Report Highlights:

Producing less than one percent of its growing dairy requirement of 1.991 million metric tons (MMT) in 2015, the Philippines continues to be a major global importer of dairy products, especially milk powder. Due to the continued rapid expansion of the food processing industry and large global dairy supplies in 2015, total imports are expected to increase to 1.800 MMT (from 1.740 MMT in 2014). Major suppliers are New Zealand (30 percent), the United States (24 percent), and Australia (7 percent). The Philippines was the 4th largest market for U.S. dairy products by value at $422 million (up 16 percent) in 2014. Due to increasing global milk production, and supplies, a sharp decline in world dairy prices, as well as a strengthening U.S. dollar, U.S. dairy exports in 2015 are expected to drop about 40 percent by value and may only reach $255 million by the end of the year. U.S. dairy exports by volume are expected to remain flat. While milk powder exports dominate this category, there has also been strong growth in U.S. whey products and buttermilk sales. Dairy products are the country's third largest agricultural import after wheat and soybean meal.

Production:

The country produces less than one percent of its total annual dairy requirement and imports the balance. Data from the Philippine National Dairy Authority (NDA) shows that local dairy production was at 20,010 metric tons (MT) in 2014, up from 19,530 MT in 2013. The value of dairy production in 2014 amounted to P629 million ($13.56 million). Local milk production is projected to reach 21,000 MT in 2015 and will likely continue expanding on an annual basis due to strong demand for fresh milk and growing dairying capabilities.

As of January 2015, the Bureau of Agricultural Statistics estimated the nation's total dairy herd at 19,792 dams and does, an increase of 2.5 percent from the previous year. These were comprised of dairy cattle (10,036), water buffalo (8,736) and dairy goats (1,020). Dairy cattle numbers increased in 2015 due in most part to the ongoing government herd build-up programs and the growing number of dairy multiplier farms of the NDA. Dairy cattle numbers are expected to continue increasing by about 1,000-1,500 head per year for the next several years.

The average Philippine milk production per animal (8 liters/day) remains low due mainly to poor feed and management practices as well as high production costs and a lack of an adequate dairy infrastructure. According to various sources, the average daily milk yield in the United States is around 30 liters/day and about 20 liters/day in the United Kingdom. According to the NDA, the average farm gate price of milk as of July 2015 was P25/liter ($0.55/liter). By contrast the corresponding farm gate price of milk in the U.S. is about $0.38/liter ($16.60 hundred weight) as of July 2015.

There are four main types of dairy farms in the Philippines: individual smallholder producers (who consume and sell locally what they produce), smallholder cooperatives (who deliver their milk to a collection point for transport to a processing plant), commercial farms (which supply processors), and government farms (which supply school and rural community feeding programs).

In answer to the country's cold chain challenges and limited production, a significant amount of Philippine fluid milk supply is actually Ultra High Temperature (UHT) milk reconstituted from imported milk powder.

Consumption:

NDA estimates 2014 domestic dairy requirements to be at 1.991 million MT. According to FAO estimates, annual per capita milk consumption in the Philippines is at 22 kg, compared with Thailand at 26 kg, Malaysia at 52 kg and the United States at 287 kg. With a strong economy and a growing population of roughly 102 million in 2015, the Philippines is a large and rapidly expanding market for milk and milk products. Other factors contributing to the long term trend of strong growth in local dairy consumption are expanding cold chain capacity, an increase in the number of supermarkets, and a blossoming food processing industry

According to NDA, one out of every three glasses of fresh liquid milk (not reconstituted from powder) consumed in the Philippines is produced locally. A Filipino family now spends a little over P4000 ($90) per year for dairy products.

According to the NDA, half of smallholder milk production goes to school and community milk feeding programs and the rest to local commercial sales or household consumption. With dairy production in the country being more community-based, maintaining the quality of fresh milk is a challenge due to the lack of processing and distribution systems, and a dependable, continuous cold chain.

