INDUSTRY PAPER

(MILK INDUSTRY)

Prepared by:Calupas, Eleazar

De Loyola, Karl Josef Divino, Andrew Jules

Francisco, Calvin JohnJazul, Antoinne Louie

Salvador, Iregyson

Year and Section2DAC

Submitted to:EnP. J. Mikhail Nacino, MPP, CSP

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TABLE OF CONTENTS

Background and Historical Account of the Industry....................... 3-8

Performance of the Industry........................................................... 8-10

Major Problem/s Encountered or Currently..................................... 10-18Encountering by the Industry and its Policy Implications

Areas for Future Policy..................................................................... 18-21

Bibliography....................................................................................... 22

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I. Background and Historical Account of the Industry

History of the Industry

So how did it start? And how has it become one of the greatest industries in our

present time. Here we will have a view of the country’s most competitive companies

in the milk industry as follows: Nestlé Philippines, Alaska Milk Corporation, and New

Zealand Creamery.

Accroding to Pehrsson (2000) The first time that humans ever learned about the

drinking of other mammal’s milk is when the domestication of mammals during the

development of agriculture or the neolithic revolution. Before that period though milk

has been already drank by lots of people a long time ago, domesticating mammals

such as cows, sheeps and goats were just done for the production of meat by the

following mammals. The authors with Pehrsson namely Holden, Perry and Beckler

wrote that the start of cultivation of the production of milk or dairy products began

from Andrew Sherratt an archeologist.

Since the spreading of the domestication of mammals to produce milk happened

a lot of cases of allergic reactions started also with people who was high lactose

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intolerance the creation of new prdoucts trying to lessen the causes of illness, this

manner emerged. The powdered milk or dried milk was created for this manner. The

powdered milk was invented by a Russian physician Osip Krichevsky in 1802. It is

done by evaporation of milk that turns into its solid form. Pasteurized milk is used

that is placed inside an evaporator and sprayed in a heated chamber o form chalk

like structures of milk. This is created to increase its life span to be exported and to

be kept longer than the usual liquified milk. After a successful outcome powdered

milk has spread throughout every corners of the globe. Sanchez (1989)

Other kinds of milk products were created such as skimmed milk, condense, non-

fat milk and kinds of milk created to satisfy the needs of a consumer depending on

their health or any other circumstance.

Over a hundred years after it first started operations in the country,  Nestlé

Philippines, Inc. (NPI)  today is a robust and stable organization, proud of its role in

bringing the best food and beverage throughout the stages of  the Filipino consumers’

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lives.  The Company employs 3,700 men and women all over the country, and is among

the Philippines’ top corporations.  Its products are No. 1 or strong No. 2 brands in their

respective categories.

Although Nestlé products were already available in the Philippines as far back as

1895, it was not until 1911 when The Nestlé and Anglo Swiss Condensed Milk

Company was established in the country, with its first sales office in Calle Renta,

Binondo.  

The Company was forced to suspend its operations during World War II, but

soon made a comeback after Liberation, under a new name:  Filipro, Inc.   It continued

to import products such as MILO, NIDO powder milk, MILKMAID and NESCAFÉ from

other countries.  In the early 1950’s, Filipro encountered difficulties when the Philippine

government imposed import control.  Due to lack of imported products to sell, it was

forced to become a distributor of peanut butter, napkins, fruit preserves, and patis (fish

sauce) just to keep its operations going.

Local Production. In 1960, Nestlé S.A.and San Miguel Corporation entered into

a partnership resulting in the formation of Nutritional Products, Inc.  (Nutripro). In 1962,

Nutripro’s first factory started operations in Alabang, Muntinlupa to manufacture

NESCAFÉ.   In 1977, Filipro, Inc. and Nutripro Inc. merged under the name Filipro, Inc.

In 1986,  Filipro, Inc. changed to its present  name as  Nestlé Philippines, Inc.

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Nestlé now has manufacturing facilities in Cabuyao (Laguna), Cagayan de Oro, Lipa

(Batangas), Pulilan (Bulacan) and Tanauan (Batangas) to meet the growing demand for

Nestlé products in the country. 

