FUTURE FARMING

Analysis of the Food Sector in Philippines Opportunities for Victorian Exporters

June 2009

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on: 136 186.
Published by the Victorian Government, Department of Primary
Industries. June 2009
Also published on www.dpi.vic.gov.au/agribusiness
The State of Victoria Department of Primary Industries 2009
This publication is copyright. No part may be reproduced by any
process except in accordance with the provisions of the Copyright
Act 1968.
Authorised by the Victorian Government, 1 Spring Street,
Melbourne, Victoria 3000, Australia
ISBN 978-1-74217-553-9 (print)
ISBN 978-1-74217-554-6 (online)
Disclaimer
This publication may be of assistance to you but the State of Victoria
and its employees do not guarantee that the publication is without flaw
of any kind or is wholly appropriate for your particular purposes and
therefore disclaims all liability for any error, loss or other consequence
which may arise from you relying on any information in this publication.
For more information about DPI visit www.dpi.vic.gov.au or call the
Customer Service Centre on 136 186
Cover picture: Fresh Fruit and Vegetable Market, Quezon City,
Philippines
For more information visit the website at www.dpi.vic.gov.au or
contact the DPI Customer Service Centre 136 186.
Produced by: Agribusiness Group
Department of Primary Industries
1 Spring Street
PO Box 4440
Melbourne
Victoria 3001
Author:

Tim Roache
Manager Market Development, South East Asia
DPI Agribusiness Group

Editors:

Kate Linden, John Naughtin, Fiona Culley,

Clare Balmer

Contents

Introduction

Overview of Current Economic Situation

Overall Trade Relationship with Victoria

and Australia

Victorian & Australian Food Exports

to the Philippines

Food Consumption Trends

Distribution Channels

Market Access

Opportunities for the Victorian Food Industry

10

Dairy

10

Grains

10

Meat

10

Prepared Foods

10

Horticulture

10

Conclusion

11

Reference List

12

List of tables and figures

Table 1: Population and economic data
for the Philippines, 2007

Figure 1: The Philippines

Figure 2: Trends in export of selected food

commodities from Australia
to the Philippines

Figure 3: Trends in export of selected food

commodities from Victoria
to the Philippines

Figure 4: Typical Filipino Food Distribution Channels

for Imported Australian Agrifood

Introduction

The Philippines is one of the worlds fastest growing and

youngest populations, with 65% of its 96 million people under
30 years of age.
The gulf between the rich and poor is large with 30% of
Filipinos living below the poverty line (surviving on, or less
than, $US 1 per day). In urban areas poverty afflicts 20% of
the population whilst in rural areas it is 47%, which has led
to an estimated 10 million Filipinos being Overseas Workers.
The Philippines has the highest level of English literacy in
Asia (93%) and Christianity is the major religion (90%).
The Philippines has a volatile political history with civilian
unrest, coups and attempted coups a common situation.
However, since 2001 the Government, a Republic Nation
with a democratically elected President (Gloria MacapagalArroyo, 2001-Current), has been relatively stable albeit
with continued high levels of corruption, lack of economic
legislation and judicial reforms, rapid population growth, and
ongoing insurgencies by terrorist and rebel groups which
continue to undermine this stability.
The Philippines consists of over 7,100 islands with a total
land area of 300,000 km2, making it the second largest
archipelago in the world. It can be divided into three main
island groups; Luzon (north), the Visayas (central) and
Mindanao (south). Four cities have populations exceeding
one million, Quezon City, Manila, Calcooan City (all within the
Philippines National Capital Region - NCR) and Davao City.
It is these metropolitan regions that present the opportunities
for Victorian agrifood products, particularly metropolitan
Manila and NCR.
Over 50% of the Philippines land mass is classified as
agricultural land. Agricultural production is undertaken
by small landholders who either lease or own their land
or companies with vast agricultural estates. Due to rapid
population growth and escalating commodity prices,

Figure 1: The Philippines

Source: Maps.com

increasing food self sufficiency is a major concern for the

Filipino government. Typically food produced from small land
holdings is consumed by the household or traded at local
wet markets. Similarly, food produced from large agricultural
estates results in the Philippines being a major producer
and exporter of sugar, rice, corn, tropical fruits (coconuts,
bananas, pineapples and mangoes), poultry and pork.

