Food processing in the Philippines set to rebound

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An end to drought conditions caused by the El Niño weather pattern is spurring growth in the Philippines’ industrial sector, with increased output in food manufacturing.

The volume of production index in the food manufacturing segment rose by 15.3% year-on-year (y-o-y) in March, according to data released in May by the Philippines Statistics Authority (PSA).

Sector snapshot

This improvement continues an upward trend that began in January and offsets a contraction seen at the end of 2015, caused by drought damage to crop lands.

Average capacity utilisation in the food manufacturing segment also remained high, at 84.8% as of the end of the first quarter, above the industry average of 83.4%.

This in turn has resulted in strong first-quarter earnings for some food processing companies on the back of the industry’s recovery.

In mid-May San Miguel Pure Foods – a subsidiary of food, beverage and packing conglomerate San Miguel Corporation – reported a 34% hike in y-o-y income, posting earnings of P1.21bn ($25.9m) in the first three months of the year. Another unit of the corporation, San Miguel Brewery, saw its earnings increase by 23% to P4bn ($85.3m) on the back of rising demand.

Broadening food manufacturing

As the food processing segment has been growing, government plans are expected to increase output even further.

Further investments and improvements in agri-business are vital to expanding manufacturing output, according to Emmanuel Esguerra, secretary of socio-economic planning at the National Economic and Development Authority.

“We must increase the productivity of agri-business and manufacturing-related services through continued public investment in research and development. This will boost competitiveness and innovation across all production sectors,” Esguerra told media.

That call may be answered by the incoming administration of Rodrigo Duterte, expected to take office at the end of June.

In mid-May Carlos Dominguez – a member of Duterte’s transition committee – unveiled an eight-point economic agenda for the new administration.

One of the pillars of the economic policy platform will be to adopt a strategy to develop the agricultural value chain by forging partnerships between agri-business firms and growers, while helping farmers boost productivity and improve market access.

Included in these plans is a commitment to allocate 5% of GDP to infrastructure investment, which is expected to lead to improvements in transport links. This could facilitate the movement of raw agricultural materials from farms to factories for processing and strengthen links in the distribution chain.

El Niño leaves its mark

Despite the onset of the rainy season in May, extended dry weather earlier in the year means yields for some crops will be down this harvest.

Prices for various grades of maize were up by between 11% and 16% y-o-y as of late April, according to data released by the National Food Authority (NFA).

Shortages of maize may require higher levels of imports this year to meet feedstock demand. On average, the Philippines imports 1.5m tonnes of maize for animal feed per year.

Farm output fell by 4.53% y-o-y in the first quarter, according to a PSA report from mid-May. Though production was down, demand helped keep earnings nearly level, with just a 1.49% dip to P375.2bn ($8bn) for the quarter.

On average, farm gate prices rose by 3.19% over the period, a reflection of both shortages of some stocks but also rising demand for materials in the processing segment.

Both the livestock and poultry segments – major contributors to the processing segment – increased production by 6% and 1%, respectively.

Moody’s upbeat on prospects

As the impact of El Niño further recedes, projected recovery in food manufacturing will underpin a solid performance in the broader manufacturing sector, Moody’s Analytics said in a company statement.

“The main driver of the strong growth in 2016 has been the revival in food manufacturing,” Moody’s said. “This will continue in the coming months with crop yields recovering as the effects from a severe El Niño climate pattern dissipate.”

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