The Philippines imports 99 percent of its dairy requirement as domestic production cannot meet the annual demand of 2.9 million metric tons (MT) liquid milk equivalent, according to the National Dairy Authority (NDA). Following declines in demand in 2021 due to the pandemic, dairy imports are expected to recover in 2022 as the economy reopens, most of the population is vaccinated, and customers return to restaurants. Skim milk powder imports are forecast to reach 175,000 MT in 2022, 6 percent higher than the previous year, while fluid milk imports rise 4 percent to 115,000 MT over the same period. Cheese imports in 2022 are expected to continue
the growth seen in 2021, increasing 4 percent in 2022 to 52,000 MT. Meanwhile, the NDA will continue to implement the U.S. PL480-funded dairy improvement program, importing animals to boost cow, buffalo, and goat milk production.

Post projects Philippine milk production will decline by 2 percent to 26,000 MT in 2021 due to a reduction of the dairy herd following the slaughter and retiring of older animals. In 2022, production is forecast to rebound 3 percent to 26,800 MT, boosted by more dairy animals and the active implementation of the Philippine government’s dairy development projects geared towards increasing milk production. These projects will also contribute to improvements in milk yield among dairy cattle. Despite improvements in production, the Philippines supplies only one percent of its total annual dairy requirement, with the rest imported. Production growth has been slow in previous years because of the inability to increase the dairy herd, mostly due to insufficient funding and little investment from the private sector. Concerns with competitiveness and profitability also constrain further growth.

Milk production is primarily sourced from cattle (64 percent), followed by buffalo or carabao (31 percent), and goat (5 percent). The top milk-producing areas are on the island of Luzon: Laguna, Bulacan, and Batangas. Davao and Bukidnon in southern Mindanao are also major producers. In 2021, the Philippine Statistics Authority (PSA) estimated the country’s beginning inventory of dairy cattle (female dairy animals only) at 9,616 heads, while there are 6,306 buffalo, and 10,080 goats. The number of dairy goats is growing due to larger imports, with the NDA focusing on providing goats for the livelihood of smallholder farmers. The dairy cattle herd declined 9
percent from 2020, due to refreshing of old animals and slaughter of cows for meat. Philippine average milk production is 10 liters/day for dairy cows, 4.5 li/day for buffalo, and 1.5 li/day for goats. Production remains low mainly due to poor feeding and management practices as a result of high production costs and a lack of adequate dairy infrastructure. In comparison, the average daily milk yield in the United States is around 30 li/day.

Production is dominated by small farmers, with a few medium to large farms operated by entrepreneurs. In the dairy cattle sector, farms are small if they have 5-10 cows; medium farms have 11-50 head; and commercial farms or large farms have over 50 head. For dairy buffalo, farms with 5-10 animals are smallholders, medium farms have more than 10 heads, and commercial farms have 25 heads and above. For dairy goats, smallholders are those with 25 head and below, medium farms have 26-99 head, and commercial farms have over 100.

According to industry, the Philippines would need 2.4 million dairy cattle, including 800,000 milking cows, to fully meet its annual demand. Recognizing the need for more investment in this sector, the Department of Agriculture through the National Dairy Authority (NDA) and the Philippine Carabao Center (PCC) is implementing a four-year (PhP1.56 billion, $31.2 million) dairy improvement program to boost the country’s livestock herd. The budget comes from residual funds from the Unites States Public Law 480 (U.S. PL480) program.

The DA restructured the U.S. PL480-funded dairy program in 2020 to expand its focus from dairy goats to also include cattle and buffalo. The project includes infrastructure development and technology transfer to ensure increased fresh milk production over the next four years. By 2024, the project aims to produce 27.7 million liters of fresh milk and increase livestock population by almost 17,000 head, excluding the production of female calves and dairy buffalos. The DA-National Livestock Program oversees program implementation while the DA-Philippine Council for Agriculture and Food regularly monitors the program.

Technologies/Modern Practices to Boost Dairy Production

Embryo transfer technology – The Philippines procures pedigreed frozen embryos through the “Establishment of Dairy Cattle Foundation Breeder Herd through Embryo Transfer using Imported Pedigreed Frozen Embryos” project. It intends to catalyze the establishment of local breeding animal populations that will sustainably supply high milk-producing dairy heifers and cows. The project also encourages private dairy industry players to actively participate in research and development activities and promote the adoption of science and technology-based methods of enhancing sustainability, productivity and efficiency.

