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PROCESSED FOOD INDUSTRY Food manufacturing, which includes food and beverage processing, remains the Philippines most

dominant primary industry. The industry is worth a gross added value of more than $2 billion and grew by 3.2 per cent in 2007. The Philippines Bureau of Food and Drugs Statistical Report of Establishments for 2004 lists a total number of 11601 food processing establishments nationwide. Most of the companies are owned by a single proprietor that is common among micro, cottage and small industries. There are a few large multi product firms, some of which operate in partnership or as a subsidiary of foreign or multinational companies. Unlike some other countries in the regions where multinationals dominate food sales, local companies such as San Miguel, RFM Corporation, Universal Robina Corporation and a few others dominate some sectors of the market or compete equally with foreign players. The food processing industry is comprised of the following major sectors: fruits and vegetables, fish and marine products, meat and poultry products, flour and bakery products, beverage and confectionery, dairy foods, food condiments and seasonings, food supplements, bottled water; snack foods, and fats and oils. Local food processors are faced with numerous challenges in order to maintain market share or when introducing a new product , now that a wide variety of imported processed foods readily enter the market due to increased trade liberalization. The industry contributes approximately 20 percent of Gross Domestic Product (GDP) per annum. Domestic processors continue to face numerous challenges, including one of the highest energy costs in Asia, the need for improvements and innovations in technology and packaging in order to become more globally competitive, insufficient post-harvest and storage facilities, and inadequate farm-to-market transportation infrastructure. There has been considerable improvement, particularly for the bigger companies whose financial capabilities are able to support expensive capital outlays. Some companies have qualified and are ISO certified. However, there are still a significant percentage of Small to Medium Enterprise (SME) processors, especially in provincial areas. Food and beverage imports as per the Philippines National Statistics Office totaled $4.7 billion in 2007 from all sources and an estimated 60 percent of these are raw materials or ingredients used in food processing. Wheat, dairy products, processed potato products, and meat and poultry 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 $770 million, followed by Vietnam ($507 million), Thailand ($356 million), New Zealand ($320 million), 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/fish extracts are the top food exports from the United States. (Note: Trade data cited above from the World Trade Atlas. U.S. Census data indicates U.S. food and agricultural exports to the Philippines in 2007 at a record $1.1 billion.)

The Philippines has competitive advantage in terms of availability of raw materials for processing, suitability of climate and soil fertility to grow a wide variety of agricultural products. Many enterprises operate manual and semi-mechanized systems. Some are gearing towards a fully automatic system to minimize labor input, contamination and waste. Others however, continue to be semi-automated to take advantage of the country large and skilled labor pool, as well as to limit investments in capital equipment. Processed food is among the 14 export winners identified by the Philippine government. Export winners are high-growth potential export aggressively pushed by the government for development and promotion. Food commodities for exports include fruits, vegetables, meat and marine products. The countryside supplies most of the fresh food crops while the urban areas take care of processing them. Among the fresh fruit varieties, banana, mango and pineapple are enjoying wide patronage abroad. Their abundant year-round supply makes it easy for growers of these fruits to have a steady business with foreign buyers. The country vegetable harvests likewise abundantly produce a stretch of preserved or precooked varieties. Processed and even fresh mushrooms, asparagus, bamboo shoots, young corn, pickles, pimiento, and peas go off well internationally. The fruit and vegetable items are normally packed in tetra pack, canned or bottled. Processed livestock, on the other hand, has sausages and prepared/preserved liver as its main export goods. The sector moderate capacity for export is largely attributed to the meat processors local market concentration. The size of operations of local meat processors ranges from small backyard to large with modern facilities. The well known and bigger companies are Purefoods, RFM and Campo Carne (San Miguel Corp.). Domestic meat processors sell most of their produce to the local market, with only a very small portion of total production is exported. The government, through the Bureau of Animal Industry, has achieved significant success in the eradication of the foot-and-mouth disease (FMD). Palawan, Basilan and most areas in Mindanao are now FMD free. Main markets of processed meat are Singapore, Bahrain, United Arab Emirates and Italy. Aside from the country vast land, an expansive water area likewise does more than good to the export ventures of the country. Technologies in prawn and shrimp farming have similarly equipped farmers with new approaches that resulted to a more competitive array of Philippine seafood products. Major producing areas are the Visayas, Central Luzon, Southern Tagalog and the Mindanao regions.

