Philippines

Report Highlights

The total Philippine livestock sector is expected to continue to expand through 2004; overall meat consumption is likely to continue growing through 2004 due to the rapidly growing Philippine population. Imports of premium beef cuts are likely to remain insignificant relative to overall beef and veal imports through 2004. No significant changes in live swine and pork imports are expected for the next two years due to good local production.

Executive Summary

The total Philippine livestock sector is expected to continue to expand through 2004 due to the expanding domestic swine industry. Overall meat consumption is likely to continue growing through 2004 due to the rapidly growing Philippine population, currently estimated at 82 million. Beef imports are likely to post modest increases for the next two years mainly due to increasing beef demand by the expanding domestic meat processing industry. Imports of premium beef cuts are likely to remain insignificant relative to overall beef and veal imports through 2004. No significant changes in live swine and pork imports are expected for the next two years due to good local production. Currently, the DA is contemplating imposing a special safeguard duty for pork products as a result of the clamor of the livestock industry for more protection from the alleged onslaught of illegal pork entering the market.

Production

Driven by strong demand for pork and pork products, hog production is expected to continue growing through 2004. Last year, swine production comprised roughly three-quarters of overall livestock production. This made the domestic swine industry the second largest agricultural commodity in 2002, contributing around P87 billion ($1.58 billion) to the overall agricultural output.

Further consolidation of the industry is expected in the next two years as the share of backyard farms is expected to decline while that of large commercial hog farms is forecast to increase. This indicates increasing scale of swine production and continued inflows of investment into the industry.

Consumption

According to the National Economic Development Authority (NEDA), the Philippine domestic economy grew 4.6 percent last year, faster than the 3.2 percent increase posted in 2001. The 2002 growth rate was the highest for the country since the 1997 financial crisis, and surpassed the government’s GDP target of 4.5 percent.

For this year, the GRP has forecast a GDP growth rate of 4.2 to 5.2 percent. Economists from the International Monetary Fund (IMF) and the World Bank, however, have projected Philippine GDP growth to fall to 3.9 to 4.0 percent range in 2003.

Despite the lower projections, however, overall meat consumption is likely to continue growing through 2004 due to the rapidly growing Philippine population, currently estimated at 82 million. Expanding at a rate of 2.3 percent annually, there will be roughly an additional 2 million Filipinos to feed next year.

Increased consumption likewise is enhanced by the relatively low inflation rate (forecast at 4.5 to 5.5 percent this year) and the ensuing stable food prices. The average Filipino household spends roughly half of its earnings on food. Food and meat consumption traditionally peaks in the fourth quarter to coincide with the holiday season.

In addition, increased spending on food is expected in the near future, as a result of Presidential election-related activities scheduled for May 2004. Campaign activities start very early in the Philippines.

Pork, as in the past, will continue to dominate meat consumption through 2004, and relatively low pork prices are expected to further strengthen quantities moving into distribution. Household demand is estimated to account for 86 percent of total pork consumption, while hotels, restaurant, institutional buyers and processors account for the balance.

Trade

Local livestock farmers have raised animal health concerns, particularly foot and mouth disease (FMD), relative to the continued entry of buffalo meat from India, which is not FMDfree. Outbreaks of FMD still occur in the Luzon and Visayas regions and disease control is a major problem of the local livestock sector. Indian beef, however, is cheaper compared to traditional beef sources and is a major ingredient used by meat processing firms. Despite robust growth, the domestic hog industry has claimed injury from the proliferation of buffalo meat in the wet markets. In response, the Philippine Department of Agriculture (DA) released last December, Administrative Order No. 31 (AO 31) or “Supplemental Guidelines on the Importation and Utilization of Buffalo Meat from India” (refer to RP 3004). AO 31 requires that imported Indian buffalo meat be used for processing only and that a third party inspection certificate accompany all Indian beef imports. AO 31 likewise specifies appropriate labeling to enhance traceability of manufacturer/producer.

Also in late 2002, Department of Agriculture (DA) officials together with a group of Philippine meat importers, went to South America to establish relations with alternative meat sources. They reportedly accredited meat processing plants and abattoirs.

No significant changes in live swine and pork imports are expected for the next two years due to good local production. Legitimate pork imports remain minimal and go mostly to the expanding domestic meat processing industries. Local hog raisers are positioning themselves to gain a share of this growing market and are therefore quite vocal about illegal imports. Local meat processors, however, prefer imported frozen pork for their raw material, contending that locally produced pork does not conform to their quality specifications, uniformity, consistency, etc. The major sources of frozen pork (carcasses/half-carcasses, hams, shoulders and cuts) include Denmark, Canada, United States, Korea and Australia.

Tariff-Rate Quota

Utilization of the Minimum Access Volume (MAV) or tariff-rate quota for fresh, chilled or frozen pork last year was 13.3 percent. MAV usage for pork has remained low and has been declining since 2000. This may partly be the result of the inflow of illegally imported livestock and poultry meats, including pork. For 2003, the MAV for pork is 50,595 MT. The in-quota duty for fresh, chilled or frozen pork (0203) is 30 percent while the out-of-quota rate is 40 percent.