Use of sexed-semen with slick gene – One of the genetic technologies introduced by the Philippines-New Zealand Dairy Project is the use of sexed-semen with the slick gene. Slick gene refers to the characteristic of cattle with a short and slick hair coat, making these cattle more resistant to heat stress. NDA now uses sexed-semen as a strategy to generate or increase female offspring. Semen from bulls with slick genes were made available to selected farmer beneficiaries through the project.

Consolidation of small- and medium-sized farms – NDA is implementing a community/clustered dairy goat farming concept, which includes donating imported dairy animals. NDA evaluated 26 farms/cooperatives. These cooperatives function as a goat multiplier farm, dairy production area, and learning site. In this arrangement, farmers raise the animals given by the U.S. PL480 program in a common area.

Upgrading of local animals – This is another strategy used to increase the number of dairy animals by artificially inseminating local cattle with 100 percent purebred Holstein-Friesian semen. Calves are distributed to new farmers interested in dairying.

Sector Overview
The Philippine dairy industry is categorized into two distinct groups: 1. Importers/re-processors who re-process and repack milk and milk products and also import liquid ready-to-drink milk.
2. Local produces/processors who are engaged in milk production, processing, and distribution of fresh milk and derived products to the local market.
The country has four major milk importers/re-processors: Nestle Philippines, Alaska Milk Corporation (AMC), Magnolia Inc., and RFM Foods Corporation. They are the main suppliers of imported ultra-high-temperature (UHT) milk or fluid milk reconstituted from imported milk powder and other imported/re-processed dairy products. Other players include Century Pacific Food, Inc., Fonterra Brands Philippines Inc., Fly Ace Corporation, Consolidated Dairy and Frozen Food Corporation, Montebueno Marketing Inc., ScanAsia Overseas Inc., among others.

NDA maintains a list of importers here.
Some businesses and entrepreneurs are showing growing interest in milk production, prompting processors to make us of this interest. In May 2021, AMC partnered with NDA to develop the Philippine dairy industry through the Dairy Training and Development Program (DTDP). The five-year partnership will be implemented in collaboration with the DA, the University of the Philippines Los Baños – Dairy Training and Research Institute, the Embassy of the Netherlands, and Agriterra. The DTDP aims to improve milk quality, increase milk productivity per cow, and support farmers in gaining access to the market. Dutch dairy cooperative Friesland Campina, AMC’s parent company, will share knowledge/technology to dairy farmers and cooperatives.

Local producers and processors are grouped into federation/cooperatives processing and selling fresh milk and other dairy products.
Cooperatives are formed to represent dairy farmers in dealings with the government as well as to negotiate better prices and other interests with the private sector. They also provide technical and other support services to member farmers. The primary
cooperatives act as collection centers for raw milk to be processed. The cooperative federations, which operate the processing facilities,
usually buy milk from the primary cooperatives then process and market the collected milk.

The Dairy Confederation of the Philippines (Dairycon) established in 1993, is the major organization for all dairy cooperatives, associations, and processors in the Philippines. It serves as an avenue for dairy farmers to discuss common interests affecting their sector. The dairy entities composed of cooperatives, dairy organizations, and private independent processors are clustered among 69 NDA-assisted dairy areas.

Production Policy:
Dairy development is guided by the Dairy Industry Development Act of 1979, as amended by the National Dairy Development Act of 1995. DA develops the dairy industry with NDA (RA 7884) as its primary agency overseeing and aiding industry development with a focus on improving local supply of fresh milk. PCC also supports milk production per RA 7307. While the DA accepts that the Philippines cannot compete in the powdered milk market, it aims to augment the Source: NDA 6 supply of fresh milk to lessen dependence on imported liquid milk. Securing a sufficient budget to improve production has been a challenge in the past. With support from multiple sources,
including in DA and various agencies, the U.S. PL480 dairy improvement program, Coconut Levy, Land Bank, and Development Bank of the Philippines, Post sees milk production growth accelerating in the coming years.

National Dairy Authority Programs
NDA has created programs and projects to increase the population of dairy animals and boost milk production. The four major programs are: Herd-Build-Up Program, Dairy Business Enhancement Program, Milk Feeding Program, and the Milk Quality Assurance Program.
The Herd Build-Up program aims to ensure and accelerate the growth in both local dairy animals and milk production. The program plans to achieve this through the importation of dairy animals, embryos, and equipment; upgrading of local animals to dairy breeds via breeding programs; the establishment of multiplier farms; and the preservation of existing stocks. The Herd Build-Up sub-programs may be found here.