Table 1: Population and economic data for the Philippines, 2007 (in comparison to Australia)
National statistics (2007)

Philippines

Australia

Size

300,000 km2

7,686,850 km2

Population

96 million

21 million

Population growth

1.99%

0.801%

GDP

$US 300 billion

$US 773 billion

GDP per capita

$US 3,200

$US 37,300

GDP growth rate

7.3%

3.9%

Food self sufficiency

<100%

>100%

Overview of Current Economic Situation

4
The Philippines economy is small and has one of the lowest
GDP per capita rates ($US3,200) in the whole of Asia.
However, between 2003 and 2007, GDP grew by over 50% in
terms of its local currency and in 2007 real GDP grew at over
7% (although in 2008 GDP dropped to 4% as a result of the
financial crisis), making it one of the worlds fastest growing
economies. This has largely been driven by strong domestic
demand, economic reform, relative political stability, and the
successful exports of services (e.g. telecommunications,
business outsourcing), labour, and manufactured goods and
resources.
Whilst the general macroeconomic outlook has improved
dramatically over recent years, with economic growth
averaging 5% since Gloria Macapagal-Arroyo became
President in 2001, the Philippines needs to continue its
economic reform agenda to ensure its long term fiscal
stability and catch up to other South East (SE) Asian
economies. Continual reform and growth will be pivotal to
alleviating poverty rates, which are currently growing due to
the increasing population and unequal distribution of wealth.

The major industries contributing to the Philippines economy

include Manufacturing (50%), Agriculture (15%), Overseas
Workers remittances (15%) and Services (10%). The Agrifood
sector employs over one-third of the population, and in 2007
accounted for 14% of its GDP. The landscape is dominated
by expansive estates that date back to colonisation, however
a national land re-distribution program, which began in
1998, is currently underway transferring land ownership to
local residents. The Philippines remains a net importer of
agrifood products with a trade deficit of $US 1.54 billion in
2007. Wheat replaced rice as the most imported commodity
followed by dairy ingredients in 2006, which are primarily
used in the large processing sector.
The Philippines food processing sector is the most dominant
manufacturing sector in the country. It accounts for 40%
of total manufacturing output, contributes 20% of GDP per
annum and is growing at 8%-10% per annum. The sector
comprises of fruits and vegetables, meat and poultry, flour
and bakery, dairy products, fish and marine, beverages,
confectioneries, food condiments and seasonings, food
supplements, bottled water, snack foods, fats and oils. This
sector is heavily reliant on both domestically produced and
imported agrifood products.

Overall Trade Relationship with Victoria and Australia

5
Recent economic liberalisation by the Philippines Government
has resulted in a trading system thats relatively open and
has some of the lowest applied tariffs in the region. The
Philippines is a member of the World Trade Organisation
(WTO) and Association South East Asian Nations (ASEAN)
and as such are party to the Australian ASEAN - New
Zealand (AANZFTA), signed in February 2009 (see below
for further detail). Tariff rates for most consumer-oriented
products range from 3%-15% and are undergoing unilateral
reduction. However industries considered sensitive such
as poultry, pork, potatoes and coffee are exempt and have
minimum access volumes and significantly higher tariff rates
applied to them.
Australia maintains a good bilateral trade and economic
relationship with the Philippines. Two-way merchandise
trade was valued at $2 billion in 2007-08, 13% higher than
in 2006-07 and both governments consider there to be
significant potential for growth. Major Australian merchandise

exports to the Philippines (2007-08) include; crude petroleum

- $195 million, copper ores and concentrates - $159 million,
medicaments (including veterinary) - $110 million and milk
and cream - $106 million. Major Australian merchandise
imports from the Philippines (2007-08) include; crude
petroleum - $228 million, copper - $44 million, electronic
machinery and parts, other $37 million, telecommunications
equipment - $35 million. Total trade in services between
Australia and the Philippines in 2007 comprised $266 million
in exports and $306 million in imports.
The Australian Trade Commission (Austrade) has an office in
the Philippines located in Manila with a focus on promoting
exports of Australian food and beverage and agribusiness
products and services. The Victorian Government
(Department of Primary Industries) is undertaking a Market
Driven Responses Project with a focus on new and emerging
markets and accordingly a Market Development Manager with
responsibility for South East Asia including the Philippines.

