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 Required Report - Public distribution
GAIN Report Number:
PhilippinesFood Processing Ingredients SectorFood Processing Ingredients Sector2008
Approved by:
Dennis Voboril, ATO DirectorU.S. Embassy
Prepared by:
Patrick Quianzon, Marketing Specialist
Report Highlights:
Food manufacturing - including food and beverage processing - remainsthe Philippines' most dominant primary industry accounting for 40.1 percent of total outputin manufacturing. The industry represents a gross added value of more than $2.0 billion andgrew by 3.2 percent in 2007. Domestic processors continue to face numerous challenges,including high energy cost, increased competition due to trade liberalization, and lack of post-harvest facilities, and inadequate farm to market transportation infrastructure. With theincreasing awareness by consumers on healthy eating and a healthy lifestyle, foodprocessing companies continue to develop or add new products that cater to the demand of this growing segment. In an effort to improve the efficiency of the sector, food processinghas been identified by the Philippine government as a priority sector for attracting foreigninvestment under the Philippine Export Zone Authority.
Includes PSD Changes: NoIncludes Trade Matrix: NoAnnual ReportManila ATO [RP2][RP]
USDA Foreign Agricultural Service
GAIN Report
Global Agriculture Information Network
Template Version 2.09
GAIN Report - RP8041 Page 2 of 15UNCLASSIFIED USDA Foreign Agricultural ServiceMarket Summary
Philippine Food Processing Industry OverviewFood manufacturing - including food and beverage processing - remains the Philippines' mostdominant primary industry accounting for 40.1 percent of total output in manufacturing. Theindustry represents a gross added value of more than $2.0 billion and grew by 3.2 percent in2007. The Philippine Bureau of Food and Drugs’ Statistical Report of Establishments for 2004lists a total number of 11,601 food processing establishments nationwide. Most of thecompanies are owned by a single proprietor that is common among micro, cottage and smallindustries. There are a few large multi-product firms, some of which operate in partnershipor as a subsidiary of foreign or multinational companies. Unlike some other countries in theregions where multinationals dominate food sales, local companies such as San Miguel, RFMCorporation, Universal Robina Corporation and a few others dominate some sectors of themarket or compete equally with foreign players.The food processing industry is comprised of the following major sectors: fruits andvegetables; fish and marine products; meat and poultry products; flour and bakery products;beverage and confectionery; dairy foods; food condiments and seasonings; foodsupplements; bottled water; snack foods, and fats and oils. Local food processors are facedwith numerous challenges in order to maintain market share - or when introducing a newproduct - now that a wide variety of imported processed foods readily enter the market dueto increased trade liberalization.The industry contributes approximately 20 percent of GDP per annum. Domestic processorscontinue to face numerous challenges, including one of the highest energy costs in Asia; theneed for improvements and innovations in technology and packaging in order to becomemore globally competitive; insufficient post-harvest and storage facilities; and inadequatefarm-to-market transportation infrastructure. There has been considerable improvement,particularly for the bigger companies whose financial capabilities are able to supportexpensive capital outlays. Some companies have qualified and are ISO certified. However,there are still a significant percentage of SME processors, especially in provincial areas.Food and beverage imports per the Philippine National Statistics Office totaled $4.7 billion in2007 from all sources and an estimated 60 percent of these are raw materials or ingredientsused in food processing. Wheat, dairy products, processed potato products, and meat andpoultry for further processing beef topped the list of imported raw ingredients.The United States has remained the top exporter in total value per country in 2007 at $770million, followed by Vietnam ($507 million), Thailand ($356 million), New Zealand ($320million), China ($290 million) and Argentina ($282 million). As a group, combined exports of ASEAN reached $1.36 billion. Wheat, dairy, dried peas, potato products and meat/fishextracts are the top food exports from the United States. (Note: Trade data cited abovefrom the World Trade Atlas. U.S. Census data indicates U.S. food and agricultural exports tothe Philippines in 2007 at a record $1.1 billion.)
GAIN Report - RP8041 Page 3 of 15UNCLASSIFIED USDA Foreign Agricultural ServiceAdvantages and Challenges for US exportersAdvantages Challenges
U.S. ingredients are highly regarded for quality andproduct consistency.Competition and cheaper prices from otherexporting countries.A young population heavily influenced by Westernhabits and culture through local media. Plusincreased demand for convenience.Limited disposable income and availablecheaper alternatives in a very price sensitivemarket.Proliferation of malls and accompanying expansionin the retail and dine out establishments especiallyon American franchises that require Americaningredients.Available supply from regional facilities licensingAmerican brands and an abundant domesticsupply especially on fresh vegetables, poultryand seafood products.Market is far from saturated with plenty of room forgrowth in the regional areas of the Philippines witha growing middle class market.Deficient distribution and cold chain systems inplace.Global tightening of supply and a strong localcurrency plus an increasing dependence onimported ingredients.High prices, increasing cost of production andcompetition for supply from other foreignsuppliers.The Philippines is strategically located to serve as aregional hub for food processing and is emerging asthe “new entry point to Asia”, especially as theregional free trade agreements take effect.Foreign investment often faces bureaucraticred-tape.
Road Map for Market Entry
A. Entry StrategyNew—to-market exporters should consider the following when planning to enter the market:
Filipino businessmen value interpersonal relationships and U.S. exporters should workto develop and maintain close contact and if able, make regular visits to their client
While there is an increasing trend to import directly, especially by the large multi-products companies, a majority still rely on traders or agents.
Competitive pricing as compared to other imported suppliers. While Americanproducts are usually highly regarded for their high quality and product consistency -which is a competitive advantage – end-users are highly price sensitive thatprocessors may switch to other suppliers if they think the market cannot accept priceincreases at this time.
Willingness to adapt to changes in the market requirements such as adjustments informulations, package sizes and design as dictated by the changing consumer trends.
Willingness to work with one or several importers. Exclusive distributorshipagreements are difficult to enforce in the Philippines while parallel imports arecommon.

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