Country Profile

Philippines Country Profile

Euromonitor reports that despite the Covid-19 pandemic, the Philippine economy is growing at a healthy pace.

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Export Intelligence Video Series - Southeast Asia

Market Overview

Euromonitor reports that despite the Covid-19 pandemic, the Philippine economy is growing at a healthy pace.  The government’s social distancing COVID-19 measures will weigh on domestic demand, while the slowdown abroad, caused by COVID-19 will affect tourism, trade, and remittances.  Global supply chains have also been disrupted, affecting manufacturing and merchandise exports.  Once the economy has recovered from COVID-19, the outlook remains favorable, with a Growth of real GDP of 6.5% in 2021-2027.

  • The Philippines is one of Asia’s fastest-growing countries. Real Gross Domestic Product (GDP) will increase by 5.2% in 2020 after gains of 6% in 2020. 
  • The real value of private final consumption rose by 5.8% in 2019 and a growth of 5.6% is expected in 2020.  Private consumption should recover strongly.  Private investment is also expected to pick up in line with higher public spending on infrastructure and as lower interest rates stimulate investment.  Remittances rose by 3.7% in 2019. 
  • Inflation should rise by 2.7% in 2020, up from 2.5% in 2019. The central bank’s target range is 2-4%.  Lower global oil prices will be countered by price pressures caused by African swine fever.
  • The economic outlook remains favorable thanks in part to the Philippines’ youthful and growing population.  The growth of real GDP will be 6.5% in 2021-2027.  This outcome would slightly exceed the present estimate for the potential rate of growth.  Private consumption should remain robust, underpinned by remittances, and rising employment.  The possibility of diminished political stability is a risk.

The country’s demographics will drive consumer spending in the medium term.  The well-educated Philippines 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.  The 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 24.1 years in 2020 – much lower than that of other countries in the region.  In 2030, the median age will still be only 28.7 years

USDA’s Office of Agricultural Affairs (OAA) hereinafter referred to as “Post” reports that the U.S. continues to be the Philippines’ number one supplier of agricultural products with 28% of the market share and the Philippines has passed Netherlands and Indonesia and become the 9th largest U.S. export market in the world.  In 2019 U.S. exports of agricultural products reached nearly US$2.9 billion, a decrease of only 2% from that of 2018.  

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 2019 a 1% increase from the same period in 2018.  The Philippines is the largest market for U.S. exports of consumer-ready products in the 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 2019 U.S. processed food exports totaled over US$1.3 billion.  Top 2019 U.S. processed food exports included:

  • Food Preparations
  • Processed/Prepared Dairy Products
  • Processed Vegetables & Pulses
  • Snack Foods
  • Prepared/Preserved Meats
  • Chocolate & Confectionery
  • Condiments And Sauces
  • Dog & Cat Food 
  • Syrups & Sweeteners

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.  While U.S. products often face some disadvantages, the Philippines also generally maintains applied MFN rates applicable below its WTO bound rates.

Advantages and Challenges for U.S. Food Exporters in the Philippines

Market “Advantages” (U.S. supplier strengths and Philippines market opportunities) and “Challenges” (U.S. supplier weaknesses and competitive threats).

Advantages

  • Consumers have a strong preference for U.S. culture, including food and beverage products.
  • There is a growing demand for “healthy,” organic, gourmet, and convenient foods.
  • Rapid expansion of modern supermarket chains and quick service restaurant (QSR) franchises in key provincial cities brings increased access to imported foods and beverages.
  • The economy as a whole is growing faster than agricultural productivity, creating an increased demand for imported foods and beverages.
  • The Philippine applied MFN tariffs are among the lowest in the region and often close to the preferential rates offered to U.S. competitors
  • Real steps are being taken to improve the regulatory environment, including through the Ease of Doing Business Act.

Challenges

  • The peso continues to weaken amidst a widening trade deficit.
  • Distribution of perishable products is still limited by insufficient cold-chain facilities throughout the archipelago.
  • Traditional outlets continue to dominate the majority of retail and foodservice sales with only limited opportunities for imported food and beverages within them.
  • 53% of the population (56 million people) still lives in rural areas with very limited access to imported food and beverage products
  • Smuggling of agricultural products remains prevalent and displaces legitimate sales, particularly for commodities with higher tariffs.
  • Protectionist measures continue to persist for sensitive products, including corn, meat, and poultry, which have also continued to encourage the adoption of non-science based trade barriers.