Areas of Collaboration
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subcontracting arrangements with growers to maximize production volume and increase farmers incomes; distributorships and/or technical assistance on marketing and packaging; provision of high yielding and tested technologies by the processing firm to the farmers; Marketing agreements on exclusive distributorships of processed products by the firm to selected private marketers.

Areas of Investment In terms of products, the potential areas for investment include:
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soursop (Guyabano juice), which has been found out to be acceptable in North America, especially in Canada, as a health drink and ice cream flavor; calamansi (lime) juice, proven to be a popular alternative to orange juice in Japan; dried/dehydrated or processed fruits and vegetables such as mangoes, papaya, banana, asparagus, okra, banana shoots, rootcrops saluyot, malunggay, onions, cucumber and corn; textured vegetable protein (TVP), a cheap source of protein and has strong demand among health-conscious consumers; beta-carotene containing foods such as camote and squash; coconut water and fruit juices mixed with other fruit juices; high fiber products such as nata de coco. Nata de cocovariants incorporation in fruit purees and juices to increase dietary fiber content; incorporation in jams and noodles; flavor variants, e.g. natural fruit juice flavor (tropical) coffee, tea, etc. pickled fruits and vegetables such as ampalaya, radish, singkamas, eggplant, onions, chili pepper, green mangoes and ginger fruit pieces, pulp and paper mango (piko, indian, others), guyabano (soursop), papaya, buko shreds in coconut water nature coloring (mayana, red camote, turmeric, gumamela, rosells) flour and dried fruits and vegetables (squash, sweet potato, taro, cassava, purple yam) diffusion drinks (banana, banaba, salabat) poultry/processing piggeries/processing

Other promising areas for investment

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marketing assistance and market tie-ups in the form of exclusive distributorships technology transfer and technical assistance in labelingpackaging materials such as cartons, tin cans, tetra packs, glassware, wrappers and plastic bags storage and handling facilities distributorship systems farm input technology and post-harvest facilities

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equipment and spare parts supply (cookers/coolers, boilers, de-palletizer, equipment for dehydration, filtration equipment, juice extractors, refrigeration equipment, seamers/closing machines, tuna filing machines)

TRENDS The economic recovery in the Philippines benefited employment in the country. More and more families were double-income earners, as both parents worked to support their families needs. This development led to busier lifestyles; more mothers had less time to spend on household chores, including food preparation, encouraging them to stock up on frozen processed food. Furthermore, the longer summer in the country in 2010 discouraged mothers from staying in the kitchen for long periods of time; they resorted to alternatives which were easier and more convenient to prepare. Sales of foodservice suppliers were rejuvenated in 2010 as the Philippines recovered from the global recession. Filipinos started to dine out on a more frequent basis, with no special occasion in mind, due to better financial security. Mid-range and fine dining restaurants as well as high-end cafs and bars benefited from the improvement of the economy as they were severely affected during the downturn in 2008 and 2009. The economic recovery therefore increased the demand for foodservice products in 2010. Economic recovery boosted consumer confidence in 2010. Impulse and indulgence products benefited from the situation as consumers had more financial stability and were more willing to purchase treats. Nevertheless, Filipinos remained price sensitive due to their limited disposable incomes and preferred brands that offered better value for their money. Most consumers continued to view nutrition/staples as homogeneous products in 2010, thus putting less importance to the brand name as quality is perceived to be similar for all brands. Price, therefore, played a significant role as most Filipinos remained price conscious despite the economic recovery due to their limited disposable incomes and increasing cost of living in the Philippines. Nevertheless, manufacturers tried to differentiate their products by adding extra nutritional benefits such as vitamins and minerals. In 2010, demand for meal solutions improved in the Visayas and Mindanao regions due to the boom in business process outsourcing (BPO) offices in second- and third-tier cities such as Cagayan De Oro, Davao and Iloilo. Busier lifestyles, unusual work hours and better disposable incomes resulted in higher consumption of these products. The availability of more lower-priced brands and the aggressive expansion of supermarkets/hypermarkets in untapped provincial areas also assisted in the improvement of household penetration in 2010.

