Country Profile

Philippines Country Profile

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Export Intelligence Video Series - Southeast Asia

Market Overview

Euromonitor reports that the Philippine economy suffered its deepest contraction on record over 2020, due to the COVID-19 pandemic and strict lockdown measures.  The Gross Domestic Product (GDP) declined by 9.5%.  However, the economy is forecast to record a strong rebound in 2021, underpinned by expansionary fiscal and monetary policies, recovering external demand, and the easing of lockdown curbs. Growth of 7% is forecast for 2021.  The country is expected to maintain strong growth momentum over the long term and remain among the fastest-growing economies in Asia Pacific.

 

  • The Philippine economy is projected to recover to pre-pandemic levels by early 2022 and expand by an average annual real rate of 6.5% over 2021-2024.
  • Inflation is forecast to remain within the central bank’s 2%-4% target range through to 2025.
  • Exports and imports are set to increase gradually over the medium term, supported by recovering domestic activity and external demand from major trading partners, including China, Japan, South Korea and the U.S.
  • The growth of the country’s foreign investment inflows is likely to remain limited in upcoming years, due to high barriers of entry for foreign investment.
  • All in all, Filipinos abroad sent home a total of US$33.2 billion for 2020.  This is lower by 0.8% than the full-year figure recorded the year prior.  The recent level comprises 9.2% of the country's economic output and 8.5% of its gross national income.

 

The country’s demographics will drive consumer spending in the medium term.  Well-educated Filipinos between 25 and 34 years account for just 3% of the population but more than 20% of discretionary consumption – that is, spending on categories other than basic needs.  This particular demographic group will account for a much larger portion of discretionary expenditure over the next ten years.  Total population reached 109.1 million in 2020 (CIA World Factbook Est.) – far more than double the figure for 1980.  The Philippines also has a much “younger” population than most other Asian countries.  The median age was just 25.3 years in 2019 – much lower than that of other countries in the region.  In 2030, median age will still be only 28.7 years.

 

The Philippines is the second largest labor-exporting country in the world after Mexico. Approximately 7.5 million Philippines, or almost 7% of the total population, are classified as “Overseas Philippine Workers” scattered in 182 foreign countries.  This number does not include the estimated 3 million migrant workers who are undocumented and illegally working abroad.

 

USDA’s Office of Agricultural Affairs (OAA) in Manila, hereinafter referred to as “Post” reports that the Philippines is an emerging market with a service-based economy backed by what economists describe as being in a demographic “sweet spot” and was set to become an upper-middle economy prior to the COVID-19 outbreak.  With a population of 109 plus million in a combined landmass the size of Arizona, opportunities for imported food and beverage products remain significant and continue to offer strong potential for growth into the future.

 

The Philippines is the ninth largest export market of U.S. agricultural products.  The United States remains the largest singlecountry supplier of agricultural products with a 22% market share. U.S. agricultural exports remained resilient in 2020, reaching a record US$3.2 billion.  Consumer-oriented food & beverage products remain the best prospects for future export growth fueled by consumer familiarity with American brands and the steady expansion of the country’s retail, foodservice and food processing sectors.  U.S. exports of consumer ready food products to the Philippines totaled over US$1.1 billion in 2020, holding steady with that of 2019.  The Philippines is the largest market for U.S. exports of consumer ready products in the Southeast Asian region, and ranks 10th overall in the world. 

 

The Philippines is an active importer of U.S. processed foods and now the 6th largest U.S. market.  In 2020 U.S. processed food exports totaled over US$1.6 billion, growth of 21% and also a new record high.  Top 2020 U.S. processed food exports included:

 

  • Food Preparations & Ingredients
  • Processed/Prepared Dairy Products
  • Prepared/Preserved Meats
  • Snack Foods
  • Processed Vegetables & Pulses
  • Dog & Cat Food
  • Chocolate & Confectionery

Post reports that the Philippines provides preferential access to its market through a number of bilateral and regional trade agreements, including those with ASEAN member countries, the European Free Trade Association, Australia, China, India, Japan, New Zealand, and South Korea.  In November 2020, the Philippines further signed the Regional Comprehensive Economic Partnership (RCEP).  While U.S. products often face some disadvantages, the Philippines also generally maintains applied Most Favored Nation (MFN) rates applicable below its WTO bound rates.

