INTRODUCTION

Background of the Industry

The Philippine coffee industry is one of the countrys major pillars in terms of
foreign exchange earnings in the 1880s. However, its glory days only lasted
until 1889 when coffee rust hits the countrys shores decimated the
production to only 1/6th of its original amount. Globally, Coffee is the second
largest in terms of value and traded commodity just next to oil. It is also the
most valuable and widely traded tropical agricultural product in the world.
Neighboring countries Indonesia (4th) and Vietnam (2nd) are the major
producers in the ASEAN region in terms of production. The Philippines, being
one of the top four country coffee producers before is now only placing 24 th in
the world. One can blame this current status to production-related problems,
the lack of support from the government, urbanization and other factors
including fluctuating world prices.
The government and the private sector are both making efforts to increase
local coffee production, in order to reduce the reliance on imports. However,
local production cannot still suffice the Philippines demand for coffee. Thus,
the country is importing its remaining coffee requirements from Vietnam,
Indonesia and other Asian countries.
Interestingly, there is a growing local demand for Coffee as there is an
increasing acceptance towards coffee culture among young individuals in the
country. There is also proliferation of Coffee establishments resulting from
the rising middle class and BPO industries. In addition, the developing Health
and wellness trend that encourages the coffee industry to produce other
coffee products like organic and decaffeinated coffee variants.
It was also seen that there might be more marketing activities that will
highlight the benefits of coffee, as manufacturers attempt to counter any
negative perception about the drink. Nevertheless, unless the weaknesses

and threats in the coffee industry are faced, the country can never achieve
long-term sustainability and viability of the industry.
In a highly liberalized global environment, innovation and creativity in the
countrys coffee industry are needed for survival and revival. In order for the
Philippines to be globally and locally competitive, the country must exert all
efforts to increase coffee productivity and quality, lower the cost of
processing coffee beans and other coffee products, and develop downstream
high-value products through increased investments in research, technical
assistance, expansion, rehabilitation and rejuvenation of coffee farms,
millers, and roasters, and through marketing and promotions of coffee for
domestic and export markets.

KEY INDUSTRY STATISTICS & SUPPLY-DEMAND ANALYSIS

World Coffee production
Coffee production is dispersed across many countries but only four of them
produce the 60 per cent of the worlds coffee Brazil, Vietnam, Colombia and
Indonesia.

Brazil has long been by far the

worlds largest coffee producer
which accounts for about 34
percent

of

the

world

production, growing an average

of

2.5

million

during

tons

2007-11.

followed

by

year

This

is

Vietnam

who

averages 1.1 million tons per

year accounting for 14 percent
of the world coffee production,
Colombia
(560,000),

with

Indonesia

percent
(7%)

(560,000), Ethiopia (400,000), India (280,000), Mexico (270,000), Guatemala

(230,000), Honduras (230,000), Peru (219,000), and Uganda (190,000) as
shown in Appendix 1.

Table 1. World Coffee Production (2003-2013)

160.00
140.00
120.00
100.00
Millions of Bags

80.00
60.00
40.00
20.00
0.00

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Source: Foreign Agricultural Services/USDA

Production of coffee can take place without replanting from year-to-year
being it a perennial crop. Unlike short-term crops whose planting can be
planned in such a way that acreage is reduced in times of excesses and
expanded in time of shortfall, coffee production cannot be programmed in a

similar fashion. Coffee Arabica which constitutes 65% of the world production
takes 6-7 years to fully mature and attain its full potential yield, that is, if the
right growing condition is present.
Coffee is predominantly a smallholders crop grown by millions of resourcelimited farmers averaging 10 hectares land holding, mostly in developing
countries in the tropics according to the Fairtrade Foundation.
During the last ten years (2003-2013), the World Coffee production has
grown to 150.7 M bags in 2013 from 126.9 M of bags in 2003 a 15.80 %
increase. Although growth is seen in 2013, this is below the forecasted
volume for the year by 600 thousand bags. Coffee just like other commercial
crops has also historically been subject to both supply and price volatility,
mostly due to production being disrupted by adverse weather such as frost
or drought.
The

World

Coffee

production is circling the

equator

known

as

the

Coffee Belt. This is an

area

where

coffee

producing countries are

located.

Coffee

is

produced in more than 70

developing

countries,

while only 45 countries are responsible for over 97 per cent of world output.
The map shows the distribution of coffee growing areas across the tropics,
with the Latin America being the biggest with 60%, followed by Asias 25.5
%, and Africa with 12.6%.
In 2011, world Coffee exports increased by 7 per cent to a record high of 6.2
million tons, with a value of $23.5 billion up from 5.8 million tons in 2010,
worth $16.7 billion. Brazil led with 2 million tons amounting to 31%, followed

by

Vietnam

Colombia
Indonesia

(17%)

(9%)
(6%)

(1

million),

(464,000)

and

(376,000)

World Coffee Consumption

Global coffee consumption has grown 28% or 6.3 M Tons to 8.1 M tons of
coffee during the last decade. Consumption steadily grew by around 2.5% a

year brought about by the 12 per cent increase demand in traditional

markets such as Western Europe, Japan and the US; 57 per cent in exporting
countries and by 46 per cent in emerging markets such as Eastern Europe
and Asia (Table).

World Coffee Demand

Coffee is one of the worlds most popular beverages. Gross imports of all
types of coffee have quadrupled from 33 million bags in 1949 to 132 million
bags in 2010. However, statistics on gross imports are a poor indicator of
demand as they ignore re-exports (ITC, 2011). In 2010 re-exports accounted
for some 38.9 million bags, although in the past they were not as important
as they are today. Net imports reflect what is consumed in the country of
importation plus any surplus that goes into inventories. A more accurate
indicator of consumption is provided by Statistics on disappearance, which
takes into account re-exports and changes in the level of stocks held in
importing countries. Table 2.1 shows world gross imports, net imports,
disappearance and inventories by form of coffee over the period 20052010.