Trade:

U.S. Exports to the Philippines Increase 16% in 2014

The Philippines was the 4th largest market for U.S. dairy products by value at $422 million (up 16 percent) in 2014. The top U.S. dairy exports to the Philippines in 2014 were nonfat dry milk powder ($292 million), whey ($18 million) and cheese ($14 million). However, due to increasing global milk production and supply and the corresponding sharp drop in world dairy prices as well as a strengthening U.S. dollar, 2015 U.S. dairy exports are expected to decline by about 40 percent by value and may only reach $255 million by the end of the year. Dairy exports by volume (MT) are expected to remain flat.

Philippine Dairy Imports

Dairy products are currently the country's third largest agricultural import after wheat and soybean meal. Total 2015 imports of dairy products are forecast to recover to reach 1.800 MMT (LME) due to strong local demand. Post expects imports in 2016 to continue to rise as growth in demand will continue to outpace any increase in domestic production.

The major country suppliers to the Philippines by volume are New Zealand with 30 percent share of total imports, the United States with 24 percent, and Australia at 7 percent. U.S. dairy exports to the Philippines have increased dramatically over the last 5 years and have continued to increase in market share.

Skim Milk Powder (SMP) and Whole Milk Powder (WMP) imports currently comprise about 59 percent of total dairy imports. SMP imports dropped by 16 percent while WMP imports declined by 25 percent in 2014. Liquid milk import declined 8 percent. Imports of butter and other dairy spreads also increased by 3.33 percent and imports of cheese also rose by 7.25 percent.

VOLUME OF DAIRY IMPORTS

('000 MT, in LME) [1]

1. Milk and Cream

2013

2014

Jan-Mar

2015

Skim milk Powder

887.38

746.30

183.27

Whole milk Powder

205.65

154.00

45.75

Butter milk Powder

175.31

146.76

40.97

Whey Powder

338.18

380.41

109.24

Liquid (RTD) Milk

47.51

43.66

9.67

Evaporated Milk

0.31

0.48

0.15

Others

98.17

62.27

11.60

Total Milk and Cream

1,752.51

1,533.61

400.65

2. Butter, Butterfat & Dairy Spreads

125.43

129.63

44.21

3. Cheese

64.21

68.86

22.86

4. Curd

3.54

7.98

3.01

Total Imports

1,945.69

1,740.08

470.73

Source: National Dairy Authority and National Statistics Office

[1] To get the LME, NDA uses a conversion factor of 8.02 liters per 1 kg of whole and non-fat dry milk powder and 5.51 liters per 1 kg of cheese

According to trade and industry contacts, imported dairy products are used as follows:

Skim Milk Powder: Recombined sweetened condensed milk, recombined UHT milk, ice cream, infant and follow-on formulas, and medical nutrition formulas.

Whole Milk Powder: Recombined UHT milk, ice cream, infant and follow-on formulas, medical nutrition formulas, and instant powdered milk.

Butter Milk Powder: Recombined sweetened condensed milk, ice cream, and bakery.

Whey Products: Recombined sweetened dairy creamer, ice cream, infant and follow-on formulas, processed meat, processed food, confectionery, bakery, and animal feed.

Cheese Curd: Processed cheese, cheese spreads, and processed food.

Liquid Milk: Retail, primarily organic and extended shelf life (ESL) milk.

Cheese: Retail, quick service restaurants and fast food chains

Philippine Dairy Exports

Total dairy exports (manufactured using imported dairy products as raw materials) increased by 43 percent in 2014 with exports of whole milk powder comprising 60 percent of total volume up 33 percent from the previous year. Other major dairy exports including ice cream (21 percent) and evaporated liquid milk (8 percent) also increased sharply from 2013. The main countries of destination were Malaysia (43 percent), Thailand (28 percent) and Nigeria (3 percent). Exports in 2015 are expected to continue to rise due to growing demand from other ASEAN neighbors.

Policy:

The Philippine Department of Agriculture (DA) continues to make the development of the Philippine dairy industry a priority with a special emphasis on improving local supply of fresh milk. While the DA accepts that the Philippines cannot compete in the powdered milk market, it believes that it can greatly augment the supply of fresh milk to the market.

The NDA is the DA's primary agency overseeing and aiding the development of the Philippine dairy sector. The NDA aims to accelerate dairy herd build-up and milk production, enhance the dairy business through delivery of technical services, increase coverage of milk feeding programs and promote milk consumption.

