September 15, 2003



Philippines 2003 Poultry Production Seen Higher

Philippines broiler production is forecast to sustain its upward trend in 2003 but at a slower pace, according to information from the U.S. Department of Agriculture.


Executive Summary


Strong production of chicken meat particularly during the latter half of last year resulted in an oversupply situation, which pulled down poultry prices. Broiler production is forecast to expand in 2003 but at a slower rate. Large integrators are likely to closely manage the supply of chicken meat this year to avoid the sharp decline in prices experienced last year.


Demand for chicken will likely remain strong as income and population size continue to rise. Imports of chicken cuts are likely remain flat in 2003 with U.S. chicken maintaining its dominance, the press release said.




Official figures released by the Bureau of Agriculture Statistics (BAS) show that chicken meat (16-week) production grew by nearly seven percent in 2002, prompting post to revise 2002 production upwards to reflect the higher growth achieved by the domestic poultry industry.


As a result of the increased production, particularly during the latter half of the year, an oversupply of chicken occurred which pulled down farmgate prices by an average of 7.2% last year. The largest monthly decline in farmgate price, at 21.2%, was recorded in March of last year.


Poultry production is forecast to continue growing in 2003, albeit at a slower pace, as poultry producers closely manage poultry production to avoid the near disastrous 2002 situation.


The oversupply condition continued throughout the beginning of 2003 forcing poultry players to initiate production cutbacks. As culling of birds took effect and the increased summer temperature reduced poultry expansion, chicken meat prices recovered marginally.


However, the Department of Agriculture (DA) predicts that the price of chicken meat will likely remain low due to increased production of broilers. This year's live chicken production is forecast at 594 million head, 25% more than the previous year. The forecast chicken increase is largely due to the increased day-old-chick (DOC) importation made during the last two years. Last year, some 1.46 million parent-stock DOCs brought in for layering purposes, resulted in a bumper production of broilers.


Poultry production will continue to grow next year fueled mainly by the strong demand for poultry meat. However, the growth may be dampened by relatively high local feed costs.


The Philippines has one of the highest feed costs in Southeast Asia. Yellow corn costs P8.47 per kilogram as compared with P5.44 in Thailand while soybean meal cost P13.45 per kg. compared with P11.39 in Vietnam. Moreover, the domestic corn industry remains one of the most protected, with tariffs for imported corn as high as 50%.




The Philippine Gross Domestic Product (GDP) in 2002 grew better than expected at 4.6% while Gross National Product (GNP) expanded by 5.2%. According to the National Economic Development Authority (NEDA), the Philippine domestic economy grew faster last year than the 3.2% posted in 2001. The growth was the highest for the country since the 1997 financial crisis surpassing even the government's GDP forecast of 4.5%.


Economists from the International Monetary Fund and the World Bank expect a growth of 3.9% to 4.0% this year, below the official forecast of 4.2% to 5.2%. However, some analysts think that a recession is unlikely because of the expected good farm production and better domestic spending.


The Philippines has a large consumer market, made up of approximately 80 million people and growing annually at around 2.36 percent. According to the United Nations Population Division, the Philippine population is expected to reach 100 million by 2010 and will double to 160 million in 30 years. Consumption continues to be the dominant driving component of Philippine GDP with a commanding 78% share.


The growing remittances from Overseas Filipino Workers (OFW), almost as large as the country's total agriculture and fisheries output, likewise continue to boost domestic spending.


In 2002, OFW remittances amounted to more than $8 billion. These remittances or "net factor income from abroad" rose by 15.5% in 2002 compared to the previous year. Broiler meat consumption estimates for 2002 were adjusted upwards to reflect the strong demand caused by increased supply and lower prices. Higher consumption figures also resulted from the zeroing out of broiler stocks. There are no official stock holding programs at the national or even at the provincial level in the Philippines.


Retail prices of broiler meat declined by 6.7% in 2002 while wholesale prices plunged even more, by 15.4%. Prices are forecast to remain steady throughout the rest of the year.


Chicken meat consumption in 2003 is expected to improve over last year driven mostly by the expanding population and increasing incomes. The continued low retail price of chicken will likely boost demand for broiler meat.


