Region/Countries: Asia Industry: Agriculture / Timber, Food and Beverage Date: September 2016

Why this is important to Wisconsin businesses: Although the country's agricultural sector is developing, it cannot supply food at a rate fast enough to satisfy demand among a growing middle class.

Long-term projections bode well for the Philippines' agribusiness sector, as the country prepares to expand into new industries such as palm oil. Particularly positive is the outlook for sugar production and for the livestock industry, which is showing healthy growth rates. The Philippines has a vast consumption market, and the government has strategies for attracting foreign investment and expanding output. However, backyard farming and infrastructure problems, especially transport costs, are acting to hamper the sector's growth. Agriculture in the country remains uncompetitive overall, and imports, especially from labor-abundant countries, are projected to rise.

The Philippines has been severely affected by El Niño, which has led to a prolonged period of unusually dry weather. Although the effects of El Niño are tapering off, rainfall in the Philippines remained significantly lower than normal, and production forecasts have been revised downward for commodities including rice, corn, sugar and coffee. Consequently, imports are projected to rise strongly to meet domestic demand. Milk and livestock production are holding up better than other commodities, but output is still slowing.

The U.S. is the biggest supplier of agricultural products to the Philippines. In 2014, export sales increased by 9 percent to a record $2.73 billion. The top five U.S. exports to the Philippines by value in 2014 were wheat, soybeans and soybean meal, dairy products, red meats, and poultry meat and products. Analysts consider the goods with the best potential for future export growth to be consumer-oriented food and beverage products. Opportunities are created by the growing purchasing power of a rising Filipino middle class, especially in urban areas. Moreover, local consumers generally are familiar with American brands and value them.

American food and beverages companies exporting to the Philippines give the following impressions of the local market:

  • Personal relationships are very important for local businessmen, and Wisconsin exporters are encouraged to develop relationships with their partners and potential partners.
  • Importers in the Philippines tend to prefer exclusive distributorship agreements.
  • Only a few retail supermarkets have the capacity to import directly.
  • The country’s food regulations and standards generally follow the U.S. Food and Drug Administration.
  • Wisconsin exporters are advised to require payment of goods via letter of credit, especially for initial transactions. Credit terms may be extended to the importer after conducting a thorough background and credit investigation, and after payment habits have been established.
  • Distribution hubs are lacking. Identifying importers that can distribute to the three major cities of Manila, Cebu and Davao is an important priority. Most importers distribute on their own, while some appoint distributors.
  • Filipino consumers prefer smaller packaging sizes.
  • The country’s cold chain infrastructure is insufficient, and products should be packed to withstand extreme heat and humidity.
  • The cost of inter-island shipping is very high, making imported products more expensive in areas outside Manila.

Mindanao, the second-largest (and southernmost major) island in the Philippines, represents a special opportunity for Wisconsin exporters. In August, the Mindanao Business Council announced plans to build on the island’s strengths in agriculture and encouraged members of the US-ASEAN Business Council to set up operations on the island, welcoming American investment in the agricultural sector.

In recent years, competition for U.S. companies has intensified, and new challenges have emerged due to various bilateral and regional free trade agreements (FTAs) between the Philippines and other countries. Wisconsin would benefit from establishing an early foothold in the Philippines, especially as the country began negotiations with the EU in 2016 for a potential FTA, which would open the market to European competitors. Similarly, as regional economic and financial integration in Southeast Asia proceeds with the full implementation of the ASEAN Economic Community in 2016, agricultural companies from other ASEAN member states will increasingly gain market share at the expense of uncompetitive local producers.