At the heart of the NDA strategy is the Herd Build-Up Program. This program aims to expand local dairy production through the importation of dairy animals, embryos and equipment, and through the upgrading of local animals to dairy breeds via breeding programs, the establishment of multiplier farms, and the preservation of existing stocks. The following are sub-programs of the Herd Build-Up Program:

1. Save-the-Herd (STH) - Promotes animal trading, dairy enterprise enhancement and herd conservation. Under this program, the STH partner receives a dairy animal from NDA which he is obligated to rear, condition and impregnate according to prescribed dairy husbandry management standards.

2. Herd Infusion - Includes importation of dairy stocks, diversification of sources and local procurement of dairy animals.

3. Improved Breeding Efficiency - Breeding services to maximize the reproductive capacity of dairy animals either through artificial insemination or natural (bull) breeding.

4. Animal Financing - Tailoring of animal loan programs to the dairy business cycle and identifying new sources of affordable loans.

5. “Palit-Baka" Scheme or Dairy Animal Distribution - Refers to the program whereby NDA distributes a potential dairy animal to an eligible participant who, in turn, would eventually provide NDA with a female dairy animal as payment in kind.

6. Upgrading of Local Animals - Artificial insemination of local cattle with 100% purebred Holstein-Friesian semen. Calves born from upgrading programs are distributed to new farmers interested in dairying.

7. Breeding/Multiplier Farm Operations - Engaging and encouraging private-public partnerships in producing local born dairy stocks. There are currently 61 dairy multiplier farms with more than 5,586 dairy animals contributing 4.10 million liters.

8. Bull Loan – Loan program that provides purebred and crossbred dairy bulls to regional field units of the Department of Agriculture or to other project partners for semen production, collection and processing purposes.

Tariffs: The 2015 Most Favored Nation (MFN) and ASEAN Trade in Goods Agreement (ATIGA) tariff rates for dairy and dairy products remain unchanged from the previous year.

TARIFF SCHEDULE

H.S. Code

Description

Rate of Duty

MFN

ATIGA

0401

Milk and cream, not concentrated nor containing added sugar or other sweeteningmatter

0401.10.00

Of a fat content, by weight, not exceeding 1 percent

3

0

0401.20.00

Of a fat content, by weight, exceeding 1 percent but not exceeding 6 percent

3

0

0401.30.00

Of a fat content, by weight, exceeding 6 percent

3

0

0402

Milk and cream, concentrated or containing added sugar or other sweetening matter

0402.10.00

In powder, granules or other solid forms, of a fat content, by weight, not exceeding 1.5 percent

1

0

0402.21.00

In powder, granules or other solid forms, of a fat content, by weight, exceeding 1.5 percent

Not containing added sugar or other sweetening matter

1

0

0402.29.00

Other

1

0

0402.91.00

Other

Not containing added sugar or other sweetening matter

5

0

0402.99.00

Other

5

0

0403

Buttermilk, curdled milk and cream, yogurt, kefir and other fermented or acidified milk and cream, whether or not concentrated or containing added sugar or other sweetening matter or flavored or containing added fruit, nuts or cocoa

0403.10

Yogurt

0403.10.10

Containing fruits, nuts, cocoa or flavoring matter; liquid yogurt

7

0

0403.10.20

Other

7

0

0403.90

Other

0403.90.10

Buttermilk

3

0

0403.90.90

Other

7

0

0404

Whey, whether or not concentrated or containing added sugar or other sweetening matter; products consisting of natural milk constituents, whether or not containing added sugar or other sweetening matter, not elsewhere specified or included

0404.10.00

Whey or modified whey, whether or not concentrated or containing added sugar or other sweetening matter

1

0

0404.90.00

Other

3

0

0405

Butter or other fats and oils derived from milk; dairy spreads

0405.10.00

Butter

7

0

0405.20.00

Dairy spreads

7

0

0405.90.00

Other

1

0

0406

Cheese or curd

0406.10.00

Fresh (unripened or uncured) cheese, including whey cheese, and curd

3

0

0406.20

Grated or powdered cheese, of all kinds:

0406.20.10

In containers of gross weight exceeding 20 kgs.