Image courtesy of Meat and Livestock Australia

Victorian & Australian Food Exports to the Philippines

6
The Philippines has been, and to a large extent still is, an
importer of agricultural commodities that are predominantly
used as raw materials in its large food manufacturing sector.
Australian exports to the Philippines reflect this trend with
dairy, meat and cereal ingredients forming the majority of
total agricultural trade (Figure 2).
The Philippines is Victorias 13th most valuable agrifood
export market valued at $175 million in 2008, increasing
by 45% from 2007 (due largely to record commodity prices
during 2008). However total value has decreased by $42
million since 2004, largely driven by a decrease in dairy
exports due to price sensitivity and increased competition.
Despite this is also a reflection of the inherent volatility of
trade with Philippines which is a very price sensitive market
and often viewed by exporters as a spot market as opposed
to a consistent long term export market. Dairy still remains
the major export industry from Victoria valued at $130 million,
followed by red meat (mainly beef) $16 million and cereals
valued at $13 million (Figure 3).
Australian food products are held in high regard in the
Philippines food manufacturing, retail and service sectors.
They are perceived as being of very high quality and safe,
but expensive. The Philippines is a particularly price sensitive
market, and as such Australia faces fierce competition from
a number of agricultural commodity and food exporters from
around the world.
The United States of America (USA) is the major exporter of
agrifood commodities such as wheat, soy, dairy, meat and
fruit as well a wide range of further value added food products
into the Philippines. The US has a long standing relationship
with the Philippines due largely to their association during
war time efforts spanning back to 1898. The Philippines
also imports similar products, but to a lesser extent, from
New Zealand (NZ), Canada and the European Union (EU).
However due to the significant price sensitivity of Filipinos,
countries such as China and other ASEAN nations are also
very prominent exporters to the Phillipines, trading in large
volumes of low price products such as fruit (particularly from
China), vegetables, processed foods and dry goods.
Due to the diversity and size of the Filipino market, there
are segments for the lowest value products (e.g. beef offal)
through to high value products (e.g. primary beef cuts) and
Australian exports compete in all of these segments. In
general agrifood commodities (e.g. wheat, dairy ingredients)
compete in low value and high value segments in the food
processing sector with all of the countries mentioned above
(in addition to others). Conversely, Australian exports of
further value added food products (eg. cheese, portion
controlled lamb), generally targeted at higher value modern
retailing and food service markets, compete with imported
products from the US, Canada, NZ and the EU.

$AU million
140
120
100
80
60
40
20
0
2004
Powdered milk
and cream
Milled products

2005

2006

2007

2008

Malt

Beef

Cheese

Wheat

Live animals

Confectionery

Figure 2: Trends in export of selected food commodities

from Australia to the Philippines
Source: GTIS (2008)

$AU million
140
120
100
80
60
40
20
0
2004
Powdered milk
and cream
Whey products

2005

2006

2007

Cheese

Wheat

Butter

Ingredients

2008
Beef

Figure 3: Trends in export of selected food commodities

from Victoria to the Philippines
Source: GTIS (2008)