MAV utilization for this year will likely not deviate significantly from the previous year’s performance. Based on issued Minimum Access Volume Import Certificates (MAVICs), the inquota importation of pork for the January to July 2003 period represents just a little over 10 percent of the total tariff rate quota for the whole calendar year.

Duties for fresh, chilled or frozen swine meat (0203) and processed pork products (1602) were supposed to be brought down to 40 percent beginning January 1, 2003. Executive Order No. 164 (EO 164), dated January 10, 2003, however, effectively delayed the scheduled tariff rate reduction until June 30, 2003. Effective July 1, 2003, fresh, chilled and frozen pork out-of-quota imports will be levied a 40 percent duty. In-quota tariff will be 30 percent.

Marketing

Although the wet markets supply about 90 percent of the food demand of the Filipino market, the number of supermarkets and grocery outlet has been increasing, particularly in the urban centers of the country. This trend is expected to continue as the urban population continues to expand. This is cause to project increased consumption of prepared and preserved, as well as processed meat products in the coming years, and local meat processors appear to be positioning themselves accordingly.

The Philippine Association of Meat Processors (PAMPI) reportedly has said that at least one third of its 30 million kilograms of meat imports (worth $51 million) may be sourced from Brazil and other Latin American countries if more of their meat plants and abattoirs are accredited by the National Meat Inspection Commission (NMIC). PAMPI believes that the South American beef suppliers may be able to replace the 30 percent of PAMPI’s meat requirement, which it lost from Europe when it experienced an outbreak of BSE two years ago. Local meat processors are reportedly projecting a growth of 15 percent this year with gross sales of about P46 billion.

San Miguel Corporation (SMC), the largest food and beverage conglomerate in the Philippines, has announced that it will undertake an over-all strategy of developing an integrated market approach for poultry, meats and branded processed products. SMC, reportedly intends to gradually shift from its dependence on commodity type products such as poultry and basic meats by further developing its branded value-added meats portfolio. Expansion into other branded products variants and extensions is also being studied as another source of future growth. SMC’s basic meats business ended 2002 with total sales volume growing by 7 percent. Beef and pork grew by 25 percent and 8 percent, respectively.

Policy

In September 2002, the Philippines notified the WTO of its intention to require accreditation by 3rd party auditors of all plants exporting meat, poultry and dairy products to the Philippines. Memorandum Order Number 7 (MO 7) was supposed to ensure compliance with “internationally recognized standards in Hazard Analysis and Critical Control Point (HACCP) program.” The measure was to take effect April 1, 2003 and would have adversely affected over $55 million worth of US exports to the Philippines. Protests against MO 7, both bilaterally and at the SPS Committee in Geneva in November 2002 resulted in the postponement of the implementation of MO 7. The proposed regulation is currently under review by the DA.

Perhaps the most significant development relative to agricultural policy is the replacement of then DA Secretary, Leonardo Q. Montemayor with Luis P. Lorenzo Jr. on November 30, 2002 (refer to RP 2079). Early in office, Mr. Lorenzo announced he would work for continued protection of sensitive agricultural products, such as rice, sugar, corn, poultry and pork. He has likewise expressed his intention of providing local farmers with government support to enhance their competitiveness in a liberalized trade environment, and part of that support includes keeping tariff rates for major local commodities at current levels. Currently, the DA is contemplating imposing a special safeguard duty for pork products as a result of the clamor of the livestock industry for more protection from the alleged onslaught of illegal pork entering the market. Local swine producers have been lobbying for additional protection. BAS data show a decline of only 2.5 percent for both retail and farmgate price of pork in 2002.

Several livestock import bans were imposed under the new DA administration although most of them were lifted after scientific investigation indicated that the necessary corrective measures were in place. These include:

1. A temporary ban on the entry of Australian beef after receiving a report that a heifer from Victoria, Australia had died of Anthrax. The DA subsequently lifted the import restriction after receiving a report from the Australian government outlining efforts to contain the anthrax.
2. In response to reports of Dioxin contamination in March 2003, the DA banned all imports of feed, milk and milk products, eggs, meat and meat products from Germany and the Netherlands. The ban was lifted after two weeks after receiving assurances that adequate measures were being undertaken to contain the contamination in those countries.
3. On May 2003, the DA prohibited the importation of live cattle, sheep and goats and their meat and meat products from Canada in response to a confirmed case of BSE in that country. The ban was subsequently lifted in August 2003.
4. The DA likewise lifted the temporary ban on the importation of pork and pork products and by-products from the Republic of Korea after a report from the Office Internationale des Epizooties (OIE) declaring Korea as a FMD-free country in May 2003. The Bureau of Animal Industry has found the risk of contamination from importing pork, pork products and byproducts from the ROK to be negligible.

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Source: USDA, Foreign Agricultural Service - Annual Livestock and Products Report - September 2003