Report Highlights:

Philippine swine production is forecast to decline in 2005 as a result of sporadic outbreaks of animal disease throughout the country and a continuing rise in production costs. Cattle production is expected to remain flat in 2005 as the breeder base stock continues to fall. Due to sluggish domestic cattle production, imports of carabeef are expected to continue growing mainly for use by the food processing industry. The projected slowdown of the Philippine economy, along with the continued rise in meat prices, will likely dampen consumption of beef and pork in the near term.

Production: Swine

According to the Bureau of Agricultural Statistics (BAS), the Philippines’ swine inventory as of January 1, 2005 was estimated at 12.14 million head, down compared to last year’s level. Although animal inventory in commercial farms increased slightly, the decrease in hog numbers in backyard farms contributed to the decline in total stock of swine.

The Philippine hog industry is comprised mostly of backyard operations in contrast to other neighboring Southeast Asian countries. At present, about 76 percent of total swine stocks are raised in backyard operations while only 24 percent come from commercial farms. In 2004, the output of the domestic swine industry, which contributes about 80 percent to total Philippine livestock production receipts, declined minimally after enjoying several years of continued growth, due in part to the closure of some backyard operations, the availability of inputs and rising production costs.

This low level of hog production was reflected in the drop in animal and slaughter numbers recorded last year. Hog production is expected to decline once again in 2005 due in part to reported sporadic outbreaks of animal disease throughout the country as well as the continuing rise in production costs. However, a slight improvement in output is forecast for 2006 as farmgate prices of hogs continue to climb, giving industry an incentive to increase production.

The average farmgate price of swine in 2004 rose by a significant 34 percent from the previous year. The rise in farmgate prices, which began in the third quarter of 2003, has been mainly attributed by hog farmers to increased feed cost, particularly of corn and imported soybean meal, high costs of animal biologics and the rise in transportation costs. At present, ex-farm hog prices (as well as retail) remain at an all time high despite assurances from the domestic hog industry of adequate stocks for the rest of the year. According to traders, unlike 2004, yellow corn and soybean meal (SBM) prices have remained quite stable throughout the year due to ample supply.

Last year, more than half of the total swine population came from the top five producing regions namely: Central Luzon (13.7 percent), CALABARZON4 (13 percent), Western Visayas (9.5 percent), Central Visayas (7.6 percent) and Davao Region (7.4 percent) The supply chain for the Philippine hog industry starts with input procurement of feed ingredients sourced either domestically or from imports, with feed milling activities integrated with operations of medium and large commercial farms. Live hogs are then brought to slaughter houses and eventually are sold through wholesale and retail distribution channels. Large integrators also have grandparent (GP) stock farms supplying their sow fattener operations, either by contract breeding for sows or contract growing for fatteners.

Consumption

The National Economic Development Authority (NEDA) still forecasts GDP to grow at 5.3 percent in 2005 despite record high world oil prices. According to several analysts, GDP growth in 2005 is expected slowdown to about 5 percent from 6.1 percent last year, due to projected weak agricultural growth, sluggish exports and high oil prices. Moreover, new taxes such as the Expanded Value Added Tax and additional excise taxes are most likely to dampen consumer spending. However, remittance from overseas Filipino workers is expected to augment consumer spending.

Filipinos are relatively large consumers of pork and are known to generally prefer pork to chicken or beef. However, as a result of the all time high retail price of pork and beef, a slowdown in total red meat consumption for 2005/06 is predicted, as consumers shift to other lower priced protein substitutes such as chicken and seafood.

While per capita consumption of beef increased in 2004 due to growing demand for processed meat products, there was a slight decline in per capita pork consumption observed during the same period.

Pork

In 2004, the retail price of pork recorded an average annual increase of 20.85 percent over 2003. Wholesale prices also registered a significant increase averaging 26.97 percent in 2004 compared to previous year’s level. High prices of pork are likely to continue with supply of pork quite tight due to a decline in first quarter output.

Trade

In 2004, Minimum Access Volume (MAV) utilization for fresh/frozen/chilled pork improved from 15 to 19 percent. Unlike beef imports which comprise a significant portion of total supply, fresh/frozen pork imports represent less than 10 percent of domestic supply. Despite a MAV volume of 53,005 MT last year, imports of pork have not been significant due primarily to prohibitive tariff rates of 35 percent (in-quota) and 40 percent (out-of-quota) for swine meat. There have been no imports of pork outside the MAV.

Another factor for the low level of pork imports is the preference of most Filipinos for freshly slaughtered meat, as a significant majority of consumers still buy their food from wet markets. However, recent reforms in the retail sector, particularly the liberalization of the retail market and the growth and development of the modern Philippine supermarket, are slowly changing shopping patterns and food choices of Filipino consumers.

In 2004, major country suppliers of pork were France (57 percent), Germany (12 percent), South Korea (7 percent) and Denmark (7 percent). France and Germany have displaced traditional Asian sources such as China and South Korea. Over 45 percent of the country’s total pork imports last year were comprised of processed pork products.

Pork imports (excluding pork fat & offals) increased slightly in 2004 to reach 24,000 MT. Pork imports are likely to increase in 2005 to compensate for the reported contraction of the livestock sector during the first half of 2005.

Further Information

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Source: USDA, Foreign Agricultural Service - Annual Livestock and Products Report - September 2005