September 17, 2013
Philippine pork confronts foreign competition, both domestic and external
Swine producers face competition from abroad by imports and impending trade liberalisation and from within by technically savvy, deep pocketed foreign integrators.
by Gemma C. DELMO
An eFeedLink Hot Topic
It looks like the Philippine swine industry's situation with pork imports might take some time to resolve. After rising by 536% from 2001 to 2010, political pressure and stronger enforcement of trade laws brought imports down over the last three years, but they remain at historically high levels.
Consequently, in 2012, pork farmers incurred losses of almost PHP10 billion or more than US$200 million due to cheaper imported pork cuts which are certainly preferred by consumers and meat processors. But after a three year respite from the import flood's worst, foreign competition is about to heat up again, and in more ways than one.
Western imports, customs corruption
In respose, agribusiness stakeholders blamed government agencies, particularly the Bureau of Customs (BoC), for continuously allowing pork muscle shipments to be misdeclared as offals or pork innards so that they can avoid paying import duties. According to Edwin Chen, president of the Pork Producers Federation of the Philippines (ProPork), a 20-foot container of 25,000 kilograms of choice pork parts declared as offals enables unscrupulous traders to pay a tariff of 5% at PHP40,000 (US$901.40) instead of the official PHP650,000 (US$14,650.02), 35% tariff for designated for such imported pork cuts.
Pork producers alleged that some corrupt BoC officials are behind the massive illegal trade and to be fair, the BoC has long been known and publically perceived as the most corrupt of the country's public bodies.
In a paper by Florence Mojica Sevilla, senior agribusiness specialist of the Centre for Food and Agribusiness at the University of Asia and the Pacific, it was stated that, "Pork imports, which should only be used by meat processors for their specialty meats or canned meat products, are being sold in the market where, some vendors thaw it and pass it off as freshly slaughtered domestic pork."
Moreover, pork offal, made from pork innards, which has little value in the exporting countries, is sold at very low prices. Imported pork skin, for example, is much cheaper at about P50/kg (US$1.16/kg) than locally-produced pork cuts priced at around P160/kg to P180/kg. (US$3.72/kg to US$4.18/kg)
ASEAN free trade & a new AAA slaughterhouse
Incessant technical smuggling is a perennial headache of pig farmers, says Dr. Zoilo Lapus, one of the country's top swine experts. "Despite strong protests by swine industry stakeholders, pork imports -legal or not- continue. To curtail this problem, it is suggested that proper documents stipulating the actual load per container at the origin should be sent to authorities in the Philippines so inspecting would be easier," he said.
But enforcement of trade laws is only half of the solution. The price of domestic pork must fall and its quality must increase relative to imports.
Towards the latter end, the constructing of a AAA quality slaughterhouse is anticipated to improve the quality of local pork so that it compete with its much cheaper counterparts. In this respect, Department of Agriculture is already eyeing the opening of a PHP150 million (US$3.37 million) "AAA" slaughterhouse before the end of this year.
Manuel Jarmin, director of the Livestock Development Council, the agency tasked to oversee the construction of the abattoir says the complex will be capable of processing 250 hogs per hour. Jarmin says return of investment for the slaughterhouse is estimated to be 12 percent of its cost after five years of operation. Although that is a somewhat anemic return, the new facility will ensure that the Philippine swine sector will be competitive relative to that of neighbouring Southeast Asian countries in time for the ASEAN Economic Community's 2015 trade liberalisation.
But will the facility encourage meat importers and processors to shift to local pork? Dr Lapus doubts it. "Building AAA slaughterhouses may not really encourage meat importers to buy local pork. They will only do so if there is consistent carcass quality available," he says.
This is ironic, as the quality of Philippine pork is rising, but not in a way that makes domestic Philippine producers sleep well at night. Instead, foreign investors are the ones leading the way, by establishing new, state of the art facilities.
Domestic competition from foreign integrators
For example, Thailand's biggest conglomerate and one of the world's famous multinational companies Charoen Pokphand Foods (CP) is posing a huge challenge to local livestock raisers. With CP's advanced management system, the Thai firm will is putting competitive heat not just on common livestock farmers but also on the country's largest integrators, including San Miguel Corporation.
Pundits claim that even San Miguel's consolidated resources (2011 revenues from all business lines of US$20 billion), are no match for CP's gigantic, integrator-driven revenues of US$33 billion annually. Moreover, CP is already among the biggest poultry producers in the world whereas San Miguel only accounts a measly portion of the global poultry trade with its chicken yakitori (skewered grilled chicken).
Earlier this year, there were loud protests when the government gave CP US$120 million in investment and tax perks that was never offered to domestic producers. According to Jesus Arranza, chairman of Federation of Philippine Industries, "They did not even bother to consult the domestic producers and we cannot understand why the Board of Investments did not hold a public hearing."
Arranza adds that according to the Swine Development Council, domestic integrators including San Miguel and Bounty Fresh, have invested over PHP300 billion (US$6.78 billion) in the industry –without ever receiving the types of investment incentives or tax breaks offered to CP. If there was bias in the way CP received subsidies, we may indeed expect the government to keep the peace by offering similar incentives to domestic companies over the next few months.
With the upcoming implementation of ASEAN Economic Cooperation's (AEC's) pork trade liberalisation in 2015, Dr. Lapus worries that erroneous moves of the government might put the Philippine swine industry in danger. "Our swine industry receives no government subsidy. Hence, we are hostage to costly production inputs, particularly feed and veterinary medicines. While our commercial farms have access to updated technology, the 65% accounted for by backyard raisers continue to struggle thereby pulling down the country's swine production performance."
Hence, while foreign pork challenges the industry on one side, foreign investment in the Philippines itself also increasingly buffets domestic producers. But fighting back by increasing exports of Philippine pork will not be that easy.
Being declared free from foot-and-mouth-disease by the World Organization for Animal Health (OIE), exporting will not be that easy, says Dr Lapus. "While we are getting ready to export out of Northern and Southern Mindanao, we still have to get clearance and declared free of the Ebola virus and Hog Cholera or Classical Swine Fever. Strict biosecurity and sound vaccination programs based on regular laboratory disease profiling of the farm is instituted."
Lapus adds that going forward, "The biggest challenge of the Philippine swine industry is improvement on the factors that would result in better profitability. These include litter size, feed efficiency, carcass quality and growth rate. These should be done at the lowest possible production costs. With AEC, we could also expect foreign-owned farms like CP to be set up [additional integrated operations] in the country."
Still, Dr. Lapus remains optimistic of the industry's prospects. "The industry will continue to be the most profitable among all species in the next 5 years, as 68% of Filipinos prefer pork as their meat on the table. The commercial sector will continue to grow from its current 35% share of the market".
With incomes now rising rapidly, a fast growing market of 100 million people is assured. The real questions are how much of the pork will be produced domestically, and how much of that by Philippine-owned farms.
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