Philippine Coffee Industry

Industry Highlights
The Philippines is relatively small coffee producer with output less than one
percent of Global production. Coffee production in the last 12 years (20002012) has decline by 17.61 percent due to some shifts from coffee farming to
other high value crops like rubber and bananas in Mindanao. The country is
also a net coffee importer, importing 1.7 M bags in 2012. Production still
remains at over half of the total supply due to limited domestic production.
Soluble coffee imports which consist of 80% of total imports rose
tremendously during the last three years and is seen to increase due to the
strong domestic consumption.
Philippine Coffee Overview
Coffee thrives in the areas that have relatively stable climate with ample
rainfall. The Philippines is one of the few countries who can produce four (4)
commercial-viable coffee varieties due to its favorable climatic and soil
conditions from the lowlands to mountain regions. The commodity has a rich
history in the country. The first seedling was first brought to the Philippines
by a Franciscan monk in Lipa, Batangas the year 1740 and grew into a
thriving industry and became the fourth top world producer following the
opening of the Suez Canal (PhilCoffeeBoard, 2012). However, at the end of
the nineteenth century coffee rust disease decimated the production to just
1/6th of its original amount.

The country is already left by its neighbors

Vietnam and Indonesia, and has been only producing less than 1 percent of
the world production.

EXCELS A; 6% LIBERICA; 1%
ARABICA; 21%

Philippine Volume
of production
Coffee
Year
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Producti
on (MT)
107,557
112,271
107,080
106,388
102,865
105,847
104,093
97,877
97,428
96,433
94,536
88,526
88,943

ROBUS TA; 72%

There are several

varieties of coffee (Scientific Name: Coffea sp. L.) grown
in the Philippines. The most common are Arabica,
Robusta, Excelsa and Liberica, large portion of the
production coming from the region of SOCKSARSKGEN
and Davao Region. Much of the coffee produced in the
country is Robusta (71%), followed by Arabica also
known as Kapeng tagalog (7%), Excelsa (6%), and
Liberica or Kapeng Barako (.65%)

Production
Philippines produce many coffee varieties but production is focused on four
(4) commercial viable coffees Robusta, Arabica, Liberica, and Excelsa.
During the last 12 years, there is continuous downfall of Philippine coffee
production. From years 2000-2012, production has dropped from 107,557 MT
to 88,943 MT per annum. This is equal to 17.30% decrease in the last 12
years or - 1.44% per year. The largest drop-off in production is very apparent
in Davao region showing a 46% decrease in the last 12 years particularly in
the province of Compostella Valley where farmers are shifting to Banana
farming. However, in 2012 production bounced back by almost 400 tons, as
planted coffees in 2008 starts to bear beans. This is under the self-sufficiency
plan of the Philippine Coffee Board (PCB) which aims in making the country

self-sufficient by 2015 through establishing plantations in Mindanao,

rehabilitation of existing coffee farms and rejuvenating old trees.
SOCCSARSKGEN is the only region where production is increasing despite the
countrys downward production trend in Coffee. It is also the largest producer
of higher quality and priced Arabica coffee in the country comprising 62.65%
of the total Arabica production, with Sultan Kudarat province as the biggest
contributor.

Table 2. PHILIPPINE COFFEE PRODUCTION

120,000
100,000

88,943

80,000
volume MT

60,000
40,000
20,000
0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

As of 2012 the largest coffee producer is SOCCSARSKGEN, producing 31.11%

of the total production followed by the Davao region producing with 21.31%.
The latter was also the biggest producer of coffee in 2000. The smallest
producer aside from the NCR with no production, are MIMAROPA, Ilocos
Region, Bicol Region, Eastern, and Western Visayas with a combined
production of only 1.17% of the total production in 2012.
COFFEE TOP PRODUCING REGION, PHILIPPINE 2012
Rank
Region
Volume (MT)
% Share
1 SOCCSKSARGEN
27,869
31%
2 DAVAO REGION
18,950
21%
3 ARMM
10,629
12%

4
5
6
7
8
9
10
11
12
13
14
15
16
17
Robusta

CALABARZON
WESTERN VISAYAS
CAR
NORTHERN MINDANAO
CARAGA
CENTRAL LUZON
ZAMBOANGA PENINSULA
CAGAYAN VALLEY
BICOL REGION
CENTRAL VISAYAS
MIMAROPA
EASTERN VISAYAS
ILOCOS REGION
NCR

8,568
5,695
5,673
5,225
1,787
1,699
993
813
331
239
194
193
86
0

10%
6%
6%
6%
2%
2%
1%
1%
0%
0%
0%
0%
0%
0

COFFEE ROBUSTA PRODUCTION

90,000
80,000
70,000
60,000
50,000
volume MT 40,000
30,000
20,000
10,000
0

63,825

Robusta coffee production

has been decreasing in the last 12 years. In year 2000 production reached
73,380 MT, 12 years later, the country only produces 63,825 MT. The
production just peaked in 2001 following the increase of world prices. A year
after, production became sluggish as growth per year is only 1.70 %.
SOCCSARSKGEN is the largest producer of the Robusta coffee followed by the
Davao region in the same year. Combined they make up 46% of the total
production.
Arabica

COFFEE ARABICA PRODUCTION

21,500
21,000
20,500
20,000
19,500
volume MT 19,000

18,783

18,500
18,000
17,500

Production of Arabica remains torpid in the past 12 years, producing just

18,783 MT of coffee in 2012 from 20,928 MT in year 2000. The largest
producer is still SOCCSARSKGEN producing 62.25% of the total production.
About 86% of it is from Sultan Kudarat province contributing 10,196 MT the
same year. This is followed by the Davao region with only 2,691 MT and
ARMM with 1,682 MT.