On December 3, 1957, the first milk processing plant in the country was

inaugurated. Located in Highway 54 (present day EDSA) in Mandaluyong Rizal (now

Mandaluyong City, Metro Manila), the Liberty Milk plant was a subsidiary of General

Milk which, at that time, operated 18 processing plants and 10 can factories in 12

countries. The plant was also the first in the Far East.

Liberty milk was a blend of imported skim milk emulsified with locally produced

coconut oil instead of butterfat. It was extra rich in milk solids fortified with vitamins A

and D. The powdered skim milk was imported from the United States which was

considered surplus US agricultural products under the US public law 480.

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Locally produced Liberty milk was selling at from 25 to 28 centavos a can as

compared to the 30 to 40 centavos a can of imported evaporated milk.

Darigold, a milk processing plant of another company, Consolidated Philippines,

Inc, was also inaugurated shortly after.

Alaska Milk Corporation 

In 1972, Holland Milk Products, Inc. (HOMPI) was established. It was a joint venture

between AMC’s former parent company, General Milling Corporation (GMC), and

Holland Canned Milk International B.V. (now Friesland Campina). HOMPI initially

manufactured canned liquid milk (evaporated milk and condensed milk). It eventually

expanded to manufacture powdered milk and UHT milk.

In 1994, HOMPI was spun off from GMC and incorporated as Alaska Milk

Corporation (AMC) under the control Wilfred Uytengsu, Sr. Shortly after its

incorporation, AMC was listed in the Philippine Stock Exchange (PSE) in 1995.

(AMC) is the leading manufacturer of milk products in the Philippines. In 2007,

AMC acquired the canned milk business of Nestlé Philippines, Inc. The acquisition

included the Alpine, Liberty and Krem Top trademarks, as well as the trademark license

for Nestle’s Carnation and Milkmaid brands.

In 2012, FrieslandCampina acquired majority control of AMC from the Uytengsu

family. On November 5, 2012, AMC wasdelisted from the PSE after FrieslandCampina

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completed its tender offering for 98.1% ownership of AMC. Prior to this,Friesland

Campina held an 8.1% interest in AMC. Wilfred Steven Uytengsu Jr. remains as

President and CEO.

II. Performance of the Industry

Number of players/competitors in the industry

The Philippine market for milk and dairy products describes the industry

best: Nestlé Philippines, Alaska Milk Corporation, and New Zealand

Creamery are the top three importers of milk in the country, according to

the National Dairy Authority (NDA), an attached agency of the Department

of Agriculture (DA). There are still other players/competitors like; Abbott,

Wyeth, Mead Johnson and etc.

Market Share

The Philippines dairy production industry was expected to earn P307.41

million in sales in the first half of the year growing a modest 5.61-percent

growth, but is now on track to reach P600 million by yearend.

The National Dairy Authority (NDA) attributed this growth to assistance

provided to the industry. “Sustained animal productivities, particularly in

NDA-assisted dairy farms and cooperatives, fostered the change,” it

reported.

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Production from January to June 2014 reached 9,910 metric tons (MT), up

by 3.23 percent compared with the same period last year. Production

comes from an estimated 21,087 dairy animals.  It consists of 9,608 cattle,

8,501 carabaos, and 2,978 goats.

Value of dairy production has been increasing from P464 million in 2008,

P498.93 million in 2010, and P586.96 million in 2013.

Likewise, local dairy production has consistently increased over the last

five years from only 13,810 MT in liquid milk equivalent (LME) to 16,450

MT in 2011 and higher to 19,460 MT in 2013

The market share for the dairy industry is 51.235%

Type of product/service produced

The type of product produced is a differentiated and consumer product. A

product that has a distinction from other similar products/brands in a

market. A product being consumed by a consumer for his/her satisfaction.

Sample products produced in the dairy industry are the following: milk,

buttermilk, yoghurt, butter, cream, cream cheese and etc.

