #&#$$3## -S0P/. Under the notified T=N, India will permit imports up to 3#,### metric tons -0T/ of S0P per fiscal year at a tariff rate of 3( percent. Nuantities above 3#,### 0T will incur a %# percent tariff. .n ;ovember $$, $#3$, the Fovernment of India -F.I/ lifted its ban on the export of dairy products falling under ?S code #&#$. This includes mil5 and cream, concentrated and8or sweetened mil5 and cream, whole mil5 powder, dairy whitener and infant mil5 foods. Industry sources state that this action will have little conse+uence on trade, as the ma)ority of Indias dairy product exports are s5im mil5 powder -S0P/ and casein, both of which were permitted for export on Aune 6, $#3$. In 0arch, $#3", the Bepartment of 1nimal ?usbandry, Bairying and >isheries -B1B>/ of the 0inistry of 1griculture, Fovernment of India -F.I/ posted revised guidelines on its website for the import and export of bovine genetics to India.

55

.n Aune 33, $#3", the >ood Safety and Standards 1uthority of India extended the import prohibition on mil5 and mil5 products from 9hina for an additional year until Aune $$, $#3&. The ban includes mil5, mil5 products, chocolates and chocolate products, candies, confectionary, and food preparations made with mil5 or mil5 solids originating in 9hin

Im'ort $uty K ta.es :&en im'orting into In$ia

Import duty and taxes are due when importing goods into India whether by a private individual or a commercial entity. The valuation method is 9I> -9ost, Insurance and >reight/, which means that the import duty and taxes payable are calculated on the complete shipping value, which includes the cost of the imported goods, the cost of freight, and the cost of insurance. Buty in particular is calculated on the sum of the 9I> value and landing charges -explained below/. Some duties are also based on +uantity measurements. In addition to duty, imports are sub)ect to other taxes and charges such as landing charges, countervailing duty, 9:SS, and education 9:SS. (uty 4ates Buty rates in India can be ad valorem -as a percentage of value/ or specific -rupees per unit/. Buty rates vary from #4 to 3(#4, with an average duty rate of 33.'4. Some goods are not sub)ect to duty -e.g. laptops and other electronic products/. Sales Ta. There is no sales tax in India for imported goods. 3inimum t&res&ol$s There is no minimum threshold in India, i.e. all imports regardless of their value are sub)ect to duty and taxes. Ot&er ta.es an$ custom fees

7anding charges@ -34 9I>/ 9ountervailing duty -9CB/@ -#4, %4 or 3$4 -9I>B Y 7anding charges// 9:SS -:ducation Y ?igher :ducation/@ "4 -Buty Y 9ountervailing duty/ 1dditional 9CB@ &4 -9I>B Y 7anding charges Y 9ountervailing duty Y 9:SS/ Im'ort $uty K ta.es :&en im'orting into P&ili''ines O9er9ie: Import duty and taxes are due when importing goods into Philippines whether by a private individual or a commercial entity. The valuation method is 9I> -9ost, Insurance and
56

>reight/, which means that the import duty and taxes payable are calculated on the complete shipping value, which includes the cost of the imported goods, the cost of freight, and the cost of insurance. In addition to duty, imports are sub)ect to sales tax -C1T/. (uty 4ates Buty rates in Philippines vary from #4 to %(4, with an average duty rate of 3#.(4. Some products can be imported free of duty, e.g. laptops and other electronic products. Sales Ta. Foods imported into Philippines are sub)ect to C1T at a rate of 3$4 calculated over the 9I> value plus any applicable duty. 3inimum t&res&ol$s Ghen an imports 9I> value does not exceed US 3( it is exempt from duty. ?owever, C1T is applicable. Ot&er ta.es an$ customs fees 1 few commodities, li5e passenger automobiles, )ewellery, alcohol, tobacco, etc. may also be sub)ect to the payment of 1d Calorem Tax aside from the import duty and C1T. The rate of 1d Calorem Tax depends on the ma5e2up of the commodity such as the engine displacement cost in case of automobiles, or alcohol content in case of beverages.

Free im'ort U $## cigarettes or U (# cigars or U $(# grammes of other tobacco products U Up to $ litres of Gines or alcoholic beverages U (' ml of perfume U $(# ml toiletries U 1uthori*ed personal goods U 1n unlimited amount of foreign currency can be imported into the country. Sums e+ualling US3####in local currency must be declared upon entry. >oreign travellers cannot ta5e more foreign currency with them than the amount they entered India with but sums less than US 3#### generally will not need to be declared. Pro&i0ite$
57

The following items are banned from entering or leaving the country unless under certain circumstances or limitations. U Illegal drugs U >irearms and ammunition J unless permission has been obtained U Hnives and deadly weapons U Pets and other live animals J unless permission has been obtained U ,irds and bird products Jeggs and feathers U Pigs and pig meat products U :ndangered plants U Plants and plant products J unless permission has been obtained U =adio transmitters U 9ulturally important or valuable anti+ues U 9ounterfeit money and goods U Pornographic material 4estricte$ U Species of wild life including ivory, mus5 and animal s5ins are prohibited from leaving the country. U Unless ta5en by a native of the country, Indian currency is expressly prohibited from leaving India. U Plants and plant products such as seeds or fruits are prohibited without prior permission. XTravellers of Indian origin returning home or visitors entering the country from Pa5istan, 9hina or other countries may have different restrictions regarding the amount and nature of items that can be imported into the country.