Liberica & Excelsa

COFFEE EXCELSA PRODUCTION COFFEE LIBERICA PRODUCTION

12,000

1,400

10,000

1,200
1,000

8,000
volume MT

6,000
4,000

800
volume MT

600
400

2,000

200

P
roduction of Liberica and Excelsa is minimal in the country and only reached
598 MT and 5,737 MT in 2012, respectively. Combined, they only constitute
about 7% of the total coffee production in the country. There is also a volume
downfall in the last 12 years. Production of Excelsa decreased as much as
4,000 MT since year 2000 with a 3.4% growth annually. Major Excelsa
producing regions are ARMM and Davao region, together producing 60% of
the total volume. Liberica production is also in a downward trend since 2000.
Annual growth is at 4%. Majority of the production are from CALABARZON,
Western Visayas, and ARMM which comprises 438 MT or 73% of the total
production in 2012.
PHILIPPINE COFFEE AREA

PHILIPPINE COFFEE PLANTED AREA (HA.)

140,000
135,000
130,000
125,000
120,000
115,000
110,000

The countrys total area devoted

to coffee decrease over the last 12 years with an average growth of 1.03%.
In 2012, total land area devoted to coffee production is 119,999 Hectares.
This is higher in comparison with the 2011 figure of 119,637 Hectares but
lower compared to the prior periods. The only expansion seen is in year 2012
due to replanting of devastated coffee farms from Typhoon Pablo in 2010.
All Regions exhibits decrease in coffee planted areas except Central Visayas
and SOCCSARSKGEN with an increase of about 190 and 360 hectares since
year 2000, respectively. The latter is also the biggest in terms of land area
devoted to coffee with a total of 25,225 hectares which is just 57 hectares
more from the second largest producer Davao region with 25,166 hectares.
Davao region dominated the top spot since 2000 and was just overtaken last
year by SOCCSARSKGEN.
Coffee Rubosta is still the largest in terms of land area committed to Coffee
farming with 90,354 hectares or 75.29% of the total coffee planted land. This
is followed by coffee Arabica, Ecelsa, and Liberica with 16%, 7%, and 1.1%,
respectively in 2012. The relatively lower quality Robusta coffee can grow in
lower altitudes and is also less susceptible to pests and diseases. Moreover,
it produces more beans than other species; hence, more favored by coffee
farmers.

Robusta

ROBUSTA AREA (HA.)

98,000
96,000
94,000
92,000
90,000
88,000
86,000

In 2012, Robusta comprises 75% of

the total land area devoted to coffee farming. This is significantly higher than
70% from 2000. However, the land area devoted to Robusta coffee
production has been decreasing by -0.6% in the last 12 years. In year 2000
the land area for Robusta is around 96,716 hectares which slowly shrink to
just about 90,354 Hectares in 2012.

REGIONAL AREA
ARMM; 11%
Others; 27%
CALABARZON; 12%
SOCCSKSARGEN; 17%
NORTHERN MINDANAO; 12%
DAVAO REGION; 21%

Largest region in terms of land

area

is

Davao

region

with

19,114

hectares

of

farm

followed

by

SOCCSARSKGEN, CALABARZON and Northern Mindanao with 15,714, 10,848

and 10,457 hectares respectively. Combined, the four regions represent
62.2% of the total area devoted to Robusta.

ARABICA AREA (HA.)

24,000
23,000
22,000
21,000
20,000
19,000
18,000
17,000

Arabica

REGIONAL ARABICA (HA.)

ARMM; 9% NORVIS; 3% OTHERS; 14%
WESVIS; 9%
SOCCSKSARGEN; 44%

DAVAO; 19%

Coffee Arabica comprises about 16% of

the total land area devoted to coffee farming. Dedicated land area for
Arabica decreased in the last 12 years. Although tastes better and has higher

quality than commercially grown coffees, growth per se is negative 1.35 %

due to its sensitivity to climate.
Total land area planted with Arabica was around 23,119 hectares in 2000 and
shrank to just only 19,369 hectares in 2012. The largest Arabica planted area
is SOCCSARSKGEN with 8,593 hectares comprising around 44 % of the total
Coffee Arabica plantation followed by the Davao region with 3,765 hectares.
Coffee Excelsa and Liberica

LIBERICA AREA (HA.)

2,500
2,000
1,500
1,000
500
0

EXCELSA AREA (HA.)

14,000
12,000
10,000
8,000
6,000
4,000
2,000
0

Excelsa and Liberica coffee represents

7% and 1.1% of the total land area committed to coffee farming. In 2012
Excelsa shrank to only 8,916 hectares from 11,460 hectares of year 2000
with a growth rate of 1.84% in the last 12 years. No region exhibits growth
except ARMM which expanded from 713 hectares in 2000 to 1,560 hectares
in 2012. The largest region in terms of land devoted to Excelsa farming is

CALABARZON with 2,406 Hectares which also comprises 27% of the total
Excelsa production. Other Excelsa producing regions are Davao and ARMM
which constitutes around 42% of the total Excelsa planted area. Liberica
coffee on the other hand, also exhibits negative 2.88 % growth in the last 12
years. From 2082 hectares in 2000, total area planted with Liberica is merely
equal to 1360 hectares in 2012. Largest producing region in terms of land
area is ARMM with 600 hectares Liberica plantation which comprises 44% of
the total Liberica land area. Other producing regions are Western Visayas,
CALABARZON and MIMAROPA which together consist 42.22% the total
production area. Both varieties have minimal production in the remaining
regions.

