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Grain and Flour Market in Philippines

06 December 201318 min reading
Having an important place in world’s rice and corn production, Philippines is a consumer country for wheat. Philippines, who cannot realize grain-based agricultural product export, is among the world’s leading wheat importers. The country cannot produce wheat due to its climatic features, thus it imports the entire wheat amount that it needs from abroad as wheat or flour. As a collection of island, Philippines came to the world agenda with Haiyan Typhoon short time ago. The country, in which there is a large number of losses of lives due to this natural disaster, is trying to pick up the pieces and recover the lost ground. Although it is not possible to make up the losses of lives, we hope that Philippines people can at least make up the financial losses as soon as possible and return to their lives before this natural disaster. We hope that the countries in the world including Turkey will continue to provide the necessary support to Philippines people for relieving. As one of the world’s leading rice and corn producers, Philippines is a foreign-dependent country on wheat. Realizing nearly 10 million tons rice and 7 million tons corn every year; the country uses the entire production for its domestic consumption. 3 million-ton wheat consumption on annual basis is imported from countries such as US, Australia and Canada. There are 12 mills throughout the country with a capacity that can process about 4 million tons wheat on annual basis. These mills are estimated to run with 50% capacity which points nearly 2 million-ton wheat usage. The rest of the country’s wheat need is imported as flour. ECONOMY IN PHILIPPINES Philippines is among the developing countries of Southeast Asia. Although the market economy is the main economic policy to be applied, regulatory mechanisms are also used in some sectors in order to protect the consumer. Service sector forms 55.8%, industrial sector 31.4% and agricultural sector 12.8% of the Gross Domestic Product in the country as of the year 2011. In the recent years; service sector, especially the financial sector has become the developing sector of Philippines. The share of the agricultural sector is variable as it depends on weather conditions. As of 2011 again; GDP was 224,8 billion Dollars and national income per capita (according to the purchasing power parity) was 3.841 Dollars. The growth rate of GDP in 2013-2016 period is expected to be averagely 5,9% together with the recovery in both domestic and global economy. Philippines, in which economic growth depends on export and foreign investments, was hit by 1997-1998 Asian economic crisis and El Niño Hurricane. The GDP growth in those years returned to the rates at the beginning of 1990s. GDP growth in 2003-2007 period was realized as 5,8%. The growth of GDP gained speed in 2003-2004 and the continuation of fast increase in private consumption growth accompanied to the strong recovery of foreign demand. Exports increased 15% in 2004 compared to 2003. The increase in imports was 5,8%. GDP growth slowed down in 2005. Agriculture became difficult with the recurrence of El Niño Hurricane. Export slowed down due to the recession in electronic device demand. In the following years; agriculture recovered, consumption increased and export rates doubled. Thus GDP growth was 5,4%. The growth continued to the first half of 2007 and the growth rate was realized as 7,6%. The decrease in export and slowing down of private consumption increase at the first quarter of 2008 decelerated the growth of GDP. The growth of Philippines economy in 2010 was 7,6%. This rate was the highest one since the mid-1970s. In 2011, the growth slowed down and growth rate was 3,9%. The biggest reason of that the growth rate was 3,9% was the decrease in the demand of the goods and services the country exported. According to the data of EIU (Economist Intelligence Unit); it is estimated that the economy grew 5,4% in 2012. It is projected that the growth in 2013-2016 period will be averagely 6% on annual basis. According to EIU data; good and service export decreased 4,2% in 2011. The increase of export between 2013 and 2016 is expected to be averagely 6,9% on annual basis. Good and service import increased 0,2% in 2011. GDP growth rate in 2013-2016 period is expected to be averagely 5,9% together with the recovery in domestic and global economy. The main reason of the recent growth is the increase in private consumption. Despite the foreign trade deficit, the country has current account surplus. The foreign exchange sent by the Filipino workers from abroad and tourism incomes provide this surplus. Current account surplus was 71, billion US Dollars in 2011. PHILIPPINES AGRICULTURAL SECTOR As the 70% of the country population lives in the in rural areas and two thirds of the population makes a living from farming; agriculture, forestry and fishing have an important role on Philippines economy. Together with this; as the country was modernized, the share of agricultural products in the country economy decreased. While the share of agriculture in 2009 was 14.8%, it was 13.9% in 2010 and 12.8% in 2011. In Philippines where livestock and fishing are at the forefront in agricultural production; the agricultural products that become prominent in terms of crop production are