Consumption of chicken meat is likely to sustain its strong growth in 2004 as the Philippine economy - driven mainly by the growing remittances of OFW - continues to grow and as the population continues to expand. Per capita consumption of chicken meat, however, remains low in the country. Despite improved growth in per capita consumption in the last three years, chicken meat consumption remains one of the lowest in the region.




Chicken meat imports are expected to remain flat in 2003, due to left-over stock from the high production in 2002. The majority of poultry meat imports will continue to be chicken cuts, primarily leg quarters, with the United States and Canada dominating trade. Imports of chicken meat from Canada increased significantly in 2002 from previous year levels and are forecast to continue growing in 2003. Imports of US chicken cuts are forecast to improve in 2003 as imports for the first half of the year have already surpassed last year's levels. Despite continued increases in production, imports of chicken meat, particularly chicken leg quarters are expected to continue, primarily for use in the growing fast food and retail sectors.


Data from the Minimum Access Volume (MAV) Secretariat of the DA show that utilization rates of sensitive agricultural products covered by the MAV generally increased in 2002, compared to the previous year. MAV usage for fresh, chilled and frozen poultry meat grew from 60% to 85.5%. With an increased number of MAV quota applicants for poultry this year, utilization is expected to improve as more players move into the lower priced chicken leg quarter market which is currently dominated by the United States. As of July 2003, 60.2% of the total MAV allocation for 2003 had been utilized. In the past, the bulk of in-quota poultry imports enter during the last quarter of the year.




Many large poultry integrators suffered significant losses in 2002 because of weak poultry prices, high input costs and operating expenses which reportedly prompted the culling of birds at the start of 2003.


The Philippine poultry industry has recently undergone major structural changes. Two years ago, there were at least five major integrators, namely, San Miguel Foods, Swift Foods, Purefoods Corporation, Tyson-Agro and Vitarich Corporation. With San Miguel's acquisition of Purefoods and the difficult year of many integrators, there are now only three players: San Miguel-Purefoods, Swift Foods and Tyson-Agro.


San Miguel's (the country's dominant food company) poultry business has reportedly been strengthened by its acquisition of Purefoods. Traditionally, San Miguel's Magnolia brand had been strong in the food service and retail sectors for dressed chicken while Purefoods' Supermanok brand dominated live broiler and retail value-added sales. The newly-merged company now claims that it produces two out of every five chickens sold.




The DA has informed Office of Agricultural Affairs (OAA) that it would no longer allow U.S. poultry labeled for other destinations to enter the Philippines. Despite assurances from Post that any product accompanied by a Food Safety and Inspection Service (FSIS) certificate of wholesomeness fully meets food safety requirements of the Philippines, DA will no longer accept mislabeled poultry product. Last year, a poultry shipment that was labeled for Russia was detained and allowed entry only after a guarantee of safety and wholesomeness from the OAA.


The Philippine Association of Broiler Integrators (PABI) has asked the DA to include processed poultry products in the list of highly sensitive products under the ASEAN Free Trade Association-Common Effective Preferential Tariff (AFTA- CEPT). Effective July 2003, all processed poultry products from the ASEAN region are subject to a 5% tariff while all similar products from non- ASEAN countries are taxed at 40%. The group has voiced concerns that it may lose its market on special marinated cut products bought by the fast food chains. Thailand is cited as a big threat to the industry since it sells its chicken leg quarters at a much lower price than locally produced product.


The Bureau of Animal Industry has banned the importation of all poultry and poultry products from the States of California, Nevada and Texas after a reported outbreak of New Castle Disease; this ban is still in effect.


In-quota and out-of-quota tariffs for fresh, chilled or frozen chicken meat (0207) and processed poultry products (1602) were supposed to have been reduced to 40% beginning Jan. 1, 2003. However, the Office of the Philippine President issued Executive Order No. 164 (EO 164) on Jan. 10, 2003, that effectively delayed the scheduled tariff rate reduction until June 30, 2003. 


While delaying tariff reductions for some products such as chicken, EO 164 temporarily froze tariff rates at 2002 levels for others. Effective July 1, 2003, fresh, chilled and frozen chicken meat are levied a 40% tariff which will be in effect until the end of 2004. Tariff for processed chicken will decline to 30% next year.

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