Productivity of Coffee trees

The countrys coffee yield has declined from 922 Kg/hectare in 2000 to only
739 Kg/hectare in 2001 - a 20% descent in productivity.

Senility and

inadequate nutrition are seen as the main cause of the productivity.

However, there are also farms that exhibited robust yield per hectare like the
Nestl Experimental and Demonstration Farm (NEDF) in Manolo Fortich
Bukidnon which produces 3.2 Tons/hectare.

Yield Per Hectare in Kilograms

1,200.00
1,000.00
800.00
600.00
400.00
200.00
0.00

Exportation, Importation, & Domestic Consumption

Broadly speaking, at the consumer level coffee can be divided into three
commercial categories.

Exemplary quality: limited availability fine to unique taste

experience.
Premium quality: moderate availability good to very good taste
experience.

Mainstream quality: very widely available acceptable taste

experience.

Precise figures neither unavailable nor is the situation static, but it is

generally accepted that between 80% and 90% of all coffee consumed
worldwide is of mainstream quality (ITC, 2011).
Trade Structure
Coffee is generally purchased from the exporting countries by international
trade houses, dealers and traders. For the mainstream quality, roasters tend
to buy their coffee from international trade houses or from specialized import
agents who represent specific exporters in producing countries.
The international trade plays a vital role in the worldwide marketing and
distribution of coffee. Coffee is generally sold FOB (free on board), but many
roasters, especially in the United States, prefer to buy on an ex-dock basis.
Small roasters often prefer to buy in small lots on a delivered in-store or exstore basis. This allows plenty of scope for the various middlemen involved in
the trade to operate and perform useful functions, although the increasing
concentration at the roasting end of the industry has led to a substantial
reduction in their number (ITC, 2011).

Philippine Coffee Consumption and Importation (1000 bags)

Calen Producti Domestic Surplus/De Exportat Importat
dar
on
Consump
ficit
ion
ion
Year
tion
1238.0
2003
917
321.07
12
682
7
1219.4
2004
1020
199.47
29
485
7
1252.9
2005
1040
212.98
34
650
8

2006
2007

1241
1168.8
1168.6
2008
3
1155.9
2009
5
1132.2
2010
2
1049.6
2011
3
1063.7
2012
5
Source: BAS, ICO,

1060
1060

181
108.8

38
32

490
525

1720

-551.37

990

1820

-664.05

1385

2125

-992.78

1550

2175

-1125.37

10

1665

2175

-1111.25

1715

& Indexmundi

There are many forms of coffee exported and imported from and to other
countries: the raw coffee beans, the roasted and ground coffee and
Soluble coffee. The soluble coffee import or instant coffee accounts 95% in
the Philippines. The remaining volume is for raw coffee beans primarily
Philippine
marketed to roasters and roasted and ground coffee
Exportation of
for specialty coffee shops.
Soluble Coffee
(Bags)
Yea
The country used to be exporter of coffees before but
r
Volume
due to the supply deficit and high domestic
200
5 33,636.00
consumption we became net importer. Exportation is
200
very minimal since 1990s with the production limited
6 35,314.00
200
to less than half of the domestic consumption. In
7 32,105.00
2012, only 3000 bag of coffee has been exported.
200
8 4,435.00
Trade data from Indexmundi show that imports of
200
9 6,646.00
coffee beans increased from 682 thousand bags in
201
2000 to 1.71 M bags in 2012. Imports are sourced
0 6,338.00
largely from neighboring Asian countries such as Vietnam, Indonesia and
Malaysia. According to the USDA Foreign Agricultural Services imports of
soluble coffee and coffee concentrates grew more than doubled from 19,293
MT in 2009 to 40,200 MT in 2012.

The import figures cannot be 100% accurate due to the reported robust
informal trade between Indonesia and the southern island of Mindanao,
where the majority of plantations are located and coffee manufacturers are
operating (USDA, 2010). The chances are whether there is a formal or
informal trade; the country still is import dependent.
Market sector
Coffee is generally considered to be a household staple even among the
lower economic classes. Soluble or instant coffee accounts for about 95% of
all the coffee consumed in the country. The country is importing an average
of 1.8M bag of coffee per year from Malaysia according to International Trade
Centre (ITC). Domestic coffee consumption is estimated to increase by 6%
per year due to a predicted increase in overall food and beverage
consumption as population and income continues to rise. The booming BPO
industry which has long and varied operating hours from the normal
Philippine workforce is also expected to contribute to the increase in coffee
consumption (USDAFAS, 2011). Although the per capita is less than 1 kg per
year, the country is still a significant importer. Surprisingly, exporting
countries like Thailand and Indonesia also import coffee from other countries
probably other grades of coffee. Without significant increases in production
and with continued growth in domestic consumption, coffee bean and soluble
coffee

imports

will

likely

remain

high

due

to

increasing

domestic

requirement.
Structure of the retail market
Retail sales of coffee (both roasted and instant) in the country are channeled
through a combination of retail shops like sari-sari stores, coffee shops,
supermarkets and hypermarkets, and wholesalers and food brokers. Sari-sari
stores accounts 70% of the total sales of consumer products including coffee
(Wikipedia.org, 2013). Filipinos frequently buy in these stores because of its
presence in almost every corner making it very convenient. Consumers can
also buy in small quantities usually in small packs.

