Report Highlights

The Philippine livestock industry grew by about 3 percent in 2003, with the swine sector, as the major contributor, growing by 4 percent. Due to strong domestic consumption of pork, hog production will likely continue to grow at a similar rate in 2004. The growth of the cattle industry will likely remain flat in 2004 due to a decline in live cattle imports and a stagnation in calf production. Domestic prices of pork and beef are forecast to remain high in the near term mainly as a result of increased feed costs. After a sharp decline in US beef exports to the Philippines immediately following the US BSE case, imports of US beef rebounded in March of this year. US data show that the export value of US beef to the Philippines was higher in April 2004 than for the same period last year.

Production

According to the Philippine Bureau of Agricultural Statistics, the livestock industry grew by about 3 percent in 2003, with the hog sector as the major contributor. Hog production represents about 80 percent of the total Philippine livestock industry. In 2003, the swine sector grew by 4 percent. Due to continued strong domestic consumption of pork, hog production will likely continue to grow at a rate of 3 to 4 percent in 2004 and beyond despite increased feed cost in the world market. Filipinos are large consumers of swine meat and are known to generally prefer pork to chicken or beef.

Farmgate price of hogs during the first quarter of 2004 increased by an average of 20 percent, compared with the nearly 3 percent decline recorded during the same period a year ago. The rise in farmgate prices, which began in the third quarter of 2003, is mainly attributed to increased feed cost, particularly that of imported soybean meal and corn. The Food and Agriculture Organization (FAO) has reported that prices of pork in world markets will continue its upward trend as demand for poultry and beef substitutes increase due to consumer apprehension of animal diseases like avian influenza and BSE.

As the Philippine population grows at an estimated rate of 2.36 percent annually, one of the challenges for the pork industry in the next two decades will be to triple pork production to meet the projected increase in demand. To date, the industry faces a number of obstacles including the spread of economically devastating diseases such as FMD, high marketing and transaction costs, erratic supply of imported feed ingredients, supplements and biologics, and the limited availability of genetically superior breeding stock.

Animal experts claim that these problems must be properly addressed if the industry is to meet the challenges ahead. The backyard sector, which makes up more than 75 percent of the industry, will play an important role. For the industry to become efficient and productive, experts stress the need for more government and private sector partnerships as well as increased investment in research and development, particularly in the areas of genetics improvement, animal nutrition, health management and product and quality development.

Growth in cattle production is forecast to remain flat in 2004/05. Cattle production remains small at only 20 percent of total livestock production. The decline in imports of feeder cattle during 2003 and throughout the first quarter of this year will also likely keep the growth in total supply of cattle to a minimum. Due to a standstill in imports of cattle and a stagnation in calf production, growth in cattle production is likely to remain minimal in 2004/05.

According to the Philippine Livestock Development Council (LDC), backyard cattle farms still make up the largest share to total cattle population averaging 91 percent during the last decade while commercial farms only represent a 9 percent share. The share of backyard farms to total inventory has increased while the share of commercial farms has declined due to a combination of factors such as the Comprehensive Agrarian Reform Program (CARP), land conversion, a deteriorating peace and order situation, marketing problems, low returns on investments for breeding operations, high cost of funds and the lack of credit.

The emergence of cattle feedlot operations that are more profitable than cow-calf operations due to a shorter production cycle is also a threat to the national cattle inventory and may result in a reduction in the breeding base over the long term, as commercial raisers shift to feedlot operations.

The Philippine Department of Agriculture (DA) announced a special duty-free importation of corn and soybean meal during the early part of the year in an effort to lower the production cost of meat. However, due to increased prices of corn and soybean meal in international markets, the import scheme was not fully utilized by local traders; only about 10,000 MT out of the announced 200,000 MT was imported.

According to the DA, domestic prices of pork, beef and other meats are forecast to remain high over the next two years as the price of feeds remains high. The price of corn and other grains is expected to remain high in the near term as a result of increased demand for feed grains in developing economies such as China. Local farmers have been encouraged to plant more corn to take advantage of this expectation of increasing prices. Despite the recent limited program for duty-free importation of corn, feed prices in the Philippines remain high. According to feed millers, the landed price of imported corn is still at an average of P11/kg while the current price of local corn is about P10 up from about P7.50-P8/kg in early 2002.

