Market Insights – Philippines

By Wayne Prowse

Until recently, the Philippines had not really been on Australia’s radar as a fresh produce export destination. With the implementation of the ASEAN Australia New Zealand Free Trade Agreement (AANZFTA) in 2009, followed by improvements to the market access protocol allowing in-transit cold treatment in 2012, the Philippines, with 107 million consumers, has gained greater interest as an export destination.   

The Philippine archipelago is made up of 7,107 islands in the South China Sea. It is located between 6 and 18 degrees north of the equator, mirroring Papua New Guinea / Far North Queensland with a tropical climate. The country has developed from a Spanish colony in the 16th Century to the Republic of the Philippines since 1949. It is the world’s 13th most populous country with a growth rate of 1.8 per cent every year.

Fruit production

Pears imported by PhilippinesA fundamental basis of trade is to provide to others what a country can produce efficiently in return for receiving goods that others are able to produce more efficiently. In terms of fruit production the overwhelming strength for Filipinos is in banana and pineapple production among other tropical fruits and it is not surprising that the Philippines is the largest supplier of bananas in the Asia Pacific region. They produce 9.2 million tonnes of bananas to over 50 countries including Japan, China, South Korea and New Zealand. The tropical location means that the Philippines is not a producer of temperate fruit including apples, pears and stone fruits. Therein lays a trade opportunity and also a challenge.

The market

Being an archipelago with thousands of islands the distribution networks in the Philippines are complex and lack cold chain infrastructure. Traditional wet markets account for around 70 per cent of fresh produce sales although the trend for modern retail is driven by Supervalue Inc. (SM supermarkets), Robinsons Supermarket Corporation, and Rustan’s Supercenters Inc. These retailers are reaching out to middle to upper socio-economic groups and are also the major outlets for imported fruits. As they expand, so too should the demand for imported fruits, including apples, where they are accepted by consumers.

Apples imported by PhilippinesApple consumption in the Philippines is low by Australian comparison with per capita consumption at 0.7 kg per person per year which is less than 10 per cent of Australia’s per capita consumption. There is no measurable local apple and pear production and virtually all apples and pears for consumption are imported. Filipinos consume around 78,000 tonnes of apples per year, 50 per cent more than a decade ago. Pear consumption has also increased 50 per cent to 11,000 tonnes of mostly Asian pears imported from China. Of this, consumption of European pears is negligible or around 1 per cent of imports.

Trade

Apples and pears accounted for 42 per cent of the 212,000 tonnes of fresh fruit imported in 2013. Fresh fruit imports have increased 98 per cent since 2002 with citrus and grapes accounting for most of the balance.

The Philippines has understandably been a protected market with tariffs and quarantine restrictions due to their economic reliance on tropic fruit production. Following the implementation of AANZFTA in 2009 the tariffs on Australian apples and pears were phased from 7 per cent to zero by 2011 which means Australia enjoys tariff free access. In 2012 the Australian government negotiated in-transit cold treatment protocols for a range of Australian fruits including apples and pears. Tasmania is a recognised pest free area by the Philippines which allows fruit exported from Tasmania to bypass cold treatment against fruit fly. Even with in-transit cold treatment the Philippines is now more attractive.

Most apples are supplied by China which arguably means the market is missing varieties of the quality that could be supplied from Australia. New Zealand is making inroads, as is Chile, although all southern hemisphere suppliers account for 1.3 per cent of the total imports. For pears, southern hemisphere suppliers contribute around 0.5 per cent.

A greater market research focus could unlock significant opportunities particularly with the developing retail chains to service the increasingly urbanised population. According to the 2010 Philippine census around 20 per cent of the population live in 35 highly urbanized cities serviced by the modern supermarkets, the largest of which are Quezon City, Manila and Caloocan all next to each within the general Manila area and Davao City located in the southern most region of the country.

Outlook

The Philippines has a large population with potential to consume more imported temperate fruit as their economy develops further. The low rate of consumption arguably has much to do with temperate fruit being scarcely available and that apples and pears are not a staple fruit as they are in Australia. Changing consumer behaviour is not something that can be achieved over night, however the time is right for some strategic growth plans in cooperation with the supply chain partners.

The complex distribution linking many islands fortunately works in favour for apples and pears whereas more perishable stone fruit and cherries are unlikely to be moved as far around the archipelago in the tropical climate and limited refrigerated transport. Retailers and consumers could welcome more education about apples and pears and to build an image for the products to appeal to the modern consumers who shop in supermarkets in urban areas. Rather than compete with Chile and New Zealand, perhaps trade to the Philippines is actually an opportunity for Australian apple and pear growers to collaborate with other southern suppliers and build an image for southern apples that gives consumers a new taste for fresh apples in season rather than cold stored apples from China and United States.

Growth should come from opportunities to increase the overall demand for southern apples in season. Australian growers and exporters don’t have to do this alone because a growth program needs to be strategic and deliverable. Build realistic expectations and move cautiously to build a strong niche. Arguably there is potential for 2 or 3 times the current total volume of apple and pear imports over the next decade and it should not be coming all from China. Australia can be part of the growth.

About the author

Wayne Prowse is an Export Consultant at Fresh Intelligence Consulting. For more information contact Wayne at wayne@myfreshintelligence.com.

By |February 27th, 2015|Exporting, Market insights|

About the Author:

Principal and Senior Analyst, Fresh Intelligence Consulting
wayne.prowse@bigpond.com