XTravellers of Pa5istani origin will li5ely be re+uired to undergo additional customs procedures before being granted permission to enter or leave the country. X1ll Indian currency is prohibited from being imported or exported out from the
58

country by foreign travellers. Indian residents going on or returning from a holiday abroad can freely ta5e or bring in up to =s. !(##. Free e.'ort U ;o information available Pro&i0ite$ The following items are banned from entering or leaving the country unless under certain circumstances or limitations. U Illegal drugs U >irearms and ammunition J unless permission has been obtained U Hnives and deadly weapons U Pets and other live animals J unless permission has been obtained U ,irds and bird products Jeggs and feathers U Pigs and pig meat products U :ndangered plants U Plants and plant products J unless permission has been obtained U =adio transmitters U 9ulturally important or valuable anti+ues U 9ounterfeit money and goods U Pornographic material 4estricte$ U ;o information available

Tra$e7 2.S. E.'orts to t&e P&ili''ines Increase 1#E in 01

59

Bespite record exports of "3!.( million -up 3" percent/ in $#3$, the Philippines slipped one notch to become the (th largest mar5et for U.S. dairy products. U.S. dairy exports in $#3" are expected to grow slightly -by about $2" percent/, reaching "$( million by the end of the year. The top U.S. dairy exports to the Philippines in $#3$ were nonfat dry mil5 powder - 3&$.! million/, buttermil5 - &3.! million/ and whey - "&.& million/.

P&ili''ine (airy Im'orts Bairy products are currently the countrys third largest agricultural import after wheat and soybean meal. Bespite an expanding food processing industry, total $#3" imports of dairy products are forecast to slightly decline from the previous years level of 3,'(( 0T -70:/ to 3,'## 0T -70:/ due to high global prices early in the year. Post expects imports in $#3& to increase slightly to $,### 0T -70:/ as growth in local demand will li5ely continue to exceed any increases in domestic supply.

;ews of a late season drought in ;ew <ealand -the top supplier to the Philippines/ and a lac5 of exportable supplies of s5im mil5 powder -S0P/ and whole mil5 powder -G0P/ from the :U led to a sharp rise in dairy prices in early $#3". Prices have since come down but are still expected to remain relatively strong for the rest of the year.

The ma)or country suppliers to the Philippines by volume are ;ew <ealand with &% percent share of total imports, the United States with $' percent, and 1ustralia at 6 percent. U.S. dairy exports to the Philippines have continued to rise dramatically due in part to the wea5 U.S. dollar vis2T2vis ma)or competitor countries, the strengthening peso, as well as the supply problems in ma)or dairy producing countries.

S5im 0il5 Powder -S0P/ and Ghole 0il5 Powder -G0P/ imports currently comprise about (% percent of total dairy imports. S0P imports declined by five percent while G0P imports increased 3" percent in $#3$. 7i+uid mil5 imports fell $& percent. Imports of butter and other dairy spreads also declined by 3& percent while imports of cheese increased by $% percent.

1ccording to trade and industry contacts, imported dairy products are used as follows@ S6im 3il6 Po:$er7 =ecombined sweetened condensed mil5, recombined U?T mil5, ice cream, infant and follow2on formulas, and medical nutrition formulas.
60

,&ole 3il6 Po:$er7 =ecombined U?T mil5, ice cream, infant and follow2on formulas, medical nutrition formulas, and instant powdered mil5. Butter 3il6 Po:$er7 =ecombined sweetened condensed mil5, ice cream, and ba5ery. ,&ey Po:$er7 =ecombined sweetened dairy creamer, ice cream, infant and follow2 on formulas, processed meat, processed food, confectionery, ba5ery, and animal feed. C&eese Cur$7 Processed cheese, cheese spreads, and processed food. Li;ui$ 3il67 =etail, primarily organic and extended shelf life -:S7/ mil5. C&eese7 =etail, +uic5 service restaurants and fast food chains P&ili''ine (airy E.'orts Total dairy exports declined (" percent in $#3$ with exports of mil5 and cream comprising about '6 percent of the total volume. The main countries of destination were 0alaysia -&" percent/, Thailand -$" percent/ and ,angladesh -3$ percent/. :xports in $#3" are expected to drop even lower due in part to increasing prices of Philippine dairy products as a result of the stronger peso.

Policy7 The Philippine Bepartment of 1griculture -B1/ continues to ma5e the development of the Philippine dairy industry a priority with a special emphasis on improving local supply of fresh mil5. Ghile the B1 accepts that the Philippines cannot compete in the powdered mil5 mar5et, it believes that it can greatly augment the supply of fresh mil5 to the mar5et.

The ;B1 is the B1s primary agency overseeing and aiding the development of the Philippine dairy sector. The ;B1 aims to accelerate dairy herd build2up and mil5 production, enhance the dairy business through delivery of technical services, increase coverage of mil5 feeding programs and promote mil5 consumption. 1t the heart of the ;B1 strategy is the ?erd ,uild2Up Program. This program aims to expand local dairy production through the importation of dairy animals, embryos and e+uipment, and through the upgrading of local animals to dairy breeds via breeding programs, the establishment of multiplier farms, and the preservation of existing stoc5s. The following are sub2programs of the ?erd ,uild2Up Program@

61

3. Save2the2?erd -ST?/ 2 Promotes animal trading, dairy enterprise enhancement and herd conservation. Under this program, the ST? partner receives a dairy animal from ;B1 which he is obligated to rear, condition and impregnate according to prescribed dairy husbandry management standards.

$. ?erd Infusion 2 Includes importation of dairy stoc5s, diversification of sources and local procurement of dairy animals. ". Improved ,reeding :fficiency 2 ,reeding services to maximi*e the reproductive capacity of dairy animals either through artificial insemination or natural -bull/ breeding.

&. 1nimal >inancing 2 Tailoring of animal loan programs to the dairy business cycle and identifying new sources of affordable loans. (. KPalit2,a5aL Scheme or Bairy 1nimal Bistribution 2 =efers to the program whereby ;B1 distributes a potential dairy animal to an eligible participant who, in turn, would eventually provide ;B1 with a female dairy animal as payment in 5ind.

%. Upgrading of 7ocal 1nimals 2 1rtificial insemination of local cattle with 3##4 purebred ?olstein2>riesian semen. 9alves born from upgrading programs are distributed to new farmers interested in dairying.