Consumption

Last year, the agricultural sector grew faster (3.8 percent) than expected (3.4 percent) with total farm output rising 5.21 percent. The performance of the farm sector helped achieve the country’s GDP growth target of 4.5 percent in 2003, exceeding the previous year’s growth rate of 4.4 percent. Farm sector growth for the first quarter of 2004 reach a 15- year high of 11 percent. Economic planners forecast GDP growth at 4.9 - 5.8 percent this year with farm production expected to improve above its 2003 performance as no major weather disturbance (such as El Nino) is expected. Inflation stood at 3.1 percent last year but is forecast to increase in 2004 due mainly to the rise in oil prices. Good agricultural production and overall growth of the economy will translate into continued increases in meat consumption in 2004 and onwards. According to the latest estimates, the population of the Philippines will reach 84 million in 2004.

Consumption of swine meat is forecast to increase in 2004 due to continued strong demand for pork as well as the temporary shift from poultry to other meat over concerns about the avian influenza (AI) outbreaks in Asia and in the United States. Strong demand for pork and other meats, as substitutes for chicken meat, pulled up retail prices of pork by as much as 20 percent in the first quarter of 2004. However, the increased cost of feed will likely keep retail prices of pork and products high for the rest of the year.

Growth in beef consumption is likely to be insignificant in 2004/05 due to the relatively high price of beef compared with other protein sources. Annual per capita consumption of beef remains very low at less than 4 kilograms. With the growth of the Philippine population estimated at 2.36 percent per year, annual increases in beef production are barely enough to keep up with demand.

Like pork, retail prices of beef remained stable in 2003. However, in 2004, following the trend in pork prices, retail prices of beef also increased by an average of 5.5 percent during the first two months. This was the result of increased production costs as well a shift in demand from chicken to other substitute meats such as beef due to consumer concerns about the various AI outbreaks.

According to the Philippine Food and Nutrition Research Institute (FNRI), the average Filipino diet is composed of mainly of rice, fish and vegetables. Per capita intake of rice and products (282 grams) constitute about a third of the total food consumed per day. Daily per capita consumption of fish and fish products constitutes 99 grams (68 percent), while 48 grams (27 percent) are consumed in the form of meat and poultry.

Trade

In 2003, Minimum Access Volume (MAV) utilization for fresh/frozen/chilled pork improved slightly from 13 to 15 percent. Unlike beef imports which comprise a significant portion of total supply, pork imports represent less than 10 percent of domestic supply. Despite a MAV volume of 50,595 MT last year, imports of pork have not been significant due primarily to the 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.

In 2003, major country suppliers of pork included China (39 percent), Republic of Korea (ROK, 23 percent), France (9 percent) and Germany (6 percent). Nearly half of the country’s 25,000 MT (CWE) of pork imports in 2003 were comprised of processed pork meats, mostly from China. Post numbers for swine meat imports for 2003 have been raised to 22,000 MT to include other HTS codes as instructed by FAS Washington. Post estimates for 2004 and 2005 have also been raised to reflect the new methodology.

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.

MAV utilization is likely to improve in 2004 as retail prices of local pork remain high. The Philippine government also implemented a short-term reduced-duty importation program for pork to lower prices. This incentive will likely result in an increase in pork imports.

Imports of processed meat products like corned beef and luncheon me ats are likely to continue increasing, particularly from other ASEAN countries, due to the low Common Effective Preferential Tariff (CEPT) rate of 5 percent accorded them compared to the 40 percent applied rate levied on products from other countries. China is the largest supplier of luncheon meats while the United States is the primary overseas supplier of sausages in the country.

Policy

The main regulatory agencies monitoring the safety aspects of imported animals, meat and meat products are the Bureau of Animal Industry (BAI) and the National Meat Inspection Commission (NMIC) under the Philippine Department of Agriculture. While the BAI has jurisdiction over the import of both live animals and meat, the NMIC plays a key role in the enforcement of the regulations over fresh, chilled and frozen meat and poultry imports into the Philippines.