Type of competition existing

In the dairy industry there few sellers. Here are some company that sell

dairy products. Alaska Milk Corporation, Nestle Philippines, New Zealand

Creamery, Selecta, Magnolia Ice Cream and etc. Among these companys,

Alaska has been the top and leading company in the dairy industry thus

being Monopolistic Competition.

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Degree of competition among the players

The degree of competition among the players is Oligopoly Competition for

even the type of competition is Monopolistic, there are only few firms

involved and making it oligopoly in degree of competition.

Pricing behavior used by the players for revenue generation

III. Major Problem/s Encountered or Currently Encountering by the Industry

and its Policy Implications

The country’s dairy industry needs a law banning the use of the label “fresh” on

imported milk products packaged using processed ingredients.

Danilo Fausto, chairman of Dairy Confederation of the Philippines (Dairycon), said

these proposed measures, which have been sponsored in Congress, would provide

local milk producers some advantage as they pursue market reforms aimed at

improving the industry.

Fausto opened this year’s 15th Philippine Dairy Congress by reporting that dairy

farming in the Philippines is sluggish.

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He said last year’s production versus demand “hovers below 1 percent of total demand

for milk products.”

HEAVY IMPORTS

Agriculture Assistant Secretary Davinio Catbagan said Filipinos consumed P90-

billion worth of dairy products in 2011, but only one of every four glasses of milk

consumed last year was locally produced.

Philip Shull, Foreign Agricultural Service (FAS) agriculture counselor of the United

States Department of Agriculture, also said the price of Philippine milk products “is high

by international standards.”

“How can a Filipino household afford to pay P65 for a liter of fresh milk?” Shull said.

Fausto said Dairycon has drawn up programs and marketing initiatives to raise the

production of ready-to-drink milk products from the current 19 percent to 43 percent by

2016.

The proposed laws are part of plans to strengthen the industry. Fausto said the

measures are meant to protect “not only consumers of milk but also the local producers

of fresh milk.”

No local benefit“We have been subsidizing foreign farmers to produce milk for us. The

amount we are spending on imports should be earned by our farmers … as we cut our

dependence on foreign milk and milk products,” he said.

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But problems still plague the trade, dairy experts said, highlighted by poor animal

management by untrained farmers resulting in undernourished dairy animals.

Of 10 million farm animals recorded in a national registry, only 37,800 are dairy animals,

Catbagan said.

Shull said the bigger challenge facing Philippine agriculture is that “organic knowledge

of agriculture is diminishing.”

MIGRATION

He said generations of Filipinos have started to move to urban areas, losing touch

with their farm roots.

Shull said 2006 was a significant year because 50 percent of the world population

migrated from farms and the provinces to cities.

This fact and the growth of world population to 7 billion in 2011 provide the Philippine

dairy industry some insights on opportunities and problems it needs to confront.

“Yes, more people mean you can sell more milk products,” Shull said. Vincent Cabreza,

Inquirer Northern Luzon

GOVERNMENT PROGRAMS AND INVESTMENT

Herd Build-Up

This program aims to ensure and accelerate the increase in both local dairy stocks and

local milk production. Increase in local dairy herd may be realized thru the importation

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of genetic materials like dairy animals and dairy breeding materials, upgrading of

existing local animals to dairy breed, production of replacement stocks thru dairy

breeding programs like artificial insemination programs and multiplier farm

establishment, and the preservation of existing stocks. Increasing the milking animals

will significantly affect overall local milk production in the country. The following sub-

programs concretize the herd build-up program.

Save-the-Herd (STH) Program.

This program was designed to channel dairy animals into a scheme which will stimulate

animal trading, dairy enterprise enhancement and herd conservation. Under this

program, the STH partner receives from NDA a dairy animal which he is obligated to

rear, condition and impregnate according to prescribed dairy husbandry management

standards.

Herd infusion. This includes importation of dairy stocks, diversification of sources and

local procurement of dairy animals.

