Highlights

The Philippines imports virtually all of its dairy products, especially milk powder, as domestic production cannot meet the country's dairy requirement of 1.955 million metric tons (MMT) liquid milk equivalent (LME), according to the National Dairy Authority (NDA). Total imports are estimated by NDA to increase to 1.85 MMT in 2016 from 1.80 MMT in 2015 on rapid expansion of the food processing sector and a global supply glut. Major suppliers are New Zealand (29 percent), the United States (29 percent), and Australia (8 percent). In 2015, the Philippines was the 6th largest market for U.S. dairy products by value at $251 million (down 40 percent from the prior year). Due to increasing global milk production and a sharp decline in prices, U.S. dairy exports are expected to decline 20 percent by value in 2016. U.S. dairy exports by volume remain flat.The Philippines produces less than one percent of its total annual dairy requirement and imports the balance. Data from the NDA shows that local milk production was 20,000 metric tons (MT) in 2015, up from 19,700 MT in 2014. The value of dairy production in 2015 amounted to P653 million ($13.61 million). Local milk production is projected to reach 21,000 MT in 2016 and will likely continue expanding on an annual basis due to strong demand for fresh milk and growing dairying capabilities.

In 2016, the Bureau of Agricultural Statistics estimates the country's dairy cattle herd at 11,000 head, an increase of 5 percent from the previous year. Dairy cattle numbers increased from 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 500-1,500 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 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 farmgate price of milk increased slightly from P31.50/liter ($0.65) in 2014 to P32.04/liter ($0.66) in 2015. By contrast the corresponding farmgate price of milk in the U.S. is about $0.09/liter ($17.10 hundred weight) as of August 2016.

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

Consumption

In 2016, Post estimates that the total domestic dairy requirement will be 1.955 MMT. 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 increasing 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 ($82) per year for dairy products.

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. Fresh fluid milk in a mid-range Manila supermarket sells for P90-120 per liter ($1.94-$2.59). Note: US$1 =PhP48.50, as of October 11, 2016.

Trade

U.S. Exports to the Philippines Decline 40% in 2015

In 2015, the Philippines was the 6th largest market for U.S. dairy products by value at $251 million (down 40 percent from the prior year). The top U.S. dairy exports to the Philippines in 2015 were nonfat dry milk powder ($165 million), dried whey ($15 million) and cheese ($8 million). The drop in 2015 dairy exports by value is due to increasing global milk production and supply and the corresponding sharp drop in world dairy prices. U.S. dairy exports in 2016 are expected to decline roughly 20 percent by value and may only reach $205 million. Dairy exports by volume are expected to remain flat. However, 2016 U.S. nonfat dry milk powder exports by volume are expected to increase by 10 percent.

Philippine Dairy Imports

Dairy products are currently the country's third largest agricultural import after wheat and soybean meal. According to NDA, total 2015 imports of dairy products reached 1.80 MMT LME on low global dairy prices and strong local demand. Post expects imports in 2016 to rise to 2.0 MMT if low global dairy prices continue to prevail, which is 0.15 MMT above NDA estimates.

The major suppliers to the Philippines by volume are New Zealand with a 29 percent share of total imports by volume, the United States with 29 percent, and Australia with 8 percent.

Skim Milk Powder (SMP) and Whole Milk Powder (WMP) imports currently comprise roughly 50 percent of total dairy imports. SMP imports are expected to increase significantly in 2016 as the country expands exports of dairy products to the ASEAN region and increases stocks by taking advantage of low global dairy prices. WMP imports in 2016 are also forecast to increase based on prices but at a slower pace than SMP.

In 2015, liquid milk imports remained flat. Imports of butter and other dairy spreads increased by 15 percent and imports of cheese rose by 38 percent, mainly coming from New Zealand and Australia due to the duty-free advantage of those suppliers and also as a result of increasing demand from the growing fast food industry and hotel and restaurant sectors. Imports of butter, cheese, and liquid milk are all forecast to increase this year due to low prices and increasing demand for these products.

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 143 percent in 2015. The main countries of destination were Malaysia (42 percent), Thailand (18 percent), and South America (8 percent). Exports in 2016 are expected to rise as a result of increased regional trade with ASEAN neighbors and duty-free advantages from the ASEAN free trade agreement.