 

 

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Retail Sector

According to Euromonitor, retail sales in the packaged food market in the Philippines had been estimated to reach nearly US$14 billion in 2020.  That represents a growth rate of 32.6% or US$3.4 billion since 2016.  The forecast for growth in this market is also quite promising.  By the year 2025, the retail sales in the packaged food market in the Philippines is expected to reach US$19 billion, a growth rate of 26.2% or US$3.9 billion.  High growth products in the forecast include:

 

  • Ready Meals
  • Breakfast Cereals
  • Processed fruit and vegetable
  • Rice, pasta and noodles
  • Pet Food
  • Baked goods
  • Ice cream and frozen desserts
  • Sauces, Dressings & Condiments

Post reports that retail food sales was positively affected by COVID-19 and expected to further increase 10% in 2021 over 2020 levels.  Convenience stores, supermarkets, and hypermarkets made headway during COVID with online shopping.  An increase in purchasing power boosted warehouse clubs and awareness of imported products and have at times faced shortages due to COVID-related supply and demand shocks.

 

Since the start of the COVID-19 outbreak, consumers have been increasingly cooking food at home, driving a surge in purchases of local and imported food and beverage products from supermarkets and online portals.  This unprecedented shift from food service to food retail has created opportunities for more U.S. food and beverage grocery products to enter the market.  

 

Since the start of the COVID-19 outbreak, a growing number of middle- to upper-income consumers have been shifting to home delivery of grocery items.  Modern retailers are ramping up efforts to strengthen their digital presence and take advantage of this growing trend.  To lessen the movement of people, local governments have deployed farm-to-market rolling stores in middle and upper income areas.  Lower-income consumers still opt to buy from mom and pop stores that sell low-priced packaged food products and other cooking ingredients, and from traditional wet markets that sell meat, poultry, seafood, fruits, and vegetables at ambient temperature

 

Three supermarket chains dominate the Philippines food retail scene, but account for only 20% of total sales due to most purchases continuing to occur at traditional retail establishments.  SM Markets is the market leader, followed by PureGold, and Robinsons. Other supermarket chains include Metro Retail, Super8, WalterMart, AllDay Supermarket, and warehouse clubs such as S&R Membership Shopping and Landers Superstore.  

 

In 2020, the 7-Eleven chain from Philippine Seven Corp remained the leading convenience store player, holding up a wide value share margin from other players. However, Alfamart benefitted from the strongest performance in 2020.  The player continued with its aggressive expansion plans amidst the lockdown period, capturing more consumers.  Furthermore, it also sustained double-digit current retail value growth in 2020, overtaking Ministop which previously held the second leading brand position in 2019.

 

Best Product Prospects:

 

Post reports that U.S. products with good potential for success in the Philippines include apples, strawberries, and table grapes, baking pre-mixes, baked goods and snack foods, cheese, craft beer and wine, dog food, dried fruits and nuts,  frozen meat and poultry products, frozen fruits and vegetables, and tomato paste and sauces.

Food Service Sector

Post reports that COVID-19 related measures greatly hurt the foodservice sector, which declined -34% in 2020, and there is no current prospect of recovery in 2021.  Food service providers that still remain in operation have generally shifted to online delivery platforms and curbside pickups.

 

Driven by the increasingly hectic lifestyle of urban consumers, sales of the Philippine food service sector rose to an estimated US$14.9 billion in 2019.  Dining out was an important aspect of Filipino family bonding and celebrations, but since the start of the COVID-19 outbreak, consumers have shifted away from dining out and prefer to cook food at home.

 

Amidst government warnings to stay home, food service players moved their business offpremises and with the help of food delivery companies, made it easier for consumers to purchase meals.  Retailers are also reporting brisk sales in ready meals, growing 12% in 2020 to US$81 million. Industry contacts forecast sales of meals from the overall food service and retail channels will increase 5% in 2021 to US$6.6 billion, as companies introduce higher-quality products and make improvements in e-commerce and delivery services.  U.S. suppliers can grab a share of this market by introducing shelf-stable and frozen ready meals.  With changing consumer habits, Post sees 5% to 8% annual growth over the next five years even after lockdown restrictions have eased and more people dine in restaurants.

Post reports that while the Philippine food service sector was set to grow 8% or more in 2020 to US$16 billion, COVID-19 related measures have reduced prospects to less than $7 billion.  Food establishments that have attempted to re-open have been forced to adapt to changes in regulatory requirements and consumer preferences while importers have been forced to create new sales channels to offset lost sales.

 

Shortly following the arrival of COVID-19, importers faced high inventory levels due to food service establishments suspending or limiting operations to take-out, delivery, and drive-thru services only.  In turn, businesses began to increasingly leverage the Philippines’ leading worldwide usage of social media.  This also gave rise to a new food service distribution channel—to meet the minimum order requirement, community resellers have organized group buys among housewives and home-based entrepreneurs who sell prepared foods within their communities.  As a result, a wide range of imported food service products quickly became accessible and more affordable to consumers.