!. ,reeding80ultiplier >arm .perations 2 :ngaging and encouraging private2public partnerships in producing local born dairy stoc5s. 6. ,ull 7oan J 7oan program that provides purebred and crossbred dairy bulls to regional field units of the Bepartment of 1griculture or to other pro)ect partners for semen production, collection and processing purposes.

ASEANDAustraliaDNe: Fealan$ Free Tra$e Agreement >AANFFTA? 7 The 11;<>T1 was signed by 1ustralia and ;ew <ealand and the ten 1S:1; members in $##'. Since $#3#, mil5 powder, cheese, whey and buttermil5 from 1ustralia and ;< are able to enter the Philippines duty freeR U.S. mil5 powder and whey has a 0>; duty of 3 percentR cheese "2! percent, and buttermil5 " percent.

3ar6eting7

62

The greater 0anila area remains as the ma)or fresh mil5 mar5et in the country and is classified into business and consumer sectors. The business sectors include the institutional and retail operations such as coffee shops, hotels, restaurants, supermar5ets and small retailers. The consumer sectors include households and schools through the government mil5 feeding program.

The main targets of local mil5 processors are the institutional buyers, especially coffee shops. Specialty coffee shops are good mar5ets because of the continuing trend towards coffee consumption as a lifestyle in the country. 7ocally sourced, fresh mil5 dominates this mar5et because of its superior foaming properties, as compared to U?T mil5. The ma)or suppliers of fresh mil5 to coffee shops are processors from Southern 7u*on, particularly from ,atangas and 7aguna. .ther suppliers to coffee shops produce U?T mil5 reconstituted from imported mil5 powder and pac5aged under their own brand.

The specialty coffee shop industry is pro)ected to sustain growth of $# percent over the next five years. 1nalysts attribute this expansion to the growing consumer preference for specialty coffee and the improving image of coffee in general. ->ood and 1gribusiness 0onitor, University of 1sia and the Pacific/

/LOBAL SAT4ATE/5
171SH1 0I7H 9.=P.=1TI.; is one of the leading manufacturers of mil5 products in the Philippines. It has established a strong brand heritage among >ilipino consumers with its traditional li+uid canned mil5 products mar5eted under the 1las5a label. The 9ompany has li5ewise established a strong presence in the powdered mil5 business and a growing position in the U?T ready2to2drin5 and ready2to2use segments. Today, more than ever, 1las5a endeavours to maintain and reinforce its formidable position in the Philippine mil5 mar5et. Ge see5 to cater to a new Feneration of consumers by building on the strengths of our portfolio of trusted ,rands and capitali*ing on the possibilities created by a continually evolving consumer environment. >or over thirty years, 1las5a 0il5 9orporation has proven its worth as a company of people driven by a passion to deliver unparalleled value to its consumers and customers through its +uality products and superior services. Ge ta5e great pride in providing affordable
63

nutrition for families across the country under a portfolio of trusted brands. Through all the years of our corporate existence, our strength in the industry has always been our people. Ge rely on them J their integrity, s5ills, talents, enthusiasm and commitment. ?olding ourselves to the highest standards ensures that we achieve our goals in a manner consistent with our corporate values. The 1las5a brand has always been associated with +uality and nutrition. The 9ompanys first generation of mil5 products are Alaska Evaporated Filled Milk and Alaska Sweetened Condensed Filled Milk. 9ollectively 5nown as the 9lassic 7ine, product usage has since expanded from a nutritional beverage to a multi2purpose coo5ing ingredient. To address the needs of the low2income earners for more affordable products, the 9ompany also developed a Calue 7ine of evaporated and sweetened condensed creamers in the mar5et. Priced competitively and with the same 1las5a seal of +uality, Alaska Evaporadaand AlaskaCondensadaare the perfect enhancers for various food and beverage preparations. 1las5a is the undisputed mar5et leader in both the :vaporated and 9ondensed 0il5 9ategories. 1las5a has further strengthened its core business by ac+uiring 8 licensing the li+uid canned mil5 brands of SociZtZ Bes Produits ;estlZ S.1. In a deal signed on 1pril 3%, $##!, 1las5a bought from ;estle the 1lpine, 7iberty and Hrem2Top brands, including all trademar5 properties. 1lso included in the deal is a long2term licensing agreement for 109 to manufacture and sell the 9arnation and 0il5maid brands for li+uid canned mil5 products. :ach of these brands has a strong mar5et position, a loyal customer base and a brand name associated with +uality. Today, 1las5a has a dominant position in the li+uid mil5 category, accounting for about 6#4 of the mar5et. 1las5a has ta5en its commitment in providing +uality mil5 products a step further by bringing to its consumers mar5et leading brands. 1n alliance with Helloggs 1sia 0ar5eting, Inc. awarded 1las5a 0il5 9orporation exclusive distribution rights to Helloggs line of ready2to2eat cereals in the Philippines, enhancing the nutritional value of 1las5a mil5 products. This partnership has developed a thrust of promoting the habit of having a nutritious brea5fast of cereals and mil5, every morning, to start the day right. Bespite a challenging business environment brought about by uncertainties in both global and domestic economies, total revenues for $##6 grew by 3#4 to P'.'! billion from P'.#6 billion the previous year. This robust performance was achieved on the bac5 of strong sales volume growth across the 9ompanys core mil5 products even while the mar5et contracted.