“All of Food Export’s programs were a tremendous help getting us export ready, understanding the challenges that come with international business, and learning how to navigate them.”

Katz Gluten Free

Food Export-Northeast Participant since 2018

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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$12.3 billion in 2019.  That represents a growth rate of 28.7% or over US$2.7 billion since 2015.  The forecast for growth in this market is also quite promising.  By the year 2024, the retail sales in the packaged food market in the Philippines is expected to reach US$17.2 billion, a growth rate of 30.8% or US$4 billion.  High growth products in the forecast include:

  • Ready Meals
  • Ice cream and frozen desserts
  • Baked goods
  • Savory Snacks
  • Breakfast cereal
  • Dairy products
  • Baby food
  • Processed Meat and Seafood

Post reports that The Philippine food retail sector has grown 25% over the past five years, reaching approximately US$50 billion in 2019.  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 foodservice to food retail has created opportunities for more U.S. food and beverage grocery products to enter the market.  Post forecasts food retail sales in 2020 will reach US$60 billion, up 20% from the previous year.

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. 

Modern food retail markets such as supermarkets, hypermarkets, convenience stores, and warehouse clubs have become essential, especially to those living in urban areas, as customers demand convenience and flexibility. Modern markets are expanding in both urban and rural areas, and close to residential and commercial communities.  Modern retailers are usually cleaner, more comfortable, spacious, and well maintained.  Moreover, supermarkets offer a wider range of choices, including both perishable and nonperishable goods.  The traditional wet markets retain an advantage in fresh products, including meat and seafood, and especially fresh fruits and vegetables.

Over the last five years, warehouse clubs have been expanding throughout the country, with their total sales reaching a record US$82 million in 2018.  Represented by S&R Membership Shopping and Landers Superstore, these two major warehouse clubs both opened new outlets in 2018.  Although these stores are similar in format and size, Landers Superstore is deviating from the original warehouse club model as it also sells items in smaller packs, like those found in supermarkets.  This makes the store more accessible and affordable to customers who require packaged food products and for families living in condominiums with limited storage.  Both stores sell almost 90% U.S.-made and branded products. 

The proliferation of modern convenience stores such as 7-Eleven, Family Mart, Lawson, and Mini Stop is partly due to the bullish business process outsourcing (BPO) industry that operates around the clock.  U.S. brands are widely recognized by Philippine consumers.  Products that can be classified as “convenient,” sweet and savory snack food products, meal-replacements, and ready-to-drink beverages are in strong demand.

Best Prospect Products

Post reports that U.S. products with the best prospects for sales include:

  • Apples, Strawberries, & Table Grapes
  • Baking Pre-Mixes
  • Baked Goods & Snack Foods
  • Cheese
  • Craft Beer & Wine
  • Dog Food
  • Dried Fruits & Nuts
  • Frozen Meat & Poultry Products
  • Frozen Fruits & Vegetables
  • Tomato Paste & Sauces

Food Service Sector

In a Pre-Covid environment in 2019 Post reports that the Philippine food service sector will continue its steady growth over the next three to five years, propelled by consumers’ stronger purchasing power, a larger middle class, higher urbanization, and increasing dining options.  Post projects food service sales will rise 8.6% in 2019 to nearly US$15 billion, and reach a record US$16.1 billion in 2020.  Strong demand in the hotel, restaurant, and institutional (HRI) sector will provide greater opportunities for U.S. exports of food and beverage products to the Philippines. 

There are 92,011 food service establishments in the country, including restaurants, fast food chains, kiosks and counters, cafeterias, hotels, bars, cafés, and catering services.  Most of these establishments are dominated by independent players, some of which have outlets in stand-alone locations.  Among chain players, local operator Jollibee Foods Corporation leads with its wide portfolio of fast food brands. Other important players include Golden Arches Dev Corp (with the McDonald’s brand), Yum! Brands, (Pizza Hut and KFC), Max’s Group, and Shakey’s.

Euromonitor reports that in 2019, the Philippine consumer food market showed signs of recovery from the impact of the more challenging economic conditions experienced in the previous year.  Full-service restaurants, which primarily targets relatively affluent consumers with robust spending power, and street stalls/kiosks, which is capable of responding quickly to changing consumer demand trends, witnessed particularly notable upturns in performance.  