However, Supermarkets like SM, Robinsons, Rustans, Puregold, and

7-

eleven among others today play a much larger role in the retailing of coffee
than they ever did before and supermarket own brands now account for a
sizeable proportion of retail coffee sales. It can be noted that because of the
changing shopping habits of Filipinos, sari-sari stores retail share for coffee
might be lesser and lesser in the coming years. According to the results of a
survey conducted by international market research firm Nielsen, local buying
habits for grocery items especially coffee - are also changing rapidly
because of the proliferation of supermarket chains which are growing their
branch networks to cover areas previously served only by mom and pop
convenience stores.
More importantly, Filipino shoppers now opt to shop frequently with smaller
baskets brought about by the close proximity of the supermarkets to the
homes. Whereas Filipinos used to secure their day-to-day household item
needs from neighborhood sari-sari stores, many have now begun to move to
supermarket shopping for the supply of their essential items (Nielsen as cited
by Philippine Daily Inquirer, 2013). The figure ____ shows this trend.

Source: Nielsen
Roasted coffee is sold in ground form or as whole bean and is packaged in
various types and sizes of cans and packets. Soluble coffee in other
countries are generally sold in jars, however, in the country sachets are very
popular especially 3-in-1 instant coffee - a pre-mixed coffee with sugar and
a creamer. From being packed in big packs of 500 grams and small jars of 50
grams, coffee now commonly packed in small sachets of 15 grams

representing the change in consumption behavior of Filipino market. The

market for sealable 3-1 coffee is also becoming popular. The consumption
trend is due to convenience of preparation, consistency of quality and easy
mess-free disposal of spent coffee grounds.
More recently there has been a significant shift towards single-serve filter
coffee brewing methods in the United States and Europe with the
development of new single serve filter machines as well as the single-serve
pour-over filter system, known generally as the chemex system. There is
also a strongly growing, although still small, market for ready-to-drink (RTD)
liquid coffee beverages sold in cans or bottles (ITC, 2011).
Roasters in the country have two distinct market segments:

The retail (grocery) market, where coffee is purchased largely, but

not exclusively for consumption in the home;

The institutional (catering) market, where coffee is destined for
the out-of-home market e.g. restaurants, coffee shops and bars,
hospitals, offices, and vending machines.

Each segment accepts a wide range of products, the quality and taste of
which depend largely upon the coffee growths that make up the blends, the
degree of roast, the type of grind, and so on. Most small roasters tend to
specialize in one segment, while larger and in particular multinational
roasters usually service both. The major part of the retail market is, however,
controlled by a handful of huge multinational roasters and the degree of
concentration is increasing. Although this trend was temporarily halted by
the growth in the specialty trade, it is once again accelerating with the rapid
acquisition of small specialty roasters by the multinationals.
Filipinos prefer quite obviously soluble coffee and the instant coffee of Nestle
is the favorite brand. Instant coffee represents 95% of the coffee sold in the
Philippines and is reflects 90% of the total of its coffee imports. A similar
percentage of coffee percentage of instant coffee can be found in Thailand
(95%), South Korea (95%) and Great Britain (90%). The instant coffee came

onto the country from the American soldiers at the end of the 2 nd world war
(Bethge, 2011).
In the county, a multinational roaster, Nestle Philippines with its brand
Nescafe monopolizes 85% of the countrys coffee market. Other companies
like Commonwealth Foods, General Milling Company, Universal Robina
Company or the Starbucks are only nibbling on the outer edge of the
complete coffee cake market. An Indonesian company PT Torabika Eka
Semesta is also getting strong position in the 3 in 1 instant coffee segment
with its halal certified Kopiko brand.
Coffee Shops
Coffee shops or cafs in the Philippines have been gaining popularity but for
more peaceful reasons. According to Euromonitor International, one of the
worlds leading independent providers of business market and industry
reports, specialty coffee shops outgrew other establishments like bars and
restaurants in 2007, posting a double-digit percentage increase.
This, according to Euromonitor, is partly due to the growing popularity of
coffee and its advertised health benefits, as well as the mushrooming
business process outsourcing industry which has significantly enhanced
coffee product sales. Cafs and specialty coffee shops have also become a
status symbol for younger consumers, while the working elite find these
establishments convenient places to hold casual business meetings.
Filipinos have become more discriminating coffee drinkers moving from
ready-to-drink brands to more complex and traditional varieties. And while
coffee remains to be the top product for these establishments, new drinks
like specialty teas as well as food products have also contributed to the rise
in cafs.
From big foreign brands to local and independent establishments, cafs have
become a communitys watering hole, offering more than just coffee and
food, making coffee-drinking more than just a morning ritual. And from the
looks of it, the countrys brewing caf scene has yet to be fully experienced.

The leading coffee shop in the country is Starbucks operated by the Rustans
groups of companies with 206 stores around the country. Due to its premium
signature coffee strategy and international appeal, Starbucks became more
of a status symbol among domestic consumers. Starbucks performed better
than international counterparts such as the Coffee Bean & Tea Leaf and
Gloria Jeans due to the unique experience it offers consumers. Local players
are also significant players in the specialty coffee shops market. Figaro
known for keeping up with their customers and more recently for their health
conscious market has also been a significant player with 160 stores. They are
able to be at par with other foreign coffee shop franchises and maintain their
name as one of the respected coffee shops in the Philippines. Another coffee
shop, the Bos Coffee Club is catering to the very high end coffee market that
has its services and products tailored to suit the needs of high society coffee
drinker.
According to analysts, specialist coffee shops in the Philippines are expected
to continue growing in the coming years. Specialist coffee shops grew in
terms of number of outlets, transactions and value sales. With international
coffee chains gaining popularity and other specialty coffee shops following
suit, more such outlets are likely to appear. The strong growth is mainly
attributed to excellent consumer demand, as coffee drinking has become a
very popular social activity. Coffee shops have become a status symbol for
younger consumers and Filipinos, in general, have started to be more
discriminating in their preferences for coffee. Recognizing the continued
growth potential for coffee shops, many Filipino companies and even growers
of locally produced coffee beans have opened their own businesses. The
support of the local government and agriculture sector to farmers has also
helped to rejuvenate the Philippine coffee industry.
Factors Influencing Demand
1. Income