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9ombined sales volume of the 9ompanys portfolio of li+uid canned mil5 products posted a modest growth rate primarily reali*ed from a full 3$2month selling period for the ac+uired and licensed li+uid canned mil5 brands compared to 6[ months selling period in $##!. 0ar5eting investments and promotional efforts in selected 5ey areas were carried out to drive consumption. =egion specific communication campaigns were li5ewise developed to help reinforce the regional heritage of the 9arnation, 0il5maid, 1lpine and 7iberty brands. Similarly, sales volumes of the 1las5a brand were up year2on2year buoyed by the strong off2ta5e of the economy line 2 1las5a :vaporada and 1las5a 9ondensada. 9ontinuous brand building initiatives, especially during high2demand seasons, stimulated consumption notwithstanding the proliferation of lower2priced brands in the mar5et. ;ew advertising materials and increased visibility in retail outlets reinforced top2of2mind awareness for the 1las5a brand, especially in the low price mar5et sector. In the face of growing competition in the mass mar5et, a permanent price roll2bac5 for the 9ompanys line of 9ondensada brands was implemented in the last +uarter of the year. This strategic pricing decision underpins the 9ompanys direction towards providing the middle and low2income earners with affordable nutrition. Shelf off2ta5e of the entire 9ondensada brands improved, reflecting consumers receptiveness to the price move. The powdered mil5 business sustained its strong performance in $##6 with sales volume posting double2digit growth year2on2year, outperforming the mar5ets contraction. Bemand for 1las5a Powdered >illed 0il5 remained bris5 owing to the improvements in product availability. Carious sales and distribution drives, supplemented by a new advertising campaign, boosted consumption as well as mar5et share expansion. To address the growing needs of consumers on affordability, new pac5aging formats were made available in the mar5et. Ge continue to see the powdered mil5 segment as one of the strong growth drivers to our business. This is anchored on the countrys demographic profile, with "!4 of the population falling below the age of fourteen J our target mar5et. In addition, consumption trends indicate a strong preference for the more affordable powdered filled mil5 product, which underscores our positioning in the category. The 9ompanys portfolio of U?T products li5ewise performed strongly in $##6 alongside with the improvements in retail space and merchandising efforts. Selective advertising support and volume2generating activities translated in mar5et share gains for the 1las5a brand across the different U?T segments despite heightened media spending by our competitors in support of their own brands.
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9ombined sales volume of the 9ompanys ready2to2drin5 U?T flavoured mil5 line posted substantial growth this year following the re2launch of 1las5a 9hoco. 1longside with the improvement in taste, the product also features a new and more exciting pac5aging design. 9onsumer off2ta5e of 1las5a MamooS was li5ewise bris5, with sales volume up year2 on2year. Similarly, 1las5a >resh and 1las5a Slim U?T mil5 achieved double2digit growth in sales volume. These products continued to reap expanded consumer acceptance, aided by selected promotional activities. Sales volume li5ewise grew on the bac5 of the brands pricing advantage. In line with our continuing effort to expand the 9ompanys portfolio of products in other segments within the dairy mar5et, 1las5a Moghurt Brin5 was launched in 1pril $##6. 1las5a Moghurt Brin5 is an alternative ready2to2drin5 beverage, cultured with yoghurt starters and is initially available in strawberry and blueberry flavors. 1las5a 9rema 1ll2Purpose 9ream entered the year with a slow start as consumer demand for the product declined following the selling price increases in $##!. Gith all indications and factors ushering a continued slowdown in the brands off2ta5e, a temporary price roll2bac5 was implemented for 1las5a 9rema beginning 0ay $##6. 9apitali*ing on seasonal opportunities, promotional efforts for the brand were li5ewise executed in the fourth +uarter of the year to spur consumption and renew consumer awareness for the brand. 1s a result, sales volume of 1las5a 9rema surged, mitigating the volume decline early in the year.

C@AN/ES ACCO2NT POLICIES K (ISCLOS24ES7

The accounting policies adopted are consistent with those of the previous financial year, except for the adoption of the following Philippine Interpretations from I>=I9 starting Aanuary 3, $##6@ U Philippine Interpretation I>=I9 33, PFRS 2 2 Group and Treasury Share Transactions, re+uires arrangements whereby an employee is granted rights to an entitys e+uity instruments to be accounted for as an e+uity2settled scheme by the entity even if -a/ the entity chooses or is re+uired to buy those e+uity instruments -e.g., treasury shares/ from another party, or -b/ the shareholders of the entity provide the e+uity instruments needed.

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U Philippine Interpretation I>=I9 3$, Service Concession Arran e!ents, covers contractual arrangements arising from entities providing public2to2private service concession arrangements if control of the assets remains in public hands but the private sector operator is responsible for construction activities, as well as for operating and maintaining the public sector infrastructure. 1s the 9ompany has no public2to2private concession arrangements, the interpretation has no impact on its financial position or performance. U Philippine Interpretation I>=I9 3&, P1S 3' 2 The "i!it on a #e$ined %ene$it Asset, Mini!u! Fundin Re&uire!ents and their 'nteraction, provides guidance on how to assess the limit on the amount of surplus in a defined benefit scheme that can be recogni*ed as an asset under P1S 3', E!ployee %ene$its( The adoption of the above interpretations did not have any impact on the financial position or performance of the 9ompany.

