Customized report service – Powdered milk in the Philippines 2019

February 2019

Summary

Canada is the third largest import source of powdered skim milk for the Philippines, after the United States (U.S.) and the European Union (EU). Imports of powdered skim milk from Canada have grown 62.8% annually over the past five years (2013-2017). The Philippines relies almost 100% on imports for all its dairy needs.

For the same period, there has been a 3.0% annual increase in the retail sales of powdered skim milk in the Philippines. Nestle, Royal Friesland Campina, and Fonterra are the market leaders with their brands mainly targeting the country's low-income population, which is around 82 million people, or 80% of 103 million people.

Filipino consumers shop almost daily on a needs basis in small, traditional grocery stores, which make up the largest distribution channel for drinking milk products. These offer products in small, affordable package sizes. Powdered and shelf stable milk make up 87.3% of drinking milk product retail sales mainly due to the limited availability and affordability of fresh milk and refrigeration in the country.

The Philippines government is currently modernizing the country's transport infrastructure to keep pace with population and economic growth. Key projects include developing a road transportation network and improving road links to air and seaports, which are located in congested urban areas without any high capacity road or rail access.

Consumer profile

Income inequality in the Philippines is an ongoing issue as 82 million, or around 80% of the total population of 103 million, earns an annual gross income of US$5,000-10,000 (2017). This segment of the population is predominantly rural and lives in the southern two thirds of the country, south of Manila, and is fully or largely dependent on overseas remittances. Cash is the most common method of payment among filipinos, with approximately 9% of transactions carried out via debit/credit cards, mainly due to low use of banking services and a lack of internet access.

The Philippines' middle class are predominantly urban and consist of approximately 22.4 million. Middle class households earn between US$10,000 and US$30,000 annually, with the average annual disposable income per urban household at US$12,106. In comparison, the average disposable income for urban Canadian households is US$67,382. The industrialized northern regions of the National Capital (Manila), Calabarzon, and Central Luzon represent the highest consumer spending in the Philippines. The Davao region in the south is forecast to have the fastest growth in consumer spending between 2018 and 2030.

Companies and brands

Bear Brand (Nestle) and Alaska (Royal Friesland Campina) are the leading powdered milk brands with 43.1% and 26.3% market shares. Foreign companies make up 98% of the market for powdered milk and consist of Nestle SA, Royal FrieslandCampina NV, Fonterra Co-operative Group Ltd, Mead Johnson Philippines Inc., and United Dairymen Holland.

Leading national brands by market share (%)
Brand Name 2013 2014 2015 2016 2017
Bear Brand (Nestlé SA) 36.0 35.9 39.8 43.2 43.1
Alaska (Royal Friesland Campina NV) 27.5 27.5 27.0 26.7 26.3
Nido (Nestlé SA) 8.3 8.5 9.4 10.0 10.2
Anchor (Fonterra Co-operative Group Ltd) 7.5 7.4 7.4 7.5 7.6
Anlene (Fonterra Co-operative Group Ltd) 6.3 6.4 6.4 6.6 6.7
Source: Euromonitor International, 2017

Retail sales and distribution

Powdered milk represents 78.5% of retail sales of drinking milk products in the Philippines. Retail sales of powdered milk grew at a compound annual growth rate of 3.0% between 2013 and 2017 and is expected to continue growing by 6.3% between 2018 and 2022.

Powdered and shelf stable milk make up 87.3% of retail sales of drinking milk, partly due to the higher price and limited availability of fresh milk. As well, the Philippines has the highest electricity prices in the Asia Pacific region, which acts as a constraint on the direct consumption of refrigerated dairy products.

Also affecting retail sales is a general unfamiliarity with the distinction between fresh/pasteurized and shelf stable milk, partly due to the misuse of the word 'fresh" in describing some shelf stable brands, including Nestlé's Fresh Milk. In addition, brand options for fresh/pasteurized milk are fewer compared to shelf stable milk, which erodes consumer awareness of the difference between the two.

Historic sales of drinking milk products (US$ millions)
Product 2013 2014 2015 2016 2017 CAGR* % 2013-2017
Powder milk 638.1 663.6 683.5 700.6 719.5 3.0%
Flavoured milk drinks 70.9 74.1 77.8 81.6 85.3 4.7%
Shelf stable milk 55.9 58.9 65.4 72.6 80.8 9.6%
Soy milk 15.6 27.7 28.2 29.2 30.4 18.2%
Fresh milk 1.7 1.0 0.5 0.4 0.4 −30.4%
Total 782.2 825.5 855.5 884.4 916.4 4.0%