Other NDA programs that support the development of the country’s dairy sector include:
 Dairy Business Enhancement Program ensures the viability and sustainability of local dairy enterprises and establishes the marketability of locally produced milk;
 Milk Quality Assurance Program focuses on the installation of quality-based milk test and payment systems, farm and plant audits and installation of quality control systems;
 Milk Feeding Program seeks to address the children’s nutritional concerns while promoting the development of the dairy sector through the use of local milk. It involves the distribution of fresh milk or dairy products. NDA partners with a wide range of government organizations, NGOS, foreign assistance projects, and other groups.

Philippine Carabao Center Programs
PCC has three major dairy programs: genetic improvement, enterprise development, and research for development.
1. Genetic improvement focuses on conservation of existing genetic materials to improve the potential for carabao milk and meat production and intensified upgrading of carabaos for faster growth and better milk productivity.
2. Enterprise development aims to improve milk and meat productivity thereby providing opportunities for augmenting farmers’ income.
3. Research for development covers breeding and genetics, biotechnology, nutrition and forage/pasture, animal health, reproductive physiology, management, product development, socio-economics and policy.

Philippine annual dairy consumption is nearly three million MT, with the vast majority supplied by imports. With an expanding middle class and a growing population, the Philippines is a large and expanding market for dairy products with annual per capita consumption of 27 kilograms. In 7 comparison, the United States consumes 287 kg per capita of dairy, showing that there remain ample opportunities for food manufacturers to offer more packaged dairy products in the PhilippinesThe Philippine population stands at 110 million in 2021, the 13 th largest in the world, and growing 1.4 percent annually. Prior to the pandemic, this population growth was paired with the
third fastest economic expansion in Asia. The country’s economy is expected to grow this year by about 5 percent, following nearly a 10 percent contraction in 2020. The measures to contain the spread of COVID-19 resulted in a severe disruption to the Philippine economy, with many businesses in 2021 still operating far below their usual capacity.

The Philippine economy is expected to rebound at a faster rate in 2022, as the country’s vaccination rate reaches its targets, COVID cases decline, and the government relaxes its restrictions on businesses and movement. Post sees these combined factors leading to greater dairy consumption. Rising consumption is also supported by infrastructure investments, particularly in cold chain facilities, supermarkets, and display areas.

The Milk Feeding Program is one way the Philippines is increasing milk consumption. Around 60 percent of the local fresh milk production goes to this program and the rest to local commercial sales or household consumption. The Department of Education has announced that it will increase its coverage for the Program in school year 2021-2022 after it surpassed its target by 183 percent and reached 3.2 million beneficiaries. Metro Manila is the primary destination for fresh or pasteurized milk. The main targets of local
milk processors are the institutional buyers, especially coffee shops. Specialty coffee shops are good markets for dairy producers because of their growing popularity. Locally-sourced, fresh milk dominates this market because of its better foaming properties, as compared to UHT milk.

The major suppliers of fresh milk to coffee shops are processors from southern Luzon, particularly Batangas and Laguna. Other coffee shops also use UHT milk for easy handling and supply access. Schools are also a market through the Milk Feeding Program.
Milk products are sold in different sizes ranging from 155 ml to one liter products. They are packaged in tetra packs for UHT and plastic bottles or sachets for pasteurized milk. Retail prices of a one-liter UHT milk range in supermarkets range from PhP90-120 per liter ($1.77-$2.36). Note: US$1 =PhP50.82, as of October 13, 2021.

As noted above, expansion of the Milk Feeding Program will support increased dairy consumption. On the business side, growth drivers for consumption will be the expansion of business operations, especially among restaurants. The Philippine government has begun
allowing more seating capacity for dine-in customers, opening hotel operations beyond quarantine hotels, and permitting small businesses like burger kiosks, milk teas, and other food stalls to operate. As quarantine restrictions are lifted, particularly in the last quarter of 2021 and through 2022, a majority of the population will be able to return to work. With overall  purchasing power improving, Post sees dairy consumption growing in 2022.

From the latest Philippine Family Income and Expenditure Survey conducted in 2018 and released in 2020, middle class households spend a higher percentage of their income on dairy products. Such households are also more responsive to income changes. As incomes grow among the middle class, spending can increase up to 8.9 times for milk and dairy products.