F2T24E C@AN/ES IN ACCO2NTIN/ POLICIES7

The 9ompany did not early adopt the following standards, Philippine Interpretations and amendments that have been approved but are not yet effective@ U =evised P>=S $, Share)*ased Pay!ent, becomes effective for financial years beginning on or after Aanuary 3, $##'. It restricts the definition of a vesting condition to condition that includes an explicit or implicit re+uirement to provide services. 1ny other conditions are non2 vesting conditions, which have to be ta5en into account to determine the fair value of the e+uity instruments granted. In case the award does not vest as a result of a failure to meet a non2vesting condition that is within the control of either the entity or the counterparty, it must be accounted for as a cancellation. The 9ompany is currently assessing the impact of the revised standard on the financial statements. U =evised P>=S ", %usiness Co!*ination, and =evised P1S $!, Consolidated and Separate Financial State!ents, become effective for financial years beginning on or after Auly 3, $##'. =evised P>=S " introduces a number of changes in the accounting for business combinations occurring after this date that will impact the amount of good will recogni*ed, the reported results in the period that an ac+uisition occurs, and future reported results. =evised P1S $! re+uires that a change in the ownership interest of a subsidiary be accounted for as an e+uity transaction. Therefore, such transaction will no longer give rise to goodwill, nor will it give rise to a gain or loss. >urthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes
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introduced by the revised P>=S " must be applied prospectively and will affect future ac+uisition and transactions with minority interests while the revised P1S $! must be applied retrospectively sub)ect to certain exceptions. The 9ompany assessed that the adoption of the revised standards will have no impact on the financial statements. U P>=S 6, +peratin Se !ents, becomes effective for financial years beginning on or after Aanuary 3, $##', and will replace P1S 3&, Se !ent Reportin ( It adopts a full management approach to reporting segment information. The information reported would be that which management uses internally for evaluating the performance of operating segments and allocating resources to those segments. Such information may be different from that reported in the balance sheets and statements of income and companies will need to provide explanations and reconciliations of the differences. The 9ompany is currently assessing the impact of this standard on the financial statements. U =evised P1S 3, Presentation o$ Financial State!ents, becomes effective for financial years beginning on or after Aanuary 3, $##'. The standard separates owner and non2owner changes in e+uity. The statement of changes in e+uity will include only details of transactions with owners, with all non2owner changes in e+uity presented as a single line. In addition, the standard introduces the statement of comprehensive income, which presents all items of income and expense recogni*ed in profit or loss, together with all other items of recogni*ed income and expense, either in one single statement, or in two lin5ed statements. The revision also includes changes in titles of some of the financial statements to reflect their function more clearly, although not mandatory for use in the financial statements. The 9ompany is currently assessing the impact of the revised standard on the financial statements. U =evised P1S $", %orrowin Costs, becomes effective for financial years beginning on or after Aanuary 3, $##'. The standard re+uires capitali*ation of borrowing costs when such costs relate to a +ualifying asset. 1 +ualifying asset is an asset that necessarily ta5es a substantial period of time to get ready for its intended use or sale. The 9ompany is currently assessing the impact of the revised standard on the financial statements. U P1S "$, Financial 'nstru!ents, Presentation, and P1S 3, Presentation o$ Financial State!ents - Put ta*le Financial 'nstru!ents and +*li ations Arisin on "i&uidation .A!end!ents/, become effective for financial years beginning on or after Aanuary 3, $##'. The amendment to P1S "$ re+uires certain put table financial instruments and obligations arising on li+uidation to be classified as e+uity if certain criteria are met. The amendment to P1S 3 re+uires disclosure of certain information relating to put

68

table instruments classified as e+uity. The 9ompany does not expect that these amendments will have an impact on its financial statements. U P1S "', Financial 'nstru!ents, Reco nition and Measure!ent - Eli i*le 0ed ed 'te!s .A!end!ent/, becomes effective for financial years beginning on or after Auly 3, $##'. The amendment addresses the designation of a one2sided ris5 in a hedged item, and the designation of inflation as hedged ris5 or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The 9ompany does not expect that this amendment will have an impact on its financial statements. U Philippine Interpretation I>=I9 3", Custo!er "oyalty Pro ra!!es, became effective for financial years beginning on or after Auly 3,$##6. It re+uires customer loyalty award credits to be accounted for as a separate component of the sales transactions in which they are granted and therefore part of the fair value of the consideration received is allocated to the award credits and deferred over the period that the award credits are fulfilled. 1s the 9ompany has no customer loyalty schemes, the interpretation has no impact on its financial position or performance. U I>=I9 3%, 0ed es o$ a 1et 'nvest!ent in a Forei n +peration, became effective for financial years beginning on or after .ctober 3, $##6. The interpretation is to be applied prospectively. It provides guidance on the accounting for a hedge of a net investment and in identifying foreign currency ris5s that +ualify for hedge accounting in the hedge of a net investment, where within the group, the hedging instruments can be held in the hedge of a net investment and how an entity should determine the amount of foreign currency gain or loss, relating to both the net investment and the hedging instrument, to be recycled on disposal of the net investment. The 9ompany assessed the adoption of the interpretation will have no impact on the financial statements. In 0ay $##6, the International 1ccounting Standards ,oard issued its first omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. The 9ompany did not early adopt the following amendments to standards that will become effective for financial years beginning on or after Aanuary 3, $##'@ U 1mendment to P>=S !, Financial 'nstru!ents, #isclosures, removes the reference to total interest income as a component of finance costs. U 1mendment to P1S 3, Presentation o$ Financial State!ents, provides that assets and liabilities classified as held for trading in accordance with P1S "', Financial 'nstru!ents,

69

Reco nition and Measure!ent, are not automatically classified as current in the balance sheet. U 1mendment to P1S 6, Accountin Policies, Chan e in Accountin Esti!ates and Errors, clarifies that only the implementation guidance that is an integral part of a P>=S is mandatory when selecting accounting policies. U 1mendment to P1S 3#, Events a$ter the Reportin Period, clarifies that dividends declared after the end of the reporting period are not obligations. U 1mendment to P1S 3%, Property, Plant and E&uip!ent, re+uires items of property, plant and e+uipment held for rental that are routinely sold in the ordinary course of business after rental are transferred of inventory when rental ceases and they are held for sale. It also replaces the term Knet selling priceL with Kfair value less cost to sellL. U 1mendment to P1S 36, Revenue, replaces the term Kdirect costsL with Ktransaction costsL as defined in P1S "'. U 1mendment to P1S 3', E!ployee %ene$its, revises the definition of past service costs, return on plan assets, and short2term and other long term employee benefits. The standard has been revised such that amendments to plans that result in a reduction in benefits related to future services are accounted for as curtailment. It deletes the reference to the recognition of contingent liabilities to ensure consistency with P1S "!, Provisions, Contin ent "ia*ilities and Contin ent Assets( U 1mendment to P1S $", %orrowin Costs, revises the definition of borrowing costs to consolidate the two types of items that are considered components of borrowing costs into one 2 the interest expense calculated using the effective interest rate method calculated in accordance with P1S "'.