Revisions to the PSD Tables

The PSD table for dairy fluid milk underwent a revision. The table now only factors in dairy cows for cow's milk production. Fluid milk produced by water buffalo is now accounted for in other milk production. Imports of SMP in 2016 were revised upwards from 110,000 MT to 150,000 MT to reflect increased Philippine purchases as a result of low global prices. SMP imports in 2017 are expected to remain flat at 150,000 MT as dairy prices begin to normalize. Imports in 2016 of Whole Milk Powder WMP were also raised from 24,000 MT to 28,000 MT to meet increased demand from other ASEAN countries. As such, 2016 exports were revised upwards from 9,000 MT to 13,000 MT.

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 4.1 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.

Executive Order 190 (EO190): In November 2015, EO190 was issued modifying the most favored nation (MFN) rates of duty for certain dairy products. Tariff rates for certain dairy products (e.g., cheese, buttermilk, and butter) were lowered in 2014 as a result of concessions granted to WTO members for an extension of the Philippines' domestic support program for rice. These concessions end on June 30, 2017 with the expiration of quantitative restrictions on rice. Tariff rates for the following products will increase starting July 1, 2017:

  • Tariffs: The 2016 MFN and ASEAN Trade in Goods Agreement (ATIGA) tariff rates for dairy and dairy products remain unchanged from the previous year.
  • 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 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 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

2015

2016

2017

Jan 2015

Jan 2016

Jan 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Cows In Milk

19

10

20

11

0

12

Cows Milk

21

13

22

14

0

15

Other Milk

3

7

3

7

0

7

Total Production

24

20

25

21

0

22

Other Imports

45

45

48

48

0

50

Total Imports

45

45

48

48

0

50

Total Supply

69

65

73

69

0

72

Other Exports

0

0

0

0

0

0

Total Exports

0

0

0

0

0

0

Fluid Use Dom.

58

54

62

58

0

61

Factory Use

11

11

11

11

0

11

Feed Use Dom.

0

0

0

0

0

0

Total Dom.

69

65

73

69

0

72

Total Distribution

69

65

73

69

0

72

Dairy, Milk, Nonfat Dry

Market Begin Year

Philippines

2015

2016

2017

Jan 2015

Jan 2016

Jan 2017

USDA

Official

New

Post

USDA

Official

New

Post

USDA

Official

New

Post

Beginning Stocks

6

6

5

5

0

38

Production

0

0

0

0

0

0

Other Imports

100

100

110

150

0

150

Total Imports

100

100

110

150

0

150

Total Supply

106

106

115

155

0

188

Other Exports

0

0

0

0

0

0

Total Exports

0

0

0

0

0

0

Human Dom.

101

101

105

117

0

130

Other Use, Losses

0

5

0

0

0

0

Total Dom.

101

106

105

117

0

130

Total Use

101

106

105

117

0

130

Ending Stocks

5

5

10

38

0

58

Total Distribution

106

111

115

155

0

188


Dairy, Dry Whole Milk

Market Begin Year

Philippines

2015

2016

2017

Jan 2015

Jan 2016

Jan 2017

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

22

22

24

28

0

28

Total Imports

22

22

24

28

0

28

Total Supply

22

22

24

28

0

28

Other Exports

8

8

9

13

0

13

Total Exports

8

8

9

13

0

13

Human Dom.

14

14

15

15

0

15

Other Use, Losses

0

0

0

0

0

0

Total Dom.

14

14

15

15

0

15

Total Use

22

22

24

28

0

28

Ending Stocks

0

0

0

0

0

0

Total Distribution

22

22

24

28

0

28

Dairy, Cheese

Market Begin Year

Philippines

2015

2016

2017

Jan 2015

Jan 2016

Jan 2017

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

25

20

25

22

0

24

Total Imports

25

20

25

22

0

24

Total Supply

27

22

27

24

0

26

Other Exports

1

1

1

1

0

1

Total Exports

1

1

1

1

0

1

Human Dom.

26

21

26

23

0

25

Other Use, Losses

0

0

0

0

0

0

Total Dom.

26

21

26

23

0

25

Total Use

27

22

27

24

0

26

Ending Stocks

0

0

0

0

0

0

Total Distribution

27

22

27

24

0

26