While limited-service restaurants remained the most dynamic consumer foodservice category in 2019, it is likely to take longer to return to previous growth rates because of its reliance on the lower- to middle-income consumers most affected by the deterioration in economic conditions experienced in 2018.  Across consumer foodservice, growth was driven by an increasing demand for convenience amongst busy urban consumers, which players increasingly targeted through innovation in product offer, format and technology. Millennials and, increasingly, Gen Z were key target groups, with a growing number of consumer foodservice operators employing technological innovation, including delivery apps, touch-screen ordering systems, cashless payment options and apps for table booking, to appeal to such consumers.

The Philippine consumer foodservice market is expected to see continued growth over 2019-2024, driven by the ongoing expansion of chained operators, particularly in the limited-service restaurants and full-service restaurants categories.  The expansion of chains to provincial areas will play an important part in driving growth, supported by the use of franchising strategies.  In addition, growth is set to be supported by the rising demand for convenience amongst consumers leading hectic urban lifestyles.  Indeed, this is expected to continue to drive the development and adoption of delivery services across consumer foodservice categories during the forecast period.  This trend and other efforts to adapt to evolving consumer demand are likely to lead to an increasing blurring of the boundaries between established consumer foodservice categories, as players introduce novel products, formats, services, and technological tools.

Best Product Prospects

Reports that based on industry interviews, roughly 25% of all food and beverage (F&B) imports flow through the hotel, restaurant and institutional (HRI) sector.  With most analysts projecting sustained growth in the Philippine economy and the HRI sector, experts anticipate continued growth in F&B import demand across a wide spectrum of products, with some of the fastest growth potential in convenience, gourmet, and “healthy, natural, and organic” categories.

Food-Processing Sector

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.  The Philippine Chamber of Food Manufacturers has acknowledged that there could be gaps in operations as the country adjusts to movement restrictions and that the top food suppliers have up to a month's worth of current stocks.

Post reports that Philippines’ rapidly expanding production of processed foods and beverages presents robust opportunities for U.S. exporters of agricultural raw materials and high-value ingredients.  The industry’s gross value-added output amounted to US$32.5 billion in 2018, 7% higher than the previous year.  Although roughly 90% of industry output is consumed domestically, as quality and efficiency continue to improve the Philippines will be in a position to export to the region due to its strategic location and membership in various free trade agreements.  While most of the roughly 500 food and beverage processors registered under the Philippine Food and Drug Administration are micro to medium-sized businesses, food and beverage processors are also among the largest corporations in the country.

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.

China, Japan, and South Korea in East Asia have a combined population of about 1.7 billion people, while Southeast Asia's 11 countries— Brunei, Burma, Cambodia, East Timor, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, and Vietnam—have a combined population of about 655.6 million people.  Currently, only 10% of the Philippines processed food products are exported.  The prospect of penetrating the lucrative East and Southeast Asian markets is especially strong because of the country’s strategic location.  

The nation’s capital, Manila, is situated within a four-hour trip by air to major ports in the region (six days for cargo vessels).  The short transit time makes it an ideal staging area, especially for frozen and chilled products. The volume of Philippine food exports is expected to rise as quality and competitiveness continue to improve.  This presents a valuable path ahead for U.S. agricultural raw materials and food ingredients to grow in tandem with Philippine exports.

Some U.S. exporters have been able to successfully penetrate the Philippine market by providing Philippine food and beverage processors technical assistance on the applications of raw materials and ingredients.  This is especially true for more “advanced” ingredients such as protein isolates, and less familiar ingredients such as dehydrated potatoes and pea flour.  Other areas for knowledge transfer include product development and innovation, automation of the production process, product preservation, and packaging.

U.S. exporters of agricultural raw materials and ingredients can partner with food and beverage processors and operate within the Philippine special economic zones or “ecozones” regulated by the Philippine Economic Zone Authority (PEZA).  Ecozone operators receive incentives, including duty-free entry of agricultural raw materials and ingredients used for re-export.  Enterprises located inside the zones are required to export 100% of their production. In some cases, PEZA may approve the sale of up to 30% of production in the domestic market.

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.  The wide acceptance food processors and consumers have for U.S. raw materials and ingredients are a tremendous advantage for U.S. exporters seeking to develop a market in the Philippines.

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