S@A4EDBASE( PA53ENT T4ANSACTIONS7

The 5ey executives and members of management of the 9ompany are granted options to purchase shares, sub)ect to restrictions, terms and conditions provided in the :xecutive :mployee Stoc5 .ption Plan -::S.P/. The cost of e+uity2settled transactions, for awards granted after ;ovember $##$, is measured by reference to the fair value at the date on which they are granted. The fair value is determined using an appropriate pricing model, further details of which are disclosed.

70

The cost of e+uity2settled transactions is recogni*ed with a corresponding increase in the stoc5holders e+uity, over the period in which the performance and8or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award -vesting date/. The cumulative expense recogni*ed for e+uity settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the 9ompanys best estimate of the number of e+uity instruments that will ultimately vest. The amount reflected in the statements of income represents the movement in cumulative expense recogni*ed as of the beginning and end of the period. ;o expense is recogni*ed for awards that do not ultimately vest. Ghere an e+uity2settled award is cancelled, it is treated as if it had vested on the date of cancellation and any expense not recogni*ed for the awards is recogni*ed immediately. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

PENSION BENEFITS7
The 9ompany has a funded, non2contributory defined benefit retirement plan administered by a ,oard of Trustees covering all permanent employees. The cost of providing benefits under the defined benefit plan is determined using the pro)ected unit credit actuarial valuation method. This method reflects service rendered by employees to the date of valuation and incorporates assumptions concerning employees pro)ected salaries. Pension expense includes current service cost, interest cost, and :xpected return on plan assets, amorti*ation of unrecogni*ed past service costs, recognition of actuarial gains -losses/ and effect of any curtailments or settlements. Past service cost is amorti*ed over a period until the benefits become vested. The portion of the actuarial gains and losses is recogni*ed when it exceeds the corridor -3#4 of the greater of the present value of obligation or mar5et related value of the plan assets/ at the previous reporting date, divided by the expected average remaining wor5ing lives of active plan members. The defined benefit liability is the aggregate of the present value of the defined benefit obligation at balance sheet date and any actuarial gains and losses not recogni*ed, reduced by past service cost not yet recogni*ed and the fair value at balance sheet date of plan assets out of which the obligations are to be settled directly. If such aggregate is negative, the asset is measured at the lower of such aggregate or the
71

aggregate of cumulative unrecogni*ed net actuarial losses and past service cost and the present value of any economic benefits availed in the form of refund from the plan or reductions in the future contributions to the plan. If the asset is measured at the aggregate of cumulative unrecogni*ed net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan, net actuarial losses of the current period and past service cost of the current period are recogni*ed immediately to the extent that they exceed any reduction in the present value of those economic benefits. If there is no change or an increase in the present value of the economic benefits, the entire net actuarial losses of the current period and past service cost of the current period are recogni*ed immediately. Similarly, net actuarial gains of the current period after the deduction of past service cost of the current period exceeding any increase in the present value of the economic benefits stated above are recogni*ed immediately if the asset is measured at the aggregate of cumulative unrecogni*ed net actuarial losses and past service cost and the present value of any economic benefits available in the form of refunds from the plan or reductions in the future contributions to the plan. If there is no change or a decrease in the present value of the economic benefits, the entire net actuarial gains of the current period after the deduction of past service cost of the current period are recogni*ed immediately.

FO4EI/N C244ENC5 T4ANSACTIONS7

Transactions in foreign currencies are initially recorded in the functional currency rate at date of the transaction. 0onetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange at balance sheet date. 1ll differences are ta5en to the statements of income. 1ll exchange rate differences, including those arising on the settlement of monetary items at rates different from those at which they were recorded, are recogni*ed in the statements of income in the year in which the differences arise, except for foreign currency differences arising from financial assets designated as cash flow hedge.

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TAAES7
Current Tax: 9urrent tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at balance sheet date. Deferred Tax, Beferred tax is provided, using the balance sheet liability method, on temporary differences at balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Beferred tax liabilities are recogni*ed for all taxable temporary differences, except when the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. Beferred tax assets are recogni*ed for all deductible temporary differences to the extent that it is probable that taxable income will be available against which the deductible temporary differences can be utili*ed except when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utili*ed. Unrecogni*ed deferred tax assets are reassessed at each balance sheet date and are recogni*ed to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered. Beferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is reali*ed or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at balance sheet date. Beferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

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Sales Tax: =evenue, expenses and assets are recogni*ed net of the amount of sales tax except@ U Ghere the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case the sales tax is recogni*ed as part of the cost of ac+uisition of the asset or as part of the expense item as applicableR and U =eceivables and payables that are stated with the amount of sales tax included. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of KPrepaid expenses and other current assetsL or KIncome tax payableL accounts in the balance sheets.

P4O!ISIONS7
Provisions are recogni*ed when the 9ompany has a present obligation -legal or constructive/ as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be re+uired to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre2tax rate that reflects current mar5et assessment of the time value of money and, where appropriate, the ris5s specific to the liability. Ghere discounting is used, the increase in the provision due to the passage of time is recogni*ed as interest expense. Ghere the 9ompany expects a provision to be reimbursed, the reimbursement is recogni*ed as a separate asset but only when the receipt of the reimbursement is virtually certain.

CONTIN/ENCIES7
9ontingent liabilities are not recogni*ed in the financial statements. They are disclosed in the notes to financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. 1 contingent asset is not recogni*ed in the financial statements but is disclosed in the notes to financial statements when an inflow of economic benefits is probable. :vents 1fter ,alance Sheet Bate Post year2end events that provide additional information about the 9ompanys position at balance sheet date -ad)usting events/ are
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reflected in the financial statements. Post year2end events that are not ad)usting events are disclosed in the notes to financial statements when material.

EA4NIN/S PE4 S@A4E >EPS?7

,asic :PS is calculated by dividing the net income for the year by the weighted average number of shares outstanding during the year. Biluted :PS is computed by dividing net income by the weighted average number of shares outstanding during the year, ad)usted for the effects of dilutive stoc5 options. Stoc5 options are deemed to have been converted into shares on the date when the options were granted.