Republic Act No. 3639 (RA 3639) established the BAI and empowered it to prescribe safety standards in the importation, labeling and distribution livestock, poultry, meat products, dairy products and animal feeds and veterinary supplies. The BAI is charged with preventing, controlling, containing and eradicating communicable animal disease by regulating the flow of animals and animal products in the country.

Presidential Decree No. 7 (PD 7) authorizes the National Meat Inspection Commission (NMIC) to implement policies and procedures governing post production flow of meat and meat products both locally produced and imported. The Meat Import/Export Services of the NMIC ensures that imported or exportable meat and meat products are produced under acceptable conditions and systems.

Based on Executive Order No. 292 (EO 292) or the Philippine Administrative Code of 1987, all administrative issuances of Department Secretaries and heads of bureaus, offices or agencies should be in the form of circulars or orders. Circulars refer to issuances prescribing policies, rules and regulations, and procedures promulgated pursuant to law, applicable to individuals and organizations outside the Government and designed to supplement provisions of the law or to provide means for carrying them out; while orders refer to issuances directed to particular offices, officials, or employees, concerning specific matters including assignments, detail and transfer of personnel, for observance or compliance by all concerned.

Executive Orders are acts of the Philippine President providing for rules of a general or permanent character in the implementation or execution of constitutional or statutory powers. Republic Acts are legislative issuances enacted by the Philippine President, which form part of the country’s formal laws and regulations. The following Executive and Departmental issuances relating to the importation of meat and meat products were promulgated in 2003 and 2004:

Memorandum Order 33 (MO 33): In January 2004, the Philippine Department of Agriculture (DA) issued Memorandum Order No. 33 (MO 33), which provided new requirements for beef and beef products imported from the United States. This was in response to the detection of Bovine Spongiform Encephalopathy (BSE) in a single dairy cow in the State of Washington in December 2003. MO 33 states that only beef and beef products derived from cattle 30 months of age or below will be allowed entry into the country. Other specified requirements include: only deboned and deglanded muscle cuts of beef from healthy and ambulatory cattle devoid of nerves and any specified risk materials (SRMs) will be allowed entry. Moreover, the production or slaughter date of the cattle must be provided on the packaging label. All information must be verified in writing by a USDA veterinarian. Complete USDA export certification provisions are available at USDA/FSIS URL as follows: http://www.fsis.usda.gov/OFO/export/philippi.htm.

While previously covering only frozen and chilled beef, the DA has extended MO 33 requirements to all processed beef products (i.e., corned beef, hotdogs, sausages, etc.) as well. DA now requires all processed beef products to be certified as coming from cattle 30 months and below and devoid of BSE specified risk materials.

Memorandum Order 19 (MO 19): In June 2004, DA issued MO 19 which enumerates the entry requirement for beef tripe and ox tongues from the United States and Canada. The DA will allow the importation of said products provided they are derived from animals 30 months of age and below and are devoid of BSE specified risk materials. The required information must be certified by the USDA or a DA-accredited third party certification agency.

Executive Order No. 299 (EO 299): On March 29, 2004, the Office of the Philippine President issued Executive Order No. 299 (EO 299) which authorizes the importation of 10,000 MT of swine meat at 10 percent duty. The reduction of pork tariffs was recommended by the Cabinet-level Tariff and Related Matters (TRM) committee in a bid to bring down meat prices and ensure a stable supply of pork. EO 299 allowed the initial importation of 5,000 MT of pork at 10 percent tariff provided that it be brought in before June 7, 2004. The order also gives the Philippine DA the standby authority to import an additional 5,000 MT of pork, depending on the supply situation after June 7. The pork importation must fall under the minimum access volume (MAV) mechanism. The MAV allocation for fresh, chilled and frozen pork currently stands at 50,595 MT. Imports within MAV are assessed a tariff of 30 percent and those outside MAV are charged 40 percent.