Food Consumption Trends

7
Traditional food retail and service formats, particularly wet
and dry markets and local sari-sari stores are the most
commonly frequented by Filipino consumers. Modern retailing
and food service is very much in its infancy, but transforming
quickly. These factors coupled with the large and growing
divide between the rich and poor result in very contrasting
food consumption trends in the Philippines. In general, locally
produced and/or manufactured products and low-medium
priced imported products are consumed via traditional
markets. Medium-high priced imported products are
predominantly found in foreign owned supermarkets and five
star hotel restaurants in major urban centres such as Manila.
The majority of food consumed in the Philippines is
manufactured by local companies, 11,000 in total (such
as San Miguel and RFM Corporation), that produce food
across all major food sectors, such as noodles, processed
meat products (poultry, pork beef), processed fruit and
vegetable products, dairy products and snack foods. These
manufactured foods combined with fresh fruit, vegetables,
meat and rice form the staple diet for low-middle class
Filipinos, who are the dominant consumer segment in the
Philippines.
However, middle-high income earners are demanding
non-traditional and imported ready-to-eat foods and in
turn are driving modernisation of the Filipino food retailing
sector. The modern retail sector is undergoing significant
transformation with supermarkets, hypermarkets and
convenience stores developing rapidly, along with the quality
of product offered. The majority of retailers are local (laws
prohibiting international retailers operating in the Philippines
were only removed in 2000) and include SM Supermarkets/
Hypermarkets, Robinsons, Rustans, Makro and Pricesmart.
Modern retailing is a relatively new concept in the Philippines
and as such is primarily located in major urban centres
alongside its customers.
Despite this, the Philippines is widely regarded as one of
Asias most attractive retail growth markets. Continued
economic growth combined with a deregulated and
highly fragmented market, along with interest from major
international retailers such as Wal-Mart, Casino, Carrefour
and Tesco, will accelerate growth and opportunities in this
sector to satisfy the growing consumer demand for retail
ready food products in the medium-long term.
Filipinos spend approximately 12% of total income eating
out and the sector is valued at $US3 billion, with growth of
10%-15% in the last decade. Traditional food service formats
still enjoy a majority market share in the Philippines, but the
modern food service market, driven by convenience and
price and dominated by fast food restaurants/chains such as
Jolibee, McDonalds and ChowKing, is increasing its presence
with speed. High end restaurants and hotels are found in
metropolitan Manila and service wealthy local and expatriate
consumers. Both of these segments are heavily reliant upon
imported foods.

Distribution Channels

8
The food sector in the Philippines is extremely fragmented
due to the excessive numbers of food retail and service
outlets; the convoluted supply chains; under-developed
warehousing, distribution, cool chain and transport
infrastructure; and the archipelagic nature of the country.
These factors lead to inefficient and costly distribution,
particularly outside of Manila.
In general, imported food from Australia enters the
Philippines in Manila, either at the Manila seaport (frozen
and shelf stable products) or the Ninoy Aquino International
airport (fresh short shelf-life products). However, there are
many other entry points into the Philippines including Cebu,
Iloilo, Davao, Cagayan de Oro, and Zamboanga seaports and
Diosdado Macapagal, Mactan-Cebu, and Francisco Bangoy
international airports.
Once in the Philippines the main mode of freight is via road
transport and roll-on, roll-off inter-island ferry shipping. Rail
freight is poorly developed and air freight is generally too

expensive. Maintaining cool chain distribution is a significant

issue and often leads to excessive spoilage, particularly for
inter-island distribution.
Distribution channels in the Philippines food processing, retail
and food service sectors resemble the disjointed nature of
the food sector. Figure 4 below depicts the flow of imported
goods into the Philippines. As is illustrated, there are a
number of members in the supply chain with very limited
product going direct to retail or food service. Most imported
food moves into the food processing sector before making
its way into the various food retail/service outlets. Likewise
imported ready-to-eat foods are typically imported by an
import/distribution company before further distribution. It is
rare for retailers, including modern retailers, to import directly.
Although, in the medium-long term, direct importation is
expected to increase particularly as global retailers enhance
their presence in the Philippines.