COMPETITIVE LANDSCAPE San Miguel Pure Foods Co Inc strengthened its foothold in frozen processed food in 2009, as its retail share rose from 40.7% in 2008 to 41.4% in 2009. The companys total sales in processed food reached Ps13.3 billion, giving it a monopoly in the highly fragmented frozen processed food category. The success of the manufacturer can be attributed to its strong presence in frozen processed red meat, in which its hot dog brands are strong. The company attributes its leadership to its nationwide presence through its wide network of distributors. Aside from being the largest company in frozen processed food, the manufacturer was also the fastest growing in 2009, registering actual sales growth of 8%. San Miguel Pure Foods - Great Food Solutions Inc, the foodservice arm of San Miguel Pure Foods Co Inc, remained the most prominent player in 2009. The success of the company can be attributed to its well-diversified product range, team of food experts, extensive distribution network with satellite offices in key cities, and strong alliances with various foodservice establishments, including fast food chains, full-service restaurants and low-end eateries. Universal Robina Corp remained the leading company in 2009, accounting for almost 19% of retail value sales. This was mainly due to its well-diversified portfolio of impulse and indulgence products, as well as its strong performance in confectionery and sweet and savoury snacks, where its Jack n Jill products remained market leaders. Furthermore, the extensive distribution and affordable pricing of its products enabled consumers to regularly purchase their brands despite the economic slowdown. Nestl Philippines Inc maintained leadership in nutrition/staples with a value share of 17% in 2009. This was mainly due to its dominance in drinking milk products, where its heritage brands such as Nestl, Bear Brand, Nido and Milo accounted for a combined value share of 61% in 2009. The company was also able to retain its strong lead because it had an extensive distribution network and its nutrition/staples brands were heavily supported with strong marketing and advertising campaigns all year round. San Miguel Pure Foods Co Inc remained the leader in meal solutions, accounting for 23% of value sales in 2009. The companys success is due to its well-diversified portfolio, a dominant player in ready meals, frozen processed food and chilled processed food, and a minor participant in canned/preserved food and sauces, dressings and condiments, coupled with its ability to constantly introduce new products based on the changing needs of consumers. Its leadership can also be attributed to its extensive distribution network, which ensures nationwide presence in both traditional and modern retail channels.

PROSPECTS The opening up of more supermarkets, hypermarkets and convenience stores in provincial areas will be an important driving factor in frozen processed food. SM Investments Corp is increasing the number of its neighborhood supermarkets SM Savemore in key cities nationwide. On the other hand, both Ministop and 7-Eleven are planning to open up more outlets in the Northern Luzon area. The prevalence of more modern distribution channels equipped with freezers could facilitate the retailing of frozen processed food, thereby enabling manufacturers to reach out to a larger number of customers. Foodservice suppliers are expected to offer more ready-to-use meal solutions to provide convenience and simplify the operations of foodservice establishments. This is anticipated to be beneficial for fast food chains, mid- and low-range full-service restaurants and 100% home delivery/takeaway outlets. Healthier alternatives such as low-fat, less sodium, sugar-free options are also foreseen to be part of the product offerings of suppliers over the forecast period due to the growing number of health-conscious Filipinos. Despite the expected recovery of the Philippine economy, both volume and constant value sales are anticipated to improve at a slow pace over the forecast period since consumers will continue to view impulse and indulgence products as non-essential food items, which are usually not at the top of most Filipinos grocery lists. Furthermore, the rising cost of living in urban and rural areas is expected to hinder growth as most consumers have limited disposable incomes and need to prioritise their spending by purchasing more essential products. Commoditization in nutrition/staples is anticipated to continue over the forecast period. This is expected to result in high levels of price competition where companies are expected to offer promotions such as providing additional volume and price cuts. Nevertheless, a significant number of Filipinos are anticipated to have a different perception of nutrition/staples as they give value to the additional benefits such as fortification, low-fat content, and high-fiber, among others as they shift to healthier lifestyles. With more dual-income households and longer work hours, there is less time to prepare home-cooked meals from scratch. Demand for meal solutions is expected to increase over the forecast period as consumers lead more fast-paced lifestyles thereby appreciating the convenience these products offer. The expansion of supermarket/hypermarket chains in provincial areas is also expected to support growth due to better availability, making meal solutions accessible to a greater number of Filipinos.