Source: Euromonitor International, 2017

*CAGR: Compound annual growth rate

Forecast sales of drinking milk products (US$ millions)
Product 2018 2019 2020 2021 2022 CAGR* % 2018-2022
Powder milk 757.2 801.2 850.5 905.8 966.5 6.3%
Flavoured milk drinks 89.7 99.2 108.9 118.9 129.3 9.6%
Shelf stable milk 89.8 95.1 101.1 107.9 115.5 6.5%
Soy milk 0.4 0.4 0.4 0.4 0.4 0.0%
Fresh milk 32.3 34.7 37.4 40.7 44.5 8.3%
Total 969.5 1,030.7 1,098.4 1,173.7 1,256.3 6.7%

Source: Euromonitor International, 2017

*CAGR: Compound annual growth rate

Filipino consumers shop almost daily on a needs basis at independent/traditional grocers called sari-saris. These stores make up the largest distribution channel for milk products, at 56.5% of grocery retailers. This channel is popular in rural areas as they serve as the hub of many communities and offer products in small package sizes that are affordable, which is a major consideration for Filipino consumers.

Middle class consumers tend to use convenience stores and small scale supermarkets, which represent 43.6% of grocery retail sales. These, as well as upscale supermarkets (Family Mart and Rustan's Supermarket Fresh), are often located in urban centers and shopping malls and are popular for their selection of imported brands and higher quality products.

Online shopping is undeveloped in the Philippines due to slow internet speed, a lack of internet access in rural areas, poor transport infrastructure, and a general mistrust of digital payment methods. Ecommerce penetration is not expected to significantly alter Filipino shopping habits, where shopping is a very popular pastime and Filipinos tend to use malls to congregate (in air conditioning) at stores, restaurants and entertainment venues.

Distribution channels of drinking milk products by market share (%)
Distribution channel 2013 2014 2015 2016 2017
Traditional grocery retailers (Sari-saris) 47.4 47.3 47.2 47.1 47.0
Supermarkets 36.9 37.0 37.1 37.2 37.3
Independent small grocers 9.8 9.8 9.7 9.6 9.5
Hypermarkets 5.3 5.4 5.5 5.6 5.7
Convenience stores 0.5 0.4 0.4 0.4 0.4
Forecourt retailers 0.1 0.1 0.1 0.1 0.1
Internet retailing 0.0 0.0 0.0 0.0 0.0
Total 100.0 100.0 100.0 100.0 100.0
Source: Euromonitor International, 2017

Powdered milk imports

The Philippines relies almost 100% on imports and produces less than 1.0% of its total annual dairy requirements. Dairy products are currently the country's third largest agricultural import after wheat and soybean meal with milk powder imports comprising almost 60% of its dairy imports. A significant amount of the Philippines' fluid milk supply is shelf stable milk, reconstituted from imported milk powder, due to the country's cold chain challenges and limited production.

The U.S. is the largest powdered skim milk supplier to the Philippines with 84.1% of total imports, followed by the EU (13.4%), and Canada (2.0%). Imports from New Zealand and Australia have duty free access for dairy products through Association of Southeast Asian Nations (ASEAN) agreements.

Between 2013 and 2017, Canadian exports grew at a compound annual growth rate of 62.8% which increased by 116.6% between 2016 and 2017, due to growing demand and a low global milk price.

Top five exporters of powdered skim milk to Mexico (Harmonized system code 040210), Can$
Country 2013 2014 2015 2016 2017 CAGR* % 2013-2017
United States 704,457,497 857,052,165 730,844,307 714,279,121 748,016,136 1.5%
EU28 18,445,376 18,724,385 64,436,400 24,389,792 119,284,672 59.5%
Canada 2,597,781 6,243,333 7,556,207 8,420,098 18,243,477 62.8%
New Zealand 8,083,891 10,053,873 7,447,112 14,884,896 3,380,082 −19.6%
Argentina 0 0 11,063,152 41,562 22,523 NA
Rest of World 1,530,029 1,119,632 16,069,431 802,071 0 NA
Total 735,114,574 893,193,388 837,416,609 762,817,540 888,946,890 4.9%

Source: Global Trade Tracker, 2018

*CAGR: Compound annual growth rate

NA: Not Applicable

Transport, shipping channels

The Philippines government is currently modernizing the country's transport infrastructure to keep pace with population and economic growth. Key projects include developing a road transportation network and improving road links to air and seaports, which are located in congested urban areas without any high capacity road or rail access. Road transport is the most dominant mode of travel, which accounts for 98.0% of passenger traffic and 58.0% of cargo traffic.

Improving inter-local road connectivity is a major priority, which includes developing a road transportation network of all roadway classifications. Other key projects include improving road links to air and seaports. Many of the country's largest air and seaports (Manila's North and South Harbors, Davao, Cebu, Iloilo, Cagayan de Oro, and Zamboanga City) are located in congested urban areas without any high capacity road or rail access.

Resources

Customized report service – Powdered milk in the Philippines 2019
Global Analysis Report

Prepared b:y Kris Clipsham, International Market Analyst, Global Analysis

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