Improved breeding efficiency. Breeding is a primary concern not only in building up

the dairy herd but also in producing the right genetics that will produce significant

volumes and augment the present milk production. Breeding services are regularly

provided to maximize the reproductive capacity of dairy animals either thru artificial

insemination or natural (bull) breeding. To keep track of these services and validate

efficiency, computer-based monitoring of NDA- assisted herds, regular reporting on the

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ratio of pregnant animals to total breedable herd and tracking calving intervals are being

done.

Animal financing. Tailoring of animal loan programs to the dairy business cycle and

tapping new sources of affordable animal loans. Financing institutions are being tapped

for this purpose. Presently though, with the current tight global financial situation, a

payment-in-kind scheme is being pursued.

Palit-Baka Scheme of Dairy Animal Distribution. Refers to the program whereby

NDA distributes potential dairy animals to new but eligible and qualified participants who

in a certain period of time, would resort to a payment-in- kind by way of female dairy

animals.

Upgrading of local animals. Another strategy used to increase the number of dairy

animals is through upgrading. It is done by artificially inseminating local cattle with

100% purebred Holstein-Friesian semen. Calves born from upgrading programs are

distributed to new farmers interested in dairying. Despite the longer waiting period to

earn money from upgrading, other farmers, LGUs and private organizations still prefer

such approach to dairying because of the readily available native animals in their

localities.

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Breeding/Multiplier farm Operations. Engaging and encouraging private-public

partnership in producing local born dairy stocks to become major sources of affordable

quality dairy animals.

Bull Loan Program. NDA delivers purebred and crossbred dairy bulls to Regional

Field Units of the Department of Agriculture or other Dairy Bull project partners to be

managed, trained and maintained for semen production, collection and processing

purposes.

With more than 90 million Filipinos living in the Philippines today, each person

gets only about three drops of milk per day. That’s according to Raylin Sanchez of the

Federation of Davao Dairy Farmers Cooperative (FDDFC) based in Malagos, Davao

City.

“It’s sad but that the situation right now,” she pointed out. “But we are doing our best to

change the condition The Philippine dairy industry - although considered a vital

component of the country’s economic and nutritional development – remains

undeveloped. Presently, the country imports 98 percent of its milk and other dairy

products requirements.

“We pay foreign dairy farmers millions of dollars each year,” deplored the Philippine

Carabao Center (PCC). “During the period 2002-2007, the Philippines spent an

average of over US$460 million to cover the cost for an average volume of 1.8 billion

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liters of milk imports annually. Powdered milk accounts for some 86 percent of the

imports.” Nestlé Philippines, Alaska Milk Corporation, and New Zealand Creamery are

the top three importers of milk in the country, according to the National Dairy Authority

(NDA), an attached agency of the Department of Agriculture (DA).

While the production of local dairy farmers has been steadily increasing, the

average annual local production is only about 12,000 metric tons or some 12 million

liters. On the other hand, the national requirement based on actual consumption during

the period 2002-2007 was 1,550 metric tons or about 1.55 billion liters.

“If we are to compute the national milk requirement based on the recommended dietary

allowance of 19 kilograms per year, we would need an average supply of about 2,500

thousand metric tons of 2.5 billion liters each year,” the PCC claimed. According to the

NDA, the Philippines has not achieved self-sufficiency in milk because there is not

enough investments in dairy and there are not enough animals on the ground to support

the huge demand.

The Davao-based FDDFC, which is assisted by NDA, is very much aware of this

when it was launched in 1990. With only four cooperatives as members initially, the

members surged to 30 cooperatives today. From producing only 700 liters of fresh milk

a day, it now produces 1,300-1,500 liters each day.

The dairy federation is responsible for producing the Davao Dairy Best fresh and

flavored milk. It delivers milk to supermarkets not only in Davao City but also in General

Santos City, Agusan del Sur, North Cotabato and South Cotabato.

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The main objective of FDDFC is “to be the dairy capital of the Philippines, providing

better nutrition to Filipinos and livelihood to the dairy farmers.”

The dairy federation provides loan to interested farmers by providing them

three dairy cows. Most of the cattle are heifers and imported from New Zealand.

