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Philippines Familiar Market for U.S. Agricultural Products
By John Wade and Joy Canono
After decades of economic stagnation, the Philippines has emerged as one of the brightest prospects in Asia for growth in exports of U.S. agricultural products, particularly consumer-ready foods.
Food and beverages from the United States are a familiar sight to consumers in Philippine supermarkets.
Last year, nearly $888 million of food, including record shipments of grapes, apples, canned fruit and vegetables, juices, meats and wine, were imported from the United States by this Southeast Asian country.
Filipino consumers are very familiar with U.S. products. Many Filipinos regularly travel to America, and its is common to find Filipinos who have relatives in the United States.
Even the food regulations are a familiar sight to U.S. exporters. U.S. Food and Drug regulations serve as the Philippine Bureau of Food and Drug=s main reference for policy guidelines pertaining to food additives, good manufacturing practices and suitability of packaging material for food use.
Economic Reforms Showing Results
The Philippines is finally showing dynamic growth typical of its neighbors. Economic reforms by the Fidel Ramos administration are having tangible results. Growth in the real Gross National Product (GNP) reached 6.8 for last year, following two years of more than 5-percent growth.
The economic success has increased per capita incomes and expenditures on food. In 1996, gross domestic product (GDP) per capita totaled $1,190 and per capita food expenditures were estimated at $450.
The economic success has also resulted in a growing urban middle class. This new class is interested in a greater diversity in their food.
Bread products, processed meats, instant noodles and Western-style snack foods are gaining popularity, particularly in lunches for students and workers.
As expected, the Philippines' expanding urban population continues to purchase more consumer-ready food products. This is due to an increasing number of working women and the Filipinos' financial ability to demand more convenience and variety in their food. Hired domestic help is becoming less affordable for the emerging middle class as the general standard of living increases in the country.
Urban dwellers are dining out more often. Rapid growth continues in fast-food chains for hamburgers, pizza, chicken, noodles, ice cream and donuts. These include many American franchises as well as several Filipino chains. Texas Fried Chicken and Kenny Rogers Roasters are two recent entrants to the market.
More upscale Western-style restaurants are also doing well, especially less formal establishments and those offering ethnic foods. Two TGI Friday's, a Hard Rock Cafe and a Tony Roma's have recently opened in Manila. Local steak houses are very successful. Korean, Italian, Thai and Japanese restaurants are also increasingly common.
Government Lowering Trade Barriers
In May 1996, the Philippine Government eliminated all non-tariff trade barriers for food imports. The only exception is rice, for which a quota remains in effect. The new regulations will allow entry of previously banned food imports such as fresh onions and potatoes.
The Philippine Government is moving towards lower, more uniform tariffs for most food and beverage products.
At the present time, most tariffs on imports of food products are in the neighborhood of 20 to 30 percent. The Government's stated goal is a uniform 5-percent tariff on all products by the year 2004. With producer resistance high, it is not clear if this goal will be realized at least for some of the more sensitive agricultural products like pork, poultry meat, fresh vegetables, corn and rice.
Imports of chilled and frozen pork and poultry meat face tariff-rate quotas. Under the most recent World Trade Organization (WTO) accords, the Philippines agreed, beginning in 1995, to annually allow access for 32,000 tons of pork at 30-percent tariff, and for 14,000 tons of poultry meat at 50-percent tariff. These quotas gradually increase to 54,000 tons and 23,500 tons, respectively, by the year 2004. Unfortunately, the Philippines has been very slow to truly implement its commitments, and actual imports have so far been small despite, at times, favorable market conditions. Above these quotas, both items will currently enter at a 100-percent tariff. This higher tariff will drop to 60 percent by the year 2000.
Food Processing Projected To Grow
In 1995, the agricultural sector in the Philippines employed two of every five people in the labor force and added 12 percent to export earnings. Major agricultural output included rice, corn, pork, fish, poultry, coconut and sugarcane. Other key commercial crops, such as fruits and vegetables (pineapples, bananas, mangos, asparagus, etc.), have the brightest export growth potential.
The Philippine food processing sector grew strongly in 1996. This sector, dominated by large-scale industrial corporations, is diverse in terms of its business size and activity.
Locally produced goods include snack foods, confectionery, cookies, beer, non-alcoholic beverages, processed fruit, processed seafood and some condiments. Most Filipino manufacturers are dedicated to supplying the fast-growing domestic market, but a few large processors are also involved in exports of processed fruits, canned tuna and other processed fish.