 

Importers are hopeful this direct link with dedicated community resellers and home-based entrepreneurs will continue long after the COVID-19 outbreak tapers.  Industry analysts say it will take at least six months for the Philippine dine-in scene to bounce back once the COVID-19 outbreak tapers.  In the meantime, the establishments that have remained in business are enrolling in food delivery platforms such as FoodPanda and GrabFood, adapting to other consumer preferences, including curbside pick-up and cashless payment platforms such as GCash and PayMaya, while also continuing to explore niche markets and trends, including higher demand for plant-based food.

 

Best Product Prospects:

 

Post reports that consumer foodservice products with high potential in the Philippine market included baking ingredients and premixes, fresh fruit and vegetables: apples, blueberries, grapefruit, pears, potatoes, strawberries, table grapes beverages: fruit and vegetable juices, craft beer, spirits, and wines frozen fruits and vegetables oils, condiments, and sauces frozen meat and poultry: prime cuts, utility grade, offal, processed products dairy: gourmet cheese products, yoghurt frozen seafood: crab, salmon, scallops, shrimps, tuna, and other seafood products dried and processed fruits: cranberries, raisins, prunes, wild berries nuts: almonds, peanuts, pecans, pistachios, walnuts flavors and syrups other processed products: baked goods, canned seafood, plant-based foods, and prepared foods.

Food-Processing Sector

Post reports that following two years of contraction, the Philippine food manufacturing sector is expected to expand 1% in 2021.  Household consumption expenditures of food and non-alcoholic beverages remain relatively strong, up 5.3% year-over-year in the fourth quarter of 2020.  Philippine food manufacturing continues to offer excellent opportunities for a number of U.S. products, including but not limited to dairy, milling wheat, and raw materials for processed meat products.  

 

Following supply disruptions in March-April 2020 and designation as an essential industry, capacity utilization rates continue to fall.  Value of production in January 2021 dropped 18% year-over-year.  Meanwhile, the sector remains buoyed by household consumption expenditures of food and non-alcoholic beverages, which were up 5.3% in fourth-quarter 2020 over 2019.

 

The rapidly expanding processed food and beverage sector in the Philippines presents robust opportunities for U.S. exporters of agricultural raw materials and high-value ingredients.  The industry’s gross value-added output reached US$35.8 billion in 2019, up 39% over the past five years.  That being said, the immediate focus of food manufacturers and the Philippine economy more broadly is handling the outbreak of COVID-19. The Philippine government has implemented enhanced community quarantine throughout the island of Luzon, affecting half the country's population and many of its food manufacturers. 

 

Trends

 

  • Local food manufacturers have started online selling direct to consumers, through volumes remain limited.
  • Rise of resellers, small and medium enterprises, including some featuring food ingredients
  • Stay-at-home orders continue to keep many workers and children at home, which (1) has fueled demand for pantry items, including baked goods and mixes, canned goods, cooking oils, milk, and snack foods as well as products, larger package sizes, and products with extended shelf-life (e.g., dehydrated and frozen products) as well as (2) allowed consumers to redirect their discretionary spending on purchasing premium products.
  • Increased interest in larger or commercial packages being sold to end-consumers
  • Local manufacturers are investing in plant-based meat alternatives for snacks and meals as well as those advertising health properties.

Post reports that the Philippines food processing sector’s gross value-added output is on track to reach US$38 billion in 2020, up 5% from the previous year.  Roughly 90% of the country’s processed food products are consumed domestically.  Food processors are reporting brisk sales in household staples, such as baked goods and premixes, canned goods, cooking oils, frozen prepared foods, fruit juices, and snack foods amidst the COVID-19 pandemic.

 

About 65% of U.S. agricultural products exported to the Philippines flow through the food and beverage processing industry, including wheat.  The United States holds a 97% share of wheat exported to the Philippines that is milled for food use, half of which is utilized by the local baking industry.  While wheat and other products such as meat, dairy, and poultry products comprise the bulk of sales, functional ingredients such as protein isolates, powdered eggs, processed fruit and vegetables, and tree nuts play an important role.  Philippine consumers have a generally favorable view of U.S. products, which local food and beverage processors exploit by highlighting U.S. ingredients on product labels.

 

The Philippine Economic Zone Authority (PEZA) provides incentives, including duty-free entry, for agricultural raw materials and ingredients used for the manufacture of products primarily destined for re-export.

 

Best Product Prospects:

 

Based on interviews with Philippine food and beverage processors, the top prospects for U.S. agricultural raw materials and ingredients include poultry cuts, mechanically deboned meat, trimmings and beef offal, milk and whey powder, and cheese and other dairy products.  Imported agricultural raw materials can be combined with locally available products such as tropical fruits and vegetables, cacao, sugar, and seafood to come up with innovative product offerings.

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