Income is an important factor affecting the demand for coffee. In many

ways this is not there is clear evidence that consumption is highly dependent
not only on absolute income levels, but also, and probably more importantly,
on changes in real-income levels. In the Philippines, due favorable
macroeconomic condition, and booming business brought about by the
MSMEs, Tourism Industry, Construction, and BPO industries, average Filipinos
have more disposable income to spend to basic commodities like Coffee.
2. Lifestyle and diet
Coffee is traditionally recognized as an everyday beverage that is
frequently seen as a stimulant and an aid to alertness, but also seen as a
social lubricant fulfilling a very necessary function enabling people to
socialize. Lets have a coffee is a phrase often used to cover a general
request for an informal get-together. It is interesting to note that coffee is
more likely to be consumed at breakfast, lunch or dinner if these are taken
as family meals rather than eaten alone. However, as meals are becoming
less formal and structured in the Philippines, outside consumption of coffee is
growing particularly in Specialty coffee shops and stores.
3. Competing drinks
Competition from other beverages has also been an important factor
affecting the demand for coffee. In the last years the coffee consumption in
the country has been increasing due emerging trend set by American-style
coffee bars and perceived health benefits. There were also an increasing
trend in other beverage like bottled water and tea; however, this hasnt
affected the consumption for coffee.
Value addition
Downstream processing is often seen as a way of adding value to a raw
product at origin. Unfortunately, this is not as straightforward as it at first

appears if it were, there would be a far greater trade in processed coffee

products from origin than there is today.
In 2010 (calendar year) just 7.6% of all coffee exports from the country were
processed coffee. This is almost40% higher than 10 years ago, but given the
low starting point this is still fairly slow progress.
The consuming market for coffee is dominated by a few very large
companies, mainly multinationals, which sell their product by promoting their
brand name and image through large-scale advertising. Normally advertising
expenditure is equivalent to between 3% and 6% of sales revenue. Nestle
Philippines is one of the highest spender in advertising in Television usually
using Jingles.
Coffee Soluble
The Coffee Soluble includes the three processing methods. (1) Evaporation
which is necessary to reduce the liquors water content to 50%. Usually,
evaporation takes place under low vacuum and low temperature conditions.
(2) Spray-drying which requires a large cylindrical tower with a conical
base. The concentrated liquor is introduced into the top under pressure, with
a jet of hot air. The wet granules are then dried as they descend through a
second tower and are sifted to provide a uniform final granule size. And (3)
Freeze-drying consists of freezing the coffee liquor into a inch (about 6
mm) thick cake on a moving conveyor at a temperature of -45 C.
Consequently, freeze-drying is used for the finer and more expensive blends
of instant coffee (ICC, 2013).
Decaffeinated
Arabica coffee beans contain 1%1.5% caffeine, whereas Robusta contains
more than 2%. Caffeine is an alkaloid with stimulant properties that are
pleasing to the majority of coffee drinkers, but not to all. Decaffeination
caters for those who do not want the stimulant effect of caffeine. The
caffeine in the green coffee beans has to be extracted to about 97-99 %.
Different processes are used. The solvents are water, organic extraction
agents

or

carbonic

acid.

The

processing

steps

are

vaporization,

decaffeination and drying Decaffeinated coffee is seen as having to compete

with other specialty coffees and although consumers of decaffeinated coffee
tend to be very loyal to the product, caffeine no longer appears to be an
issue that most consumers are particularly concerned about. Although there
is no available data for decaffeinated coffee in the country it is estimated
that decaffeinated coffee currently accounts for around 10% of all coffee
sales, however, this is decreasing. Usually, it commands only a small
premium over non-decaffeinated coffee and frequently is sold for the same
price. Consequently the economics of the decaffeination are tight.
Roasted Coffee
The market for roasted coffee is somewhat less concentrated than that for
soluble coffee. Although market concentration in the roast and ground (RG)
sector increased significantly in urban areas particularly in greater manila
area (GMA), the development of the specialty sector has slowed the trend. It
is very noticeable that the RG is already penetrating other booming cities.
However, blends of roasted coffee from different origins remain the most
predominant roasted coffee (i.e Caf amadeo) product in the overall market
today and this makes it difficult for producers to enter the retail market on
their own. In terms of supplier, Conlins, a full service coffee company is the
leading supplier for premium roasted coffee beans. It also a distributor of
world class coffee machines like the Swiss-made Jura, German-made WMF
espresso

Machines

and

Italian-made

Wega

semi-automatic

espresso

machines.
Ready to Drink and Concentrates
Canned, ready-to-drink (RTD) coffee was originally developed by the
Ueshima Coffee Company. In 2010, it accounted for close to 20% of total
consumption in Japan, where it is sold mainly through vending machines.
RTD liquid coffee in plastic bottles and in PET packs is also very popular and
is generally sold in supermarkets. It currently accounts for just fewer than
10% of all coffee consumption in Japan. Canned coffee products are also
finding a good market in many emerging markets in Asia, particularly in