sugar cane, rice, coconut, banana, corn and mango. Rice, fish, vegetables, chicken and pork are among the people’s basic food sources. Enactment of Agriculture and Fisheries Law by The Philippines Congress in 1997 caused tax free entry of imported agricultural products, equipment and machineries. In the recent years, better and larger harvest has been provided with good seeds, developing irrigation systems and intensive fertilization application. Agriculture, fishing and forestry sectors grew 3.2% in 2008. There was growth in all sub-sectors except livestock. The largest growth was realized in fishery products. GRAIN PRODUCTION AND CONSUMPTION Having an important place in world’s rice and corn production, Philippines is a consumer country for wheat. According to the data of U.S. Department of Agriculture Foreign Agricultural Service (USDA FAS); Philippines rank seventh among the countries becoming prominent in world rice production with 11,4 million-ton rice production realized in 2012/13 season. When the rice production of the country is reviewed by years; it is seen that the production amount is between 8 and 12 million tons. Philippines’ rice production which was 8,4 million tons in 2002/03 season, reached 10,5 million tons in 2010/11 season and 11,4 million tons in 2012/13 season. The projection of USDA for 2013/14 season rice production is 11.7 million tons. It is estimated that the adverse effects of Utor Typhoon and Trami Tropical Storm in August are at minimum level (according to the Ministry of Agriculture; 12,461 tons in 27 hectares) but it is not known yet to what extent the rice production affected by Haiyan Typhoon that caused a huge destruction in the country in November. The same thing applies to the corn production. Philippines corn production, which was 7,2 million tons in 2012/13 season, already decreased due to Utor and Trami. Haiyan Typhoon is estimated to maintain this decrease. However; despite this decrease, it is estimated that corn production in 2013/14 season will reach 7,3 million tons. According to the Ministry of Agriculture and industry guides; realization of a better production rate that is more than the expected one is possible at the 3rd and 4th quarters due to the increase in the use of improved seeds, a little expansion on the cultivation lands and increase in the yield. Philippines uses almost all of the rice and corn production for its domestic consumption. Even, the productions of these two products do not meet the consumption. When USDA data are reviewed; rice consumption of Philippines is between 10 and 13 million tons and even exceeds 13 million tons in some seasons. The difference between production and consumption in rice varies between 1 and 3 million tons. Although the same situation occurs in rice, the difference between production and consumption is much lower. Wheat is a grain product that cannot be grown in Philippines due to the climatic conditions. Thus, the country meets its annually 3,5-4 million-ton wheat need via import. FOREIGN TRADE IN PHILIPPINES Philippines is a country with generally foreign trade deficit. The reason of this deficit is that the country supplies capital goods, intermediate goods and petroleum from abroad. However; country’s export and import has been increasing in the last 10 years. The increase in the consumption as a result of the increase in the foreign exchanges sent by the workers from abroad and the increase of the demand for petroleum and foreign input in electronic export sector increased import spending. The foreign demand for Filipino goods still continues. Electrical electronic products constitute the two thirds of export in Philippines; an important part of the import consists of intermediate goods. Being a member of World Trade Organization (WTO) and Association of Southeast Asian Nations (ASEAN), Philippines has been trying to reduce tariff and non-tariff barriers for facilitating foreign trade for 20 years. Foreign trade of the country declined in 2009 due to the global crisis and was 84,2 billion Dollars by decreasing 23% compared to 2008. In the same period; export decreased from 49 billion Dollars to 38,4 billion Dollars by declining 21,6% compared to the previous year (2008) and the import decreased from 60,4 billion Dollars to 45,8 billion Dollars by declining 24,1%. The decline was the highest after the one experienced due to the Asian crisis between 1997 and 1998. In 2010, export increased again. This increase resulted from the demand increase from mainly China and export markets. As of 2010; export reached 51,4 billion Dollars and import reached 58,2 billion Dollars. With a 3,5 billion-Dollar decrease in export compared to the previous year in 2011, the 5,5 billion-Dollar increase in import caused that foreign trade volume increased 2,1 billion Dollars and total foreign trade volume reached to 111,7 billion Dollars. When the foreign trade deficit of Philippines is reviewed according to 2012 data on country basis; it is seen that Japan ranks first in Philippines export with 9,8 billion-Dollar export and 19% share. After Japan; the export markets of Philippines are USA (14,2%), China (11,8%), Singapore (9,3%), Hong Kong (9,1%) and Korea (5,5%) respectively. In import, USA ranks first with 7,5 billion-Dollar import and 11,6% share. China ranks second with 7,1 billion-Dollar import and 10,9% share. Other important countries in the import