Republic Act 9296 (RA 9296): On May 12, 2004, Republic Act 9296 entitled “An Act Strengthening the Meat Inspection System in the Country” was signed into law. According to the GRP, RA 9296 was crafted to harmonize Philippine meat inspection laws with international standards to enable the domestic meat processing industry to participate in global trade. A provision in the new law makes it unlawful for shipping lines and agents to ship meat and meat products to the Philippines without an accompanying Philippine Veterinary Quarantine Clearance certificate. Local meat traders and meat processors oppose this new law as being unduly trade restrictive. The Code took effect on June 18, but its Implementing Rules and Regulations (IRR) are currently being drafted.

Administrative Order 39 (AO 39): In April 2004, DA solicited public comments on proposed amendments to its Administrative Order 39 (AO39), regarding rules governing the import of meat and meat products. According to DA, the amendments are intended to provide a safeguard against the introduction of diseases such as BSE and Avian Influenza, and to stem rampant smuggling of agricultural products into the country.

There are several provisions of the draft amendment that may affect meat export trade. For example, only meat-trading firms sourcing from DA-accredited Foreign Meat Establishments will be allowed to export to the Philippines. Each meat shipment entering the Philippines may be subjected to a mandatory laboratory analysis. All packaging materials used for exported meat products must be marked “FOR EXPORT TO THE PHILIPPINES,” which will put a costly burden on foreign meat packing establishments. The DA will not issue its Veterinary import permits for shipments that have already left the port of origin, which may be inconsistent with the WTO Agreement on Import Licensing, as well as the SPS Agreement. The new draft reiterates the need to secure a Veterinary Quarantine Clearance (VQC) certificate prior to the shipment of meat and meat products from the country of origin.

Local meat importing associations are opposed to the proposed amendments, and have provided comments accordingly to DA. USDA and Manila-based embassies of Australia, Canada, France and Spain have likewise submitted comments to DA expressing concerns about the draft amendments. The GRP has yet to notify the WTO of these proposed changes, and DA is currently reviewing the draft.

Administrative Order 3 (AO 3): In February 2004, DA relaxed restrictions on the importation of pork from the Republic of Korea (ROK). DA now allows the importation of frozen pork and pork products from the ROK provided the meat comes from accredited processing plants and is not sourced from the provinces of Kyongbuk, Kyonggi or Chungbok where there is still an outbreak of classical swine fever (CSF), or hog cholera. This is expected to increase pork imports from the ROK, which is currently the largest exporter of frozen pork to the Philippines.

Tariff Policy: In January 2003, the Philippine government announced that it would undertake a comprehensive review of all tariff lines. In early 2004, the Tariff Commission issued its recommendations for increased tariffs in several sectors and a slowdown in tariff reduction plans in others. While the majority of increased tariffs remain below WTO bound rates, they represent a reversal of the hard-fought reforms of previous Philippine administrations during the 1990s.

The average applied tariffs for 2004 are 40 percent for chicken, 10 percent for beef and 30 (in-quota) to 40 (out-of-quota) percent for pork. Applied tariffs for meat sausages were raised by 10 percentage points from 30 percent to 40 percent, tariffs for prepared meats remain unchanged at 40 percent.

Marketing

While the emerging Philippine retail sector is increasing its role in supplying fresh and frozen meats to consumers, most meat products (90 percent) are still sold in wet markets while only 10 percent is currently sold at the supermarket level. Domestically-produced pork and beef is generally slaughtered at night and delivered “warm” to these wet markets. Refrigeration in Philippine households stands at only 10 percent (2003 Annual Poverty Indicator Survey) and thus fresh beef and pork are cooked very soon after slaughter.

The demand for processed meat products is expected to remain strong. Canned food is very popular among Filipino households. Though canned meat/meat products had been losing popularity in recent years due to increasing awareness of healthy lifestyles, demand for such products is being awakened by more aggressive campaigns by suppliers. Due to low Philippine per capita incomes, demand for frozen food will remain, however, extremely price-sensitive. Hams, sausages, salami and meat patties for burger are favorite chilled processed meats among consumers, with almost equal shares for each.

Demand for imported processed food products will remain relatively strong given the following factors: the growing interest and preference for Western style cuisine, an increasing number of dual-income families and the increasing popularity of branded processed products. Additionally, a growing segment of young consumers is demanding imported products as a growing urbanization of the Philippine population spurs this growth.

Further Information

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