SE/3ENT 4EPO4TIN/7
>or purposes of segment reporting, the 9ompany does not have other reportable segment other than mil5 manufacturing.

Alas6a 3il6 Cor'oration !ision

Is to be a leading consumer foods company with a diversified portfolio of consumer food brands and products that are mar5et leaders in their respective categories.

3ission
L Pro$uct (e9elo'ment
Ge will continue to build on the strengths and competitive attributes of the 171SH1 brand and develop its full mar5eting potential. Ge will develop new products and identify mar5et opportunities, mindful of our tas5 to be responsive to the ever changing and growing needs of our consumers.

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L Customer Ser9ice
9ustomer relationship is an integral part of building the 1las5a business. Ge aim to provide our partners in trade the best and most efficient service, ma5ing use of leading edge technology to ensure timely product availability and accessibility. Ge strive to 5now and understand our customers fully to bridge the gap between what they need and what we can give.

L Muality
Ultimately, the consumer whom we serve and their level of satisfaction with our products become our final )udge and )ury. Ge are committed to deliver high +uality mil5 and other consumer food products from production to consumption. Ge will respond to the call to deliver higher +uality nutrition to every >ilipino home.

L Peo'le
Ge recogni*e that our people, the 1las5a Team 0embers, are one of our most important assets and we are committed to promote their safety and welfare. Their wealth of experience, ideas, dedication and strong wor5 ethic lay the foundation for the 9ompanys continued success. It is our goal as much as it is theirs, to pursue and reach their full potentials through continuing education, training, and s5ills2enhancement programs. Ge challenge each individual by providing the opportunity to contribute to the 9ompanys endeavors.

L Profita0le /ro:t&
Frowth that creates value for our shareholders is paramount. Ge will deploy our resources on investment opportunities that are within our core competence and yield excellent returns relative to its ris5s and which are consistent with our growth ob)ectives.

L Social 4es'onsi0ility
Ge recogni*e our role in nation building by promoting the protection of the environment and ta5ing part in various community2building pro)ects that help enhance and uplift the +uality of life of the underprivileged and the marginali*ed sectors of our society.

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Cor'orate Social 4es'onsi0ility

Alas6a /i9es Bac6 Ghile unceasingly leading the mil5y way, 1las5a remains committed in its share in nation2 building. 3ore t&an a roof

7ocated in ,ayan2,ayanan, San Pedro, 7aguna, the 1las5a Fawad Halinga Cillage shelters more than 3$# families. In addition, 109 also paved way for livelihood opportunities. Programs such as furniture and bag2ma5ing and 1las5a2enriched yema, polvoron, and pastillas products were introduced to the community. ;ow, 1las5a provides trainings, supplies raw materials and assists in the mar5eting and sales of the communitys finished products.

1las5a believes that providing decent homes and livelihood programs mar5s the beginning of the transformation of a person, a family, and a community towards progress and development. 7ong after the last bric5 has been laid, 1las5a 0il5 will continue to support its adopted community assuring them not only of a KroofedL community but also a brighter future.

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Alas6a an$ C&il$ren8s @our

1las5a 0il5 9orporation and 9hildrens ?our have en)oyed a shared mission and a long collaboration in creating a brighter future for >ilipino children. 9hildrens ?our is a non2 profit organi*ation that raises funds through the power of one hour. These funds are then deployed to carefully selected pro)ects that help children in the areas of education, nutrition, shelter, protection, and total development in the form of grants. Since 3''', 109 have participated in the 9hildrens ?our fund raising campaign, which taps individuals to donate one hour worth of their salary once a year to programs committed to the welfare and development of >ilipino children. 109 is one of the first companies to )oin 9hildrens ?our campaign and has been recogni*ed as one of the Top $# contributors. 1las5a 0il5 loo5s forward to a continuing partnership with 9hildrens ?our in Kma5ing the world a better place, one hour at a time.L

3ilestones
In 3'!$, 1las5a began caring for the >ilipino family by providing +uality mil5 products for good nutrition and health. Since then, it has shown its caring in other ways@ through programs that promote sports development, campaigns that foster good values among children and
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product innovations aimed at enhancing the >ilipinos health and welfare. It is this commitment to the >ilipino that has made 1las5a a leading brand. ;ow in $#3$, the mission of nourishing >ilipino dreams grows stronger than ever, as 1las5a loo5s forward to the next &# years.

B2SINESS OPPO4T2NITIES
India and the Philippines en)oy healthy and cordial bilateral economic relations. .ur bilateral trade has steadily grown over the years 22 from 36# million in 3''6 to "!$ million in $##& 22 with Indian exports to the Philippines at $6" million and imports from the Philippines at 6' million. ?owever, it remains below potential. IndiaEs share in PhilippinesE global trade is a negligible #.&% per cent. .ur exports are #.! per cent of PhilippineEs global imports, and PhilippineEs exports to India are #.$$ per cent of their global exports. Philippines has traditionally been outside IndiaEs trade radar for a long time. :ven after our E7oo5 :astE policy was launched in the early 3''#Es, bilateral trade with the Philippines did not pic5 up whereas our trade with other countries such as Singapore, 0alaysia, Indonesia, Thailand and Cietnam grew rapidly. .ne reason is the aggressiveness shown by these countries as far as trade with India is concerned. Philippines on the other hand remained an onloo5er. 1lso missing in the Philippines is the presence of enough Indian companies with effective lobbying capacity bac5 home. If bilateral trade is to expand, Philippines has to reciprocate the interest shown by Indian businessmen. They could start by liberalising the visa regime for Indians further -some liberalisation under FoI8:mbassy pressure has occurred in the last two years/. The Philippines pharmaceutical mar5et heavily dependent on bul5 importation of basic raw materials, chemicals, semi2finished and finished products from the US, :urope, 9anada and 1ustralia, among others. 1nnual imports are about &(# million. 0anufacturing merely involves the formulation and processing of drugs and pharmaceuticals into various forms and dosages, repac5ing of imported bul5 drugs and pac5aging them for distribution. Since the bul5 of the imports are from multinational companies, medicine prices in the country are about ( to 3( times higher than those in India.