of the country are Japan, Taiwan, Korea, Singapore, Thailand, Saudi Arabia, Indonesia, Malaysia and the United Arab Emirates. PLACE OF GRAIN IN FOREIGN TRADE Philippines, who cannot realize grain-based agricultural product export, is among the world’s leading wheat importers. The country cannot produce wheat due to its climatic features, thus it imports the entire wheat amount that it needs from abroad as wheat or flour. According to USDA data; wheat import, which was 3,2 million tons in 2002/03 season, decreased to 2,2 million tons in 2007/08 season. Increasing in the following seasons, import reached to the highest level of the last 10 years with 4 million tons in 2011712 season. The wheat import of the country, which was 3,6 million tons in 2012/13 season, is estimated to stay at this level in 2013/14 season. Besides wheat, Philippines realizes 1-2 million tons of rice import every year. Despite the fact that the country is an important producer of rice, it cannot meet the entire domestic consumption and makes import. According to USDA data; the rice import of the country, which was 1,5 million tons in 2002/03 season, reached to the highest level of the last years with 2,6 million tons and then decreased again in the following seasons. The import, which was 1,4 million tons in 2012/13 season, is estimated to stay at 1,1 million tons level in 2013/14 season. MILLING AND GRAIN PROCESSING INDUSTRY There are 12 companies in Philippines that produce flour and all of them are affiliated with Philippine Association of Flour Millers (PAFMIL) and the Chamber of Philippine Flour Millers (CHAMPFLOUR). PAFMIL is composed of RFM, Liberty Flour Mills, Wellington Flour Mills, Pilmico Foods Corporation, General Milling Corporation, Universal Robina Corporation and the Philippine Flour Mills. CHAMPLOUR on the other hand is composed of San Miguel Mills, Philippine Foremost Milling Corporation, Morning Star Milling Corporation and Delta Milling Corporation. Republic Flour Mills (RFM), the first milling company in the Philippines started its operation in 1958. It was established to address the need of the country to be self-sufficient in a basic food commodity like flour. RFM was the pioneer of the flour-milling industry in the Asian region and it evolved from a single company producing bags of flour, to a multi-company enterprise managing a chain of branded products. Its first flour mill is located on a seven-hectare land in Mandaluyong, Metro Manila. Because of the success of the Republic Flour Mills, competitors were attracted to join the flour milling industry. Liberty Flour Mills – a stock corporation incorporated in 1958, engaged in the business of manufacturing of various kinds of bakery flour and flour related products. Wellington Flour Mills- started its operation in February 1360. Its brands are Wellington and Doña Salustiana and Filipina. Pilmico Foods Corporation- Pilmico Foods Corporation started operating in 1962 engaged in the manufacture of wheat flour and wheat by-products. General Milling Corporation-started its operation in Cebu in 1961. Their brand of flour is known as General Flour. Universal Robina Corporation- traces its beginning all the way back to 1954. In the early 1970s, Continental Milling Corporation was formed for flour milling and production. URC Flour produces and sells Hard and Soft Flour to both commercial and institutional accounts. San Miguel Mills- produces and markets flour with its mill in Mabini, Batangas. Its brands for flour are: Emperor Premium Bread Flour, Pacific, Emperor Hard Wheat Flour, King Hard Wheat Flour, Monarch Hard Wheat Flour and Count Hard Wheat Flour, Queen Soft Flour and Countess Soft Wheat Flour. Philippine Foremost Milling Corporation-was established in 1989 and was the first flour mill plant in Western Visayas. Its brands for hard flour are Montana Spring, Dakota Champion, and Washington Gold and for soft flour, Gold Key and Amigo Gold. Morning Star Milling Corporation- started in 1988 with the objective of producing quality flour and downstream products that were lacking in the Philippine market. In addition to those 12 flour mills, the Monde Nissin Corporation produces flour for its own use in food products. Flour millers in the Philippines are supplying a largely small-scale processing industry. According to PAFMIL; total processing capacity of the industry is at 13,360 tons per day wheat equivalent, or 4.008 million tons annually, on the basis of a 300-day year. With annual wheat imports at around 2 million tons a year, it can be said that the industry is running at 50% capacity. According to the flour milling industry, the main sources of wheat are United States, Canada and Australia. It takes 30 days to transport wheat from the source to the Philippines. Upon arrival, it takes another two months before flour is supplied in the market, one month in the silo and another month for the production. PHILIPPINES WHEAT FLOUR IMPORTS Philippines make flour import besides wheat. IGC estimates that the flour import realized by the country in 2010/11 season was around 150 thousand tons. The country was importing most of the flour from Turkey. But after Philippine millers complained about this situation, an anti-damping investigation was started against Turkish flour. Being the primary exported product of Turkey to Philippines with 46,2% share in 2012, wheat flour increased 67% in 2012 compared