China, although the success of the product depends very much on its
availability in vending machines. In the Philippines, there is a growing coffee
vending machine business. It can be seen in almost every corner and
convenience store usually priced at 5-10 pesos/cup. How much these
developments do for coffee consumption or indeed coffee quality is
debatable the coffee content is usually not very high and the coffee taste is
often masked by flavoring (ITC, 2011). Nevertheless, it is a new and growing
niche market.
Specialty coffee
It is often neither viable nor possible to add value to green coffee by
processing at origin. Many coffees are suitable only for blending or
processing into neutral or anonymous end products, including soluble. For
such coffees it is not possible to add monetary value as prices are
determined solely by market conditions. However, reliable and consistent
grading procedures, strict compliance with contractual obligations and
regular delivery will add value in the sense that the product will be preferred
by primary buyers over those from less consistent origins. Certain growths of
coffee,

on

the

other

hand,

may

be

highly

prized

for

their

flavor

characteristics and attract a suitable premium. Examples include Jamaican

Blue Mountain, Hawaii Kona, Top Kenya AA and Guatemalan Antiguas. Some
of these growths regularly attract extremely high premiums. For example, in
the early 2000s Jamaican Blue Mountain attracted such a large premium that
the unit value of coffee exported from Jamaica was over 13 times higher than
the average of all Other milds producers and more than 16 times higher
than the average achieved by all origins. The top Kenyan grades regularly
achieve prices more than double that achieved by other growths with some
small parcels selling in early 2011 for as high as US$ 20/lb.
As mentioned earlier the country is one of the countries who can grow 4
commercial coffees. Moreover, in Asia, there are only two countries that can
produce the Coffee Liberica also known as Kapeng Barako. This species is
primarily grown in Calabarzon before; however, the main of the production is
now in the Davao and ARMM. The specialty coffee is primarily marketed to

Middle East while the other species Coffea Arabbica from Benguet high-end
market in the United States (PCCARD, 2007). There is indeed a bright coffee
for special coffee varieties for the country. Coffee drinkers around the world
have been drinking more specialty or gourmet coffee in recent years. Export
of soluble coffee to Japan is also anticipated to prosper.
Organic Coffee
Organic products have come a long way since small groups of consumers
started buying organic food directly from farms or from small health food
shops, where quality was secondary as long as the products were organic.
But then in the early 1990s supermarket chains started paying systematic
attention to organic food. Year after year they have taken over market share
from the specialized shops, to the point where they drive most of the growth
in the market share of organic food today (ITC, 2011). In the Philippines,
organic products are marketed to niche markets. However, organic producers
have difficulty in setting their prices since the market do not view organic
products as premium. Although Filipinos are slowly catching up to the organic
trend, big corporations have already introduced organic coffees such Nestle
Organic coffee. Recently, Green Bean Organic Coffee Co. (GBOCC) has just
landed in the Philippine with its signature blend called Eco Blend priced at
only P65. GBOCC only produce 100% organic coffee and does not use refined
sugar (Turistatrail, 2013).
The organic coffee is also a bright spot for the Philippine coffee industry
because of the changing market. The growing Health Considerations,
Demand for specialty coffee, and Environmental concerns are seen
continually grow and sustain this segment.
Support sector
The Philippine government has been very supportive just recently to the
once neglected industry. After watching its neighbors become global coffee
heavyweights, the Philippines is taking tentative steps towards regaining its
status as a formidable grower of the bean.

However, that era is a long way back for the Philippines, among the top five
coffee exporters in the world in the 1880s after Spanish friars brought beans
with them to their colonial outpost. The Philippine Coffee Board, an industry
group spearheading the revival attempt, knows the country cannot compete
with the likes of current regional exporting giants Indonesia and Vietnam in
volume.
So they are aiming for niche markets and targeting the fast-growing number
of young Filipinos who crowd cafes across the country of 93 million people.
The Philippines has a lot of exotic coffee that can capitalize on. Coffee board
co-chairwoman Pacita Juan said the Philippines had long had a thriving
coffee-drinking culture with a populace that favored coffee over tea, and this
was becoming stronger as society modernized. Filipinos are drinking more
coffee with the change in lifestyles. BPO industries as well as Hotels are
growing market opportunities for better coffee not just instant coffee.
Marketing and Credit Support
The PCB is promoting "Kape Isla," which loosely translates to "Island Coffee"
and is a trademark to distinguish specialty coffees grown in the Philippines. It
is also helping entrepreneurs set up small coffee shops across the country
where they can offer their own regional blends. In this way, they can
compete with the global giants such as Starbucks, whose local outlets sell
specialty coffees generally only from Africa and South America.
The gourmet coffee products that the Philippines are starting to offer include
special "premium Arabica" blends and the strong "Barako" bean that is
favored by Filipinos. Special varieties found only in isolated areas are also
being developed, as is production of "civet coffee" -- made from beans eaten
and excreted by civet cats.
This marketing and promotion on specialty coffees are done because the
country cannot surely compete in terms of volume. In contrast, other Asian
countries produce beans on large plantations with advanced processing
technology. In the country the number of coffee processing facility can be
only count by hand. Coffee farmers often complain about the lack of roasting
facilities in their area making them dependent to low prices of their raw