Consumer Foods Best Sales Prospect
The Philippine culture is so closely tied to American culture that trends that are popular in America invariably appear in the Philippines. Filipinos are beginning to consume more healthy foods. Foods that tout low-calorie, low-fat, or low-salt benefits should become increasingly popular.
Among the consumer-ready foods with the best sales prospects are snack foods, beer, wine and chilled and frozen foods.
Various types of U.S. meat, including poultry, pork, high-quality beef and processed meats, also have good sales possibilities. This is due to recent changes in the country's tariff structure as well as a growing consumer demand for these items.
There are some ways in which Fipino tastes differ from those of Americans. Most notably, Filipinos tend to have a greater affinity for sweet-tasting foods than do Americans. Local traders have indicated that fruit juices and hot dogs, both of which are very popular in the Philippines, would probably do better if reformulated to a sweeter taste. This is likely to be the case for other products as well.
Finally, good potential for sales of food ingredients and additives exists, particularly inputs for the baking, dairy, processed meats and beverage industries.
Price Key in Determining Market Share
It is difficult to pinpoint a market share figure for U.S. consumer-ready foods in the Philippines. A significant portion of these items is transshipped through Hong Kong, Singapore or Taiwan. This is to facilitate consolidation of orders and minimize import duties
The most important advantages for the United States are product variety, quality and pro-American tastes and preferences.
Major competitors for the Philippine consumer-ready food market are Australia, the European Union, New Zealand, Chile and China. Price is a key factor in determining market share, but delivery time and ease of handling are also important considerations.
The European Union is a major source of low-quality beef for processing, dairy products and wine. Its marketing advantage is price, with the aid of production and export subsidies. Australia and New Zealand are major suppliers of dairy products, beef, processed foods and fruit.
Distribution System Extremely Complex
The distribution system for food products in the Philippines is extremely complex. The market for most imported consumer-ready food items is mainly in the urban centers. In these areas, imports of consumer-ready products are handled by traders and importers who distribute to supermarkets, hotels, restaurants and other retail outlets. However, some larger supermarket chains and hotels are importing many of their products directly.
It is difficult to maintain an exclusive agent arrangement in the Philippines. Products enter the country through many channels and the legal system is not strong enough to stop imports not sanctioned by exclusive agents.
Except for popular and fast-selling items, the majority of consumer-ready imports are purchased and shipped in mixed-load containers. In the latter case, it is very common for local importers to work with consolidators, usually on the U.S. west coast. Some Philippine companies maintain buying agents in the United States as well.
Other foods have a somewhat different import system. Fresh fruit is usually brought in by importers who distribute directly to supermarkets as well as to wholesalers and other retailers. Frozen foods and dairy products are imported by brokers and increasingly directly by large end-users.
Local Markets Carry Imported Goods
Corner grocers (sari-sari stores) and open-air wet markets are widespread. These retailers carry some imported goods. Sales of imported fresh fruit through these outlets are especially important. In the Philippines, the vast majority of fresh produce and meat sales take place at wet markets, while dry and canned goods are often purchased from supermarkets. However, a growing portion of the urban middle class is fulfilling all of its food needs from supermarkets.
Steady growth in the number of Western-style supermarkets is occurring in Manila and increasingly in smaller cities such as Cebu, Davao and Iloilo. The Dutch chain, Makro, has also recently entered the Philippine market with two very successful stores. However, for legal reasons their sales are, at least technically, only wholesale.
Supermarket operations are also becoming more sophisticated. Many supermarkets are scanning at checkout and developing large produce and meat sections. However, the sanitation and appearance of these outlets usually fall well short of Western standards due to inadequate expertise and facilities.
Duty-free retailers are creating real competition for traditional retailers. Competition is especially keen in the sale of higher quality food and beverages. Duty-free shops are located on the former U.S. military bases and at international airports. These duty-free zones are serving as a conduit for a large amount of imports to reach regular retail channels, whether by resale of legal purchases or otherwise.
The shopping regulations at Philippine duty-free shops are somewhat unique. Duty-free shops on former bases allow local residents to purchase up to $100 worth per month. At any duty-free shop, Filipinos who enter the country after an absence of 6 months or more can purchase $2,000 worth of goods per trip. All other travellers that enter the country can spend $1,000 per trip.
The authors, John Wade and Joy Canono, serve in the Office of Agricultural Affairs, American Embassy, Manila, Philippines. Phone: 63-2-895-9536 or 895-4708; fax: 63-2-890-2728; Email: agmanila@fas.usda.gov.
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