to the previous year. The anti-damping investigation against Turkey, significantly decreased the flour export of Turkey to the country. Philippine millers stated that they have to compete with the imported flour that is presented below its value due to Turkish exporters. PAFMIL asks the government to apply a tariff in order to protect the industry against these imports. Also, there news about that Turkish flour is harmful to health and includes toxic substance. However; Philippines Ministry of Health Food and Drug Administration detected and declared that Turkish flour is reliable and appropriate for human consumption after the tests. Besides, no harmful residue is found in the analysis made on the replicate samples that are kept in the eyes of international surveillance companies. PASTA, BREAD AND BISCUIT MARKET IN PHILIPPINES Pasta is generally consumed by the people in high income groups and is a food cooked for celebration and special conditions. The demand for pasta increases and more than half of the sales is done via supermarkets. Retail sales increased 3% in 2011. Total sales volume in 2011 was 72 thousand tons and spaghetti is the most popular product. RFM Corp, Unilever Foods, Del Monte, Ideal Macaroni, Universal Robina, San Remo Macaroni Corp. are the most important companies in the market. Fettuccine and lasagna are not known by the middle income group. These products are used as a substitute for rice by high income groups. Price is an important element for middle income group. It is seen that pasta sales increase at the second quarter of the year when the celebrations are intense. The demand of the high and middle income groups for pasta is expected to increase in the next period. The growth in sales volume is estimated to be 2% annually. The spread of supermarkets and hypermarkets would also support this increase. Philippines realized 31,2 million-Dollar pasta import in 2011. Malaysia is the number one pasta supplier of the country with 52% share. Other suppliers are China (15,8%)I United Arab Emirates (8%), Australia (7,3%) and Italia (5,5%) respectively. Turkey realized 200 thousand-ton pasta export to Philippines in 2011. Besides, the tariff rate for ASEAN countries is 5%, 8% for China and 15% for Turkey. 2011 sales of Noodle which is a type of pasta was 190 thousand tons. Prepared by addition of water, consumption of noodle is widespread in the country. Becoming prominent in the eating habits, noodle can be consumed at three meals including breakfast. This situation increases the flour consumption. Noodle’s 2011 sales reached to 22 billion dollars in value by increasing 7% compared to the previous year. It is estimated that the sales in the next period will averagely increase 3% in value and reach 25.2 billion dollars in 2016. Averagely 5% increase is projected annually on amount basis. Total sales in 2016 is expected to reach 239 thousand 500 tons. Most of the consumers in Philippines prefer white bread as it is sold in sales stores in large amounts with a reasonable price. White bread sales got the largest share of bread sales with 38% in 2011. The share of whole wheat bread from the sales is 33% and the thought that high-fiber foods are beneficial to health increases the demand for this kind of bread. The smallest share in bread sales belongs to sandwich bread. Its most important reason is that hamburgers and hot dogs are not consumed much in Philippine cuisine. The sale of single-serve cakes is quite widespread. Generally cakes are a kind of snacks consumed by kids and grown-ups at school, work in the middle of the day. Even though the special products in the supermarkets are multi-packed, the products inside the package are single-serve. It is estimated that bakery products will be a substitute for traditional products to some extent in time. As the shelf life in the country is longer, developments in favor of packaged products are expected. Biscuit sales in Philippines increased 6% in 2011 compared to the previous year. Producers tend to supplement their biscuits with vitamin and other food components in order to solve malnutrition that is spread among kids. In parallel with the increase in flour and sugar prices, biscuit prices also increased in 2010. Sandwich biscuit is the kind with the largest increase in sales with 7% rate in 2010. Total biscuit sales reached to 22,5 million Peso by increasing 6% in 2011 compared to the previous year. Monde Nissin Corp. has the largest sales volume in the market and controls 33% of the market. Having a wide distribution network, the company presents its products with reasonable prices. Producers give importance to the trends of healthy nutrition and diet in product development and try to develop their distribution channels. It is considered that the sales volume of the biscuits with additives will increase due to the malnutrition in the next period. The demands of high income groups for healthy nutrition will also be met. The sales are expected to increase averagely 2,7% on annual basis in 2011-2016 period. Besides, the prices are expected to decrease due to the demand for more economic products at that period. Philippines realized 15,9 million-Dollar biscuit import in 2011. Thailand (52,3%) is the number one supplier. Singapore (10,7%), Malaysia (10,1%), Indonesia (15,7%) and USA (2,8%) follow Thailand respectively.
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