coffees. The PCB has already committed and hoping to regain coffee selfsufficiency in the country.
Another support activity from the government is the allotment of P5 Million
to develop the CVSU-NCRDEC to boost-up Research and Development for
coffee processing.
Moreover, Nestle provides buying stations at strategic locations in the
country and it also offers a guaranteed floor price of P45/kg of green beans.
The Land Bank of the Philippines and the Development Bank of the
Philippines offer production loan assistance to interested coffee farmers. The
government also allotted 3.1 Million pesos for the rehabilitation of coffee
farms in Compostella valley where significant decrease in production is seen.
Senator Kiko Pangilinan in 2011 has also allotted P10 Million pesos for the
Echo demo farms to be set in coffee growing regions and funding 10 for
Coffee demo farm with P 150,000 each.
Technical Support
PCB estimated that leading efforts to revitalize the local coffee sector, to be
worth P40 billion, employing about 70,000 farmers in 22 provinces (Dumlao,
2013). Technical highly trained people from the different universities and the
private sector has been made available for consultation. The PCB and the National
Competitiveness Council are working together to draft a roadmap to increase the competitiveness of the
Philippines in the coffee world, and make the Philippines a net coffee exporter again in about 10 to 15
years. The former Nicomedes P. Eleazar, the chief of bureau of agricultural research (bar) committed to
sustain the Philippine coffee industry. Dr. Ruel M. Mojia, the OIC of NCRDEC also commits to increase
the coffee production and productivity; strengthen coffee processing to improve quality; diversify by
promotion local consumption, and look beyond the traditional market, and trade relations. And

marketing had been strengthened and advanced. Furthermore, the improved

facilities also enabled them to Provide a more informed and updated
technical knowledge and support to coffee farmers, students, and other
Coffee industry stakeholders.
Meanwhile, Da, through the da-high value crops development program
(HVCP), has already crafted the coffee roadmap Allotting support to address
the decline in coffee production.
Reference:
Bedge,

W,

2011.

In

the

Nescafe

Country,

philippines.de/nescafe.htm
http://turistatrails.blogspot.com/p/about-me.html

in

http://www.insights-

Grading and Classification

Green coffee is graded and classified for export with the ultimate aim of
producing the best cup quality and thereby securing the highest price.
However, there is no universal grading and classification system each
producing country has its own, which it may also use to set (minimum)
standards for export.
According to analysts, specialist coffee shops in the Philippines are expected
to continue growing in the coming years. Specialist coffee shops grew in
terms of number of outlets, transactions and value sales. With international
coffee chains gaining popularity and other specialty coffee shops following
suit, more such outlets are likely to appear. The strong growth is mainly
attributed to excellent consumer demand, as coffee drinking has become a
very popular social activity. Coffee shops have become a status symbol for
younger consumers and Filipinos, in general, have started to be more
discriminating in their preferences for coffee.
In the Philippines, multinational chains dominate specialist coffee shops and
have experienced robust growth since the late 1990s. Popular foreign
franchised specialist coffee shops include Starbucks, Seattles Best, The
Coffee Bean & Tea Leaf, Gloria Jeans and UCC Coffee. In addition, local
coffee chains have also experienced strong growth over the past several
years. Recognizing the continued growth potential for coffee shops, many
Filipino companies and even growers of locally produced coffee beans have
opened their own businesses. The support of the local government and
agriculture sector to farmers has also helped to rejuvenate the Philippine
coffee industry.
COMPETITIVE LANDSCAPE

In 2011, Rustan Coffee Corp, the domestic operator of all Starbucks

outlets in the Philippines, led cafe/bars sales with a value share of 5%.
Some 6% of cafe/bar transactions were made at Starbucks, with the chain
benefiting from the fact that its brand name is recognised throughout the
country. Due to its premium signature coffee strategy and international
appeal, Starbucks became more of a status symbol among domestic
consumers. Starbucks performed better than international counterparts
such as the Coffee Bean & Tea Leaf and Gloria Jeans due to the unique
experience it offers consumers.

TRENDS

The government and the private sector are both making efforts to
increase local coffee production, in order to reduce the reliance on
imports. In 2012, however, local production in the Philippines still did not

meet coffee demand in the country. The country imports the rest of its
coffee requirements from Vietnam, Indonesia and other Asian countries. In
2012, the key player in the coffee industry, Nestl Philippines Inc, opened
a new coffee centre in Batangas City that will increase access to new
coffee farming techniques in a bid to increase the number of coffee
producers and production in the Philippines.
COMPETITIVE LANDSCAPE

Nestl Philippines Inc dominates coffee sales with a value share nearly
90%, due to its strong positioning and leadership in the instant coffee
sector. The companys Nescaf brand was one of the first instant coffee
brands in the country and hence was able to establish a large and loyal
consumer base through effective advertising, continuous innovation and
the good quality of its coffee products. Its programmes to help develop the
domestic coffee industry also give the company an competitive edge.

PROSPECTS

The more widespread health and wellness trend in the forecast period
will encourage various brand manufacturers to produce organic and
decaffeinated coffee variants to prevent a decline in the consumer base
and capture a greater share of health-conscious consumers. There might
be more marketing activities that will highlight the benefits of coffee, as
manufacturers attempt to counter any negative perception about the
drink. The positive economic outlook in the forecast period will benefit
both the instant and fresh coffee categories.

Source: BAS, Index Mundi, & ICO

Marketing

Domestic Coffee
Consumption (1000
bags)
Calend
Volume
ar Year
2003
1,390
2004
1,300
2005
1,310
2006
1,220
2007
1,285
2008
1,380
2009
1,690
2010
2,220

2011
2,839
2012
3,660
2013
2,600
Source: indexmundi

Problems and Constraints

Coffee and Banana area in Compostella Valley

40000
35000
30000

Hectares

25000

Banana

20000

Coffee

15000
10000
5000
0

Farmgate Price in Pesos Per Kilogram

70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00

Yield Per Hectare in Kilograms

1,200.00
1,000.00
800.00
600.00
400.00
200.00
0.00

Cost Per Kilogram in Pesos

45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00

NET PROFIT-COST RATIO

1.00
0.90
0.80
0.70
0.60
0.50
0.40
0.30
0.20
0.10
0.00