The Philippine dairy industry is rife with promise, but not a lot of companies have milked the most out of its potential yet
For a country that’s thriving primarily on agriculture, the Philippines has a pretty underdeveloped dairy farming industry.
With only about 15,000 dairy animals producing milk in the country, it is no wonder that only 1 percent of our total dairy needs is met by local production. While 2009 has seen an increase to 14.27 thousand metric tons (MT) in the production of dairy from 2008’s 13.81 thousand MT, it is still nothing compared to the amount that international producers churn out in a day.
“The Philippines’ annual milk production in 2006 was equivalent to half a day’s milk production in India the same year,” reported Dairy Enterprise Specialist Sally Bulatao in her presentation for the 2008 Asia-Pacific Smallholder Dairy Strategy Workshop. “With annual milk production amounting to 13 million liters or barely 36,000 liters per day, there is hardly an industry to speak of (in terms of production).”
Local dairy consumption, however, presents an entirely different story. When you take a traditional Filipino household’s breakfast into account, for example, you’ll find that it will likely include the ubiquitous pan de sal with kesong puti, or maybe an ensaymada paired with coffee that may or may not be sweetened with milk. Regardless of a household’s income, Filipinos tend to break their fast with good ol’ dairy and its byproducts.
In fact, in the recent Dairy Congress and Expo 2010 held in Cebu last month, the Dairy Confederation of the Philippines reported that dairy is approximately a P65B business in the country, with milk being the country’s top agricultural import worth around $500M annually. And even with increasing world milk prices, the local demand for milk and milk products isn’t showing any signs of decreasing. Adds Bulatao, “liquid milk consumption was at its highest in 2005, 25 times the consumption level in 1991. On a daily basis, this was 125,233 liters per day, from 5,424 liters per day in 1991.”
When the local dairy industry faced near-termination in 1986, demand for dairy was rising and this was around the time Consolidated Dairy and Frozen Food Corporation, originally a rice and sugar trading company established in the 1940s, decided to venture into the dairy business.
“At that time, a lot of our customers were asking if we also sold dairy ingredients like skim milk, buttermilk and cheeses,” says Managing Director Marcelo Ko. “There was clearly a demand for it so we made some inquiries and we found out—this was during the Marcos years—that traditional importers were the only ones given import permit by the government. This just means that if you were new, you weren’t allowed to import. During 1985, only two or three importers of dairy products dominated the industry, but somehow we were able to lobby for the lifting of the import restriction by the DTI and in 1987, we imported our first shipment of buttermilk from New Zealand.”
The company has since expanded into importing other bulk dairy ingredients like powdered skim milk, whey powder, cheddar and mozzarella cheeses, butter, cream cheese and milk fats. These unbranded ingredients supply the needs of hotels, fast food chains, noodle factories, bakeries, and candy and biscuit manufacturers. Much of Consolidated Dairy’s bulk ingredients, which make up 65 to 70 percent of the company’s total sales, are now imported from Australia, one of the top two exporters of milk and dairy products to the country.
“We represent a number of international suppliers who are leaders in their respective industries,” says Ko. “We are currently the exclusive distributor of Murray Goulburn, the biggest dairy producer in Australia.” Fonterra Philippines, its direct competitor, is now the distributor of New Zealand milk in bulk.
Business is doing well and is bound to pick up, says Ko. “The food ingredient industry is quite robust. Yearly, there is five to 10 percent growth because there are a lot of restaurants opening and it’s very dynamic when it comes to introducing new concepts.
“There’s also fewer competition among import distributors,” adds Ko, “Not a lot of import distributors are willing to invest in capital-intensive infrastructures like building cold storage facilities and investing in reefer trucks like we do. To add to that, we’ve also started construction of a second cold storage facility, which is four times bigger than our existing facility in Multinational Village. And we’ve also ventured into the frozen food business, wherein we import frozen fries and vegetables.”
Frozen food, along with its bulk dairy products, spurs the company’s growth. Today, Consolidated Dairy supplies most of the ingredient needs of establishments like Wendy’s, Goldilocks, Pizza Hut, Red Ribbon, and a number of catering companies, among others. But while Consolidated Dairy heavily invests on its imported bulk ingredients, the latter isn’t the only profit driver of the company. It also manufactures the retail UHTprocessed (Ultra High Temperature) milk brand called Milk Magic. “A lot of people think that Milk Magic is a foreign brand,” says Ko. “While we do import the milk from Australia, we came up with the formula and we manufacture it here in a small factory in Bulacan. We started with RTD (Ready To Drink) and now we’ve introduced Milk Magic powdered milk as well.”
Compared to existing retail milk brands like Nestle, Anchor and Alaska, Milk Magic is relatively new, which is why most of Consolidated Dairy’s marketing budget is allocated to promoting the brand through TV and print advertisements. “When we started, we didn’t have the budget to compete with the multinationals,” says Ko. “The challenge was really to make people believe in the quality of our milk, which is as good as the market leaders but is 20 percent cheaper. I think we’ve succeeded in hitting some market share because we are now at 10 to 20 percent of the total UHT market.”
Local dairy opportunities
There are really only two players in the dairy market, and we can easily distinguish one from the other: the importers like Nestle, Consolidated Dairy and Fonterra Philippines; and the local milk producers. While the importing sector clearly dominates the dairy industry (they account for 99 percent of the dairy market after all), local milk producers are beginning to gain significance, especially in the RTD sector, when in 2008, liquid milk imports decreased by a whopping 17 percent and locally produced liquid milk accounted for 27 percent of the country’s RTD supply.
A recent pilot study on food consumption conducted by Lowe Manila also revealed an increasing trend in the use of indigenous ingredients among local restaurants. The kesong puti in particular has become popular in restaurants in Metro Manila. Produced in the provinces of Laguna, Bulacan, Samar and Cebu, kesong puti is a byproduct of carabao’s milk, which is said to be high in protein, lactose, vitamins and minerals, and water. Richer and creamier than its cow and goat counterparts, carabao’s milk tends to spoil easily, which is why it needs to be processed immediately. Pasteurized milk, pastillas de leche, kesong puti, carabao mozzarella and ice cream are just some of the many byproducts of the carabao’s milk. Mr. Moo, a local brand of milk-based products by the Katipunan ng Kooperatiba ng Maggagatas Inc. (KKMI) and the Gen. Trias Dairy Raisers, capitalized on the potential of carabao’s milk and has been a famous must-visit destination in Tagaytay for its interesting array of carabao’s milk and its byproducts.
Carabao’s milk is just one of the many dairy opportunities local producers can bank on. Government milk-feeding programs are also on the rise—from feeding 12,750 children in 1995, the number increased to almost 30,000 in 2006. These governmentinitiated programs absorb around 40 percent of local milk production because the National Dairy Authority requires that smallholder dairies be given priority as suppliers of these programs.
In a speech he delivered at the Dairy Congress and Expo 09, Rep. Edcel Lagman emphasized the “amazing potential of the Philippines to emerge as a dairy hub. The Philippine dairy industry has been progressively improving in the past decade and the advances are quantifiable.”
According to Lagman, despite the global economic downturn, dairy cooperative farms scored big last year. “Local dairy production still grew by almost 3 percent. Available data also shows that since 2002, milk production in MT per day has increased by almost 100 percent.”
With the attention it is getting from both the government and private sectors, the Philippine dairy industry may be growing. The challenge, Lagman says, really boils down to how the local producers will protect and develop it.