Australian
supplier

Australian
consolidator

Filipino
trader

Filipino
food importer
Filipino
food processor

Filipino
major retailer

Filipino
wholesalers/
distributors

Filipino
small retail

Filipino
wet market
Figure 4: Typical Filipino Food Distribution Channels for Imported Australian Agrifood

Source: DPI, 2009

Market Access

9
The Philippines Department of Agriculture and Bureau of
Agriculture and Fisheries (animal and horticultural products)
and the Department of Health and Bureau of Food and
Drugs (processed foods) are the main agencies tasked with
developing, regulating and enforcing food safety standards for
all imported foods. Food products must be registered with the
relevant agency, which can only be done by a Filipino entity
and typically takes three months. Accordingly a reputable
importing company that best suits a Victorian companys
exporting needs is essential in the Philippines and crucial for
market access and market success.
All imported foods and agricultural products are required to
comply with the Philippines food health and phytosanitary
laws. Similarly packaging, labelling and other specific
standard must be adhered to (for more detailed information
refer to references packaging and labelling).
AANZFTA provides for the progressive reduction or, for
most products, elimination of tariffs facing Australian goods
exported to ASEAN countries, over a transition period. The
following list is a summary of key sectoral outcomes for the
Philippines (for more detailed information refer to references,
tariffs to ASEAN countries):
Meat and livestock: existing liberal access for live bovine
animals will be guaranteed through tariffs bound at 0% or
phased to 0% or 2.5%. Tariffs on most meat tariff lines are
bound at 0% on entry-into-force (EIF) or phased to 0%,
although some lines are subject to tariff reductions only, and
a few lines are excluded from tariff commitments in some
countries.
Fish: tariffs on the vast majority of tariff lines are bound at
0% or phased to 0%, with tariffs on remaining lines mainly
reduced to 5% or less.
Dairy products: tariffs on all tariff lines are bound at 0%
on EIF or phased to 0%, except two lines that will be phased
to 5%.
Grains: for most products tariffs are bound at 0% on EIF or
phased to 0%. Rice is excluded from tariff commitments.
Fruit and nuts: tariffs on most products phased to 0%
Vegetables: Tariffs on most products phased to 0%, but
there will only be modest reductions on some products with
high tariffs, including potatoes, celery, carrots, cauliflowers,
broccoli and lettuce.
Fruit and vegetable juices: prepared and processed fruit
and vegetables: tariffs on all products are bound at 0% on
EIF or phased to 0%.

Opportunities for the Victorian Food Industry

10
Even though the Philippines presents a number of challenges
including its high price sensitivity, it also presents significant
opportunities for Victorian agrifood exporters in the short,
medium and long term. Due to the level of economic
development, population growth and importance of the food
manufacturing sector in the Philippines, export of agrifood
commodities such as dairy ingredients, wheat and meat
products pose as very good long term prospects. Higher
priced value-added products such as ready-to-eat retail
products and fresh produce will increasingly develop into
substantial opportunities, more so in the medium to long term
and this will be driven by growing consumer demand and
modernisation of the retail, and to a lesser extent, the food
service sectors.

Dairy
Dairy ingredients represent the bulk of the value and volume
of Victorias food exports to the Philippines. Milk powders,
cheddar, whey and butter amongst others will remain long
term growth opportunities, which will also be aided by the
lack of development in the Filipino dairy industry. Filipinos are
the largest per capita consumer of dairy products in Asia and
with increases in household incomes there is large scope to
further increase demand for value-added products such as,
cheeses, yoghurts and desserts as per capita consumption is
still well below that of western countries.

Grains
Grains, particularly wheat, are a major imported commodity
into the Philippines. Whilst not truly reflected in the export
figures due to confidentiality agreements, a large volume of
Australian wheat is imported for the manufacture of noodles
and flour for other bakery products. There is a very large
wheat milling industry in the Philippines which relies solely
on imported products. The short to long term opportunities
for wheat exports to the Philippines are very good and this
market offers good opportunities for Victorian and Australian
wheat exporters in the new deregulated wheat market.