3

0

0406.20.90

Others

7

0

0406.30.00

Processed cheese, not grated or powdered

7

0

0406.40.00

Blue-veined cheese

3

0

0406.90.00

Other cheese

7

0

ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA): The AANZFTA was signed by Australia and New Zealand and the ten ASEAN members in 2009. Since 2010, milk powder, cheese, whey and buttermilk from Australia and New Zealand are able to enter the Philippines duty-free; U.S. milk powder and whey has a MFN duty of 1 percent; cheese 3-7 percent, and buttermilk 3 percent.

Marketing:

The greater Manila area remains as the major fresh milk market in the country and is classified into business and consumer sectors. The business sectors include the institutional and retail operations such as coffee shops, hotels, restaurants, supermarkets and small retailers. The consumer sectors include households and schools through the government milk feeding program.

The main targets of local milk processors are the institutional buyers, especially coffee shops. Specialty coffee shops are good markets because of the continuing trend towards coffee consumption as a lifestyle in the country. Locally sourced, fresh milk dominates this market because of its superior foaming properties, as compared to UHT milk. The major suppliers of fresh milk to coffee shops are processors from Southern Luzon, particularly from Batangas and Laguna. Other suppliers to coffee shops produce UHT milk reconstituted from imported milk powder and packaged under their own brand.

The specialty coffee shop industry is projected to sustain growth of 10-15 percent over the next five years. Analysts attribute this expansion to the growing consumer preference for specialty coffee and the improving image of coffee in general. (Food and Agribusiness Monitor, University of Asia and the Pacific).

Dairy, Milk, Fluid

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Philippines

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Cows In Milk

18

18

21

19

0

20

Cows Milk Production

20

20

20

21

0

22

Other Milk Production

3

3

3

3

0

3

Total Production

23

23

23

24

0

25

Other Imports

50

50

50

45

0

48

Total Imports

50

50

50

45

0

48

Total Supply

73

73

73

69

0

73

Other Exports

0

0

0

0

0

0

Total Exports

0

0

0

0

0

0

Fluid Use Dom. Consum.

62

62

62

58

0

62

Factory Use Consum.

11

11

11

11

0

11

Feed Use Dom. Consum.

0

0

0

0

0

0

Total Dom. Consumption

73

73

73

69

0

73

Total Distribution

73

73

73

69

0

73

(1000 HEAD) ,(1000 MT)

Dairy, Milk, Nonfat Dry

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Philippines

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

12

12

6

6

0

5

Production

0

0

0

0

0

0

Other Imports

95

95

90

100

0

105

Total Imports

95

95

90

100

0

105

Total Supply

107

107

96

106

0

110

Other Exports

5

5

2

0

0

0

Total Exports

5

5

2

0

0

0

Human Dom. Consumption

96

96

89

101

0

105

Other Use, Losses

0

0

0

5

0

0

Total Dom. Consumption

96

96

89

106

0

105

Total Use

101

101

91

106

0

105

Ending Stocks

6

6

5

5

0

5

Total Distribution

107

107

96

111

0

110

(1000 MT)

Dairy, Dry Whole Milk Powder

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Philippines

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

0

0

0

0

0

0

Production

0

0

0

0

0

0

Other Imports

20

20

25

22

0

24

Total Imports

20

20

25

22

0

24

Total Supply

20

20

25

22

0

24

Other Exports

8

8

8

8

0

9

Total Exports

8

8

8

8

0

9

Human Dom. Consumption

12

12

17

14

0

15

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

12

12

17

14

0

15

Total Use

20

20

25

22

0

24

Ending Stocks

0

0

0

0

0

0

Total Distribution

20

20

25

22

0

24

(1000 MT)

Dairy, Cheese

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Philippines

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

0

0

0

0

0

0

Production

2

2

2

2

0

2

Other Imports

19

18

25

20

0

25

Total Imports

19

18

25

20

0

25

Total Supply

21

20

27

22

0

27

Other Exports

1

1

1

1

0

1

Total Exports

1

1

1

1

0

1

Human Dom. Consumption

20

19

26

21

0

26

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

20

19

26

21

0

26

Total Use

21

20

27

22

0

27

Ending Stocks

0

0

0

0

0

0

Total Distribution

21

20

27

22

0

27

(1000 MT)