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There are two main reasons for the below2potential Indian pharma exports to the Philippines 22 a strong multinational lobby wor5ing against imports of inexpensive medicines from countries li5e India, and stringent registration procedures of the PhilippinesE ,ureau of >ood and Brugs. Ge in the embassy have been countering the mischief perpetrated by the multinational lobby, by ma5ing the government, companies and people aware of the high +uality and low2priced drugs available from India. Ge have enlisted the support of the Philippine International Trading 9orporation, a government agency, which has been importing medicines worth about 3.( million a year from India for the last few years. The PIT9 has been waging a war on the multinationals and has been promoting affordable2 priced medicines from India and other countries. These medicines are supplied to government hospitals and to the E,outi5a ;g ,ayanE retail outlets being set up by the Philippine government to ma5e medicines affordable to the poor. Ge have also put pressure on the ,>1B to simplify the registration procedure for Indian drugs and shorten the time ta5en. Ge have been able to have the time shortened from about two years to about a year. It is a prere+uisite for any drug imported into the Philippines to be registered with ,>1B first. There are now over (# Indian companies whose products are registered with ,>1B. 1t present, ma)or items of Indian exports to Philippines are@ fro*en buffalo meat -for processing/, pharmaceuticals, iron and steel manufactures and tools, textile yarn, petrochemicals, auto and motorcycle parts, cereals, organic chemicals, electronic components, etc. 0a)or imports from Philippines are@ semi2conductors, inorganic chemicals, auto parts, newsprint, minerals, garments and miscellaneous industrial products. There is potential for growth in our exports in pharmaceuticals, IT services, animal feed, iron and steel, auto parts, cereals, chemicals and mil5. 1s regards exports from the Philippine, potential exists in minerals, seaweed, processed foods and auto parts.

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O''ortunities in (airy Sector

Aul. 3$ J 1s the demand for dairy products increases from the member nations of the 1ssociation of Southeast 1sian ;ations -1S:1;/ , Indias dairy sector seems poised to fill the gap, and can expect a large bump in its mil5 exports to the region in the near future. 0il5 consumption throughout the 1S:1; region, especially throughout the 1S:1; six ma)ors J which is made up of Indonesia, 0alaysia, the Philippines, Singapore, Thailand and Cietnam J has gone up in recent years than5s to increasing birth rates, improving diets, rapid urbani*ation and an increasingly health2conscious middle class in the countries. 1s a result, these countries have been increasingly dependent on the import of dairy products. K1cross 1sia, India is the only country with surplus mil5. 1bove all, OIndia hasP the location advantage to cater to the Southeast 1sian mar5et,L noted = S Sodhi, 0anaging Birector of Fu)arat 9ooperative 0il5 0ar5eting >ederation, which produces Indias 1mul mil5 brand. Indian s5immed mil5 powder -S0P/ reportedly costs around US ",&(# a ton. In comparison, competing nations such as 1ustralia and ;ew <ealand charge between US ",((#2US ",%(# a ton. KGe expect dairy consumption across the 1S:1;2% to grow $.&4 a year through to $#$#. This creates a re+uirement for an extra three billion liters of mil5,L said 0ichael ?arvey, analyst at 1ustralia2based food ban5 =abo ban5. Indian S0P exports to the 1S:1; region is currently (### tons a year, but this number is expected to )ump to over 3#,### tons by the end of this year. Indias total mil5 powder exports are li5ely to touch 3##,### tons this year. The Indian government lifted the ban on the export of mil5 powder )ust last Aune. This development comes off the heels of recent news that 1ustralia and ;ew <ealand have been gunning to fill the mil5 export void in the 1S:1; region.

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CONCL2SION

1s Philippines is agriculture based country )ust li5e an India, and importing its 6#4 of dairy products from other countries, so it is an vast opportunity for India in the dairy sector, because India is the world leader in 0il5 producing and exporting. India already having good trade relation with Philippines in other sectors, except dairy sector, Indian Fovernment has launched many policies to increase the bilateral trade between the 1S:1; countries, li5e K7..HI;F :1STL. =ecently Indian government lifted the ban on the export of mil5 powder to increase and encourage Indian dairy sector to increase export in 1S:1;.

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BIBLIO/4AP@5
http://business.gov.in/taxation/custom_duty.php http://www.icbs.in/india-trade-guide/import-export-policy-india.htm http://agriexchange.apeda.gov.in/IR_Standards/Import_Regulation.aspx http://agriexchange.apeda.gov.in/product_profile/exp_f_india.aspx?cat http://www.infodriveindia.com/export-import/trade-statistics/countrieswise.aspxegorycode !"!# http://india.visah$.com/customs/ http://www.dutycalculator.com/country-guides/Import-duty-taxes-when-importinginto-India http://www.cbec.gov.in/cae%-english.htm http://news.pia.gov.ph/index.php?article %%&%'&(&!)&'& http://www.india-briefing.com/news/industrial-licensing-norms-policy-)"#'.html/ http://www.citehr.com/%%#*%)-export-import-import-policy-form-a%.html http://www.dutycalculator.com/country-guides/Import-duty-taxes-when-importinginto-+hilippines/

http://economictimes.indiatimes.com/news/economy/foreign-trade http://www.euromonitor.com/drin,ing-mil,-products-in-the-philip http://en.wi,ipedia.org/wi,i/-las,a_-ces_.+/-0pines/report http://www.alas,amil,.com/v&/ http://www.researchandmar,ets.com/reports/%*'(")/alas,a_mil,_corp_international _competitive http://www.india-briefing.com/news/india-export-dairy-asean-11!1.html/ http://www.indian2ournals.com/i2or.aspx? target i2or:aerr3volume %*3issue &3article mscabs-!!)

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