Meat
The Philippines is self sufficent in pork and poultry and is a
strong exporter of these products. However, the opportunities
for red meat, particularly beef, are good. Manufacturing grade
beef, offals and trim for processing into products for fast food
chains and retail meat products offer very good short to long
term opportunities. Primary and secondary cuts of meat are
currently supplying niche high-end food service and retail
outlets. However over the medium to long term the demand
for higher quality beef and lamb products can be expected to
grow with the enhanced modern retail offer and growing highend food service sector.

Prepared Foods (Ingredients)

Specialised ingredients such as manufacturing grade herbs
and spices, fats and oils and confectionaries are vital inputs
to the Filipino food manufacturing sector. Imported directly
by manufacturers, or more commonly by traders, these
products tend to be more niche in nature but offer Victorian
food exporters (with the capability to be flexible) good
opportunities in the short to long term to supply into the
Philippines food manufacturing sector.

Horticulture (Fruit)
Technically the only Australian fruit with access into the
Philippines is processed fruit and due to the domestic and
import competition very little Australian product is exported
into the market. However, there is a considerable volume
of table grapes and citrus (no tropical fruits) from Australia
that enters the Philippines via a grey channel that is widely
recognised in the market. Discussions are taking place
government to government and in the event market access
is granted for fruit product, significant opportunity exists for
Victorian exporters of table grapes, citrus and to a lesser
extent stone fruit. Fruit is a very large part of the Filipino diet,
particularly for special occasions.

Conclusion

11
The Philippines is currently a good market for Victorian
agrifood exporters with the potential for growth in the
medium to long term. This potential will be achieved if the
fundamentals driving demand can outweigh the challenges
that the Philippines faces. The drivers of demand have
been the strong consistent economic growth (current global
financial crisis aside), continual economic and trade reform
(e.g. AANZFTA), political stability, strong domestic demand,
young population, the growing appetite for non-traditional
foods and a very strong food manufacturing sector. The
challenges include the maintenance of economic and political
stability, continual economic growth to alleviate poverty, poor
transport and cool chain infrastructure and corruption.
Currently major opportunities exist for agrifood commodities
such as dairy ingredients, wheat and meat. It is anticipated
that, for the foreseeable future, this demand will continue and
potentially, experience growth.
Filipinos have a growing demand for western style food
products and with sizeable exposure to multinational fast food
chains, high-end dining (for those who can afford it) and the
increasing presence of modern retailing and international
retailers, the demand for value added ready-to-eat and high
value fresh food products will develop.

Reference List

12

Australian Department of Foreign Affairs and Trade (DFAT):

http://www.dfat.gov.au/geo/philippines/philippines_brief.
html
http://www.dfat.gov.au/trade/fta/asean/aanzfta/
http://www.dfat.gov.au/trade/fta/asean/aanzfta/factsheets/
index.html

Department of Primary Industries Victoria (DPI); Food

and Fibre Report 2008, www.dpi.vic.gov.au

Euromonitor International; Philippines Country Fact File:

www.euromonitor.com

Google: http://images.google.com.au/

Planet Retail; Grocery retailing in the Philippines:

www.planetretail.net/markets

United States Central Intelligence Agency (CIA):

https://www.cia.gov/library/publications/the-worldfactbook/

United States Department of Agriculture (USDA); GAIN

Reports RP8049, RP8015, RP8041, RP7064, RP8043:
http://www.fas.usda.gov/scriptsw/attacherep/default.asp

Packaging and labelling

Bureau of Animal Industry (Department of Agriculture):

http://bai.da.gov.ph/baimainframe.html

Bureau of Plant Industry (Department of Agriculture):

http://bpi.da.gov.ph/services.html

Bureau of Food and Drugs (Department of Health):

http://www.bfad.gov.ph

Bureau of Agriculture & Fisheries Product Standards

(Department of Agriculture):
http://www.bafps.da.gov.ph

Tariffs to ASEAN countries

Department of Foreign Affairs and Trade:

http://www.dfat.gov.au/trade/fta/asean/aanzfta/

Department of Foreign Affairs and Trade:

http://www.dfat.gov.au/trade/fta/asean/aanzfta/factsheets/
index.html