Payment is five years in the form of milk or cash. The FDDFC believes that increasing

the dairy herd in southern Mindanao could greatly contribute to the increase in milk

production in the region.

The loaned-out cattle are crossbred between Holstein-Friesen and Sahiwal. The

temperate Holstein-Friesian has an average daily milk production of 22 kilograms with

an average butterfat content of 3.6 percent.

Sahiwal, a tropical breed that is more adapted Philippine conditions, has an average

daily milk production of eight kilograms with a butterfat content of 4.9 percent.

The cows produce about 8 liters of milk per day (one liter is equivalent to one cup), of

which one-and-a-half is deducted as payment to the dairy federation. “We buy milk

from our members at P20 per liter,” informed Sanchez. “We process the milk and sell

them at P45 for fresh milk and P50 for flavored ones.”

Currently, there are 200 farmers who are members in Davao City alone. The productive

life span of each cattle is ten years. “Our dairy federation is the one and only in

Southern Mindanao,” Sanchez says.

The dairy federation got help from the Department of Science and Technology (DOST).

For one, the staff underwent training on milk processing and pasteurization. The

government agency provided designed for the retort machine used in milk processing.

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“As a result of the design, we were able to spend only P2 million instead of the usual

cost of P20 million,” points out Sanchez.

Maintenance of the retort machine, which is done every year, is also provided by

the DOST. “We spend about P40,000,” Sanchez says. “That includes for the airfare of

the person since he comes from Manila.”

IV. Areas for Future Policy Prescriptions

Since the dairy: milk industry is continually growing for the past five years the profit

gained from the industry can be used to improve the livestock.

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By allocating property the benefits from the industry the following can be improved:

1) Good care and security for the dairy producing animals.

2) Buying of machines/equipments to make production faster.

3) Production of more farms

4) Expansion of milk industry in other countries (Alaska)

Our prospect in the industry in 5 years:

As you can see from the data below

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There is a positive increase on the production in the milk industry starting 2008 to

2013. It has the highest growth of 7%. Assuming that the milk industry is free from

corruption, it will continue to grow. Unless there is a fortuitous event, like Typhoon

Ondoy, which can affect the livestock production, the profits can be used for either

improvement or additional help to other industries in the Philippines.

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Also the production of livestock can help the meat industry. So the milk industry

has a high contribution to our GDP

The profit can also be used for research purposes. If new products can be discovered,

then the milk industry can be our top 1 industry.

As you can see the milk industry affects almost every aspect in the Philippines,

when it comes to producing revenue. Because dairy is used in almost everything like

baking breads, pastas, cakes, desserts, chocolates, milk tea (which is now a growing

trend in the Philippines)

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types of products. (2011). Retrieved March 1, 2015, from Marketing 91: http://www.marketing91.com/types-of-products/

Mendoza. (2014). PH dairy industry earnings seen at P600M in 2014. Retrieved March 2, 2015, from Manila Bulletin: http://www.mb.com.ph/ph-dairy-industry-seen-at-p600m-in-2014/

Picker. (2013). List of dairy products. Retrieved March 2, 2015, from Wikipedia: http://en.wikipedia.org/wiki/List_of_dairy_products

Romero, A. (2012, November 30). Kahimyang Info. Retrieved Feabruary 19, 2015, from Kahimyang.Info: http://kahimyang.info/kauswagan/articles/1380/today-in-philippine-history-december-3-1957-the-first-milk-processing-plant-in-the-country-was-inaugurated

Rosini. (2013, January 11). Nestle. Retrieved February 26, 2015, from Nestle Web Site: http://www.nestle.com.ph/aboutus/history

Uy. (2009, October 17). Alaska. Retrieved February 26, 2015, from Alaskwa Website: http://www.alaskamilk.com/v2/

Uy. (2009, December 17). Alaska Milk Corporation. Retrieved February 26, 2015, from Wikipedia Website: http://en.wikipedia.org/wiki/Alaska_Milk_Corporation

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