Imports: Dairy products continue to be the third largest U.S. agricultural export to the Philippines after soybean meal and wheat. The country is a competitive market for dairy imports, with the United States and New Zealand having the largest shares. Post forecasts overall dairy imports to slightly recover in 2022, growing two percent as the economy reopens, most of the population becomes
vaccinated, and COVID-19 restrictions are lifted. Business operations will expand from the current 30 percent dine-in capacity allowed by the government, driving more consumption from customers eager to eat out again. Hotels are also expected to resume fuller operations in 2022, which will greater larger dairy consumption. Post sees total dairy imports in 2021 declining by one percent to 2.9 million MT (in Liquid Milk Equivalent, LME) due to the slowdown in demand following the various quarantines and movement restrictions.

According to NDA data, overall imports declined by six percent during the first half of 2021 compared to the same period the previous year. Most dairy products had lower import volumes during the first six months except for whey powder, cheese, butter, buttermilk powder, and fluid milk. Reported import data from NDA shows 2021 U.S. dairy exports to the Philippines up five percent from the same period in 2020, despite overall Philippine imports trending down.

According to NDA data, the United States was the Philippine’s top source of dairy imports in 2020, accounting for 38 percent of total volume in LME, followed by New Zealand. This is despite U.S exports facing a tariff disadvantage compared to New Zealand. (see Trade Policy) Skim Milk Powder (SMP). Post sees SMP imports recovering in 2022 to 175,000 MT, as the food manufacturing sector expands operations to meet increasing consumer demand following the economic reopening. Meanwhile, 2021 imports are revised down 20,000 MT to 165,000 MT. Trade through July 2021 is down 9 percent year-over-year, reflecting prices which have 11 risen from $0.31/li to $0.33/li, compounded by a stronger dollar and a softening of demand due to COVID-19.

Whole Milk Powder (WMP). Philippine WMP imports in 2022 are forecast at 25,000 MT, 25 percent higher than 2021, propelled by the economic recovery from COVID-19. Whole milk powder is not a priority among Filipino households with a tight budget, who will opt for cheaper substitutes. With an improved economy and greater purchasing power, however, WMP sales are expected to improve. Post maintains the current 2021 import estimate at 20,000 MT, a 31 percent drop from 2020, reflecting the challenges the working class and daily wage earners faced from the series of COVID-19 lockdowns.

Liquid (Ready-to-Drink) milk. Philippine demand for liquid milk will continue to grow in 2022, reaching 115,000 MT as consumption of coffee and milk tea expand with the opening of more stores and restaurants. Take-out and delivery services will also push demand, as consumers especially in the National Capital Area adjust to online purchases. Post revises 2021 imports down 4 percent from the USDA Official 114,000 MT, reflecting current trade to date. Imports January to July reached 51,000 MT, 2.5 percent higher than the same period in 2020.

Cheese. Post forecasts 2022 cheese imports growing to 52,000 MT, 4 percent higher than 2021. As the economy recovers from COVID-19, the expansion of fast-food, pizza, and other restaurants will drive increased demand for cheese. Hotels, an important market for cheese, are expected to operate more fully in 2022 and not be limited to quarantine hotels, as the population becomes more vaccinated and COVID cases decline. Imports in 2021 are raised to 50,000 MT from USDA Official’s 47,000 MT. Consumption had slowed at fast-food chains and restaurants, due to restrictions on dine-in capacity to combat the pandemic. Pizza chains flourished, however, as they were well-suited for delivery. Combined with robust demand from food retailers, cheese imports January to July 2021 reached 31,000 MT, up 55 percent year-over-year.

The average import cost of dairy products in the first half of 2021 was $0.38/li in LME. High value products were curd, liquid (RTD) milk, and cheese. NDA data showed an increase in the average unit cost of imported milk and dairy products in 2021, especially milk powder.

Goat Imports. NDA is actively importing goats through its PL480-funded Intensified Community-Based Dairy Enterprise Development Project. In 2021, NDA imported dairy goats from Australia in May (1,591 head) for recipients in Luzon and in April (1,294 head) distributed to recipients in Visayas and Mindanao. In October 2021, NDA imported 387 U.S. goats for distribution to recipients in Luzon.

Cattle Imports. NDA is set to import PhP250 million ($5 million) worth of dairy cattle through U.S. PL480. The agency released its invitation to bid on the NDA website for submission until October 12, 2021. Also, the NDA recently released its terms and conditions for the importation of breeding cattle from Australia. The NDA will import more cattle under the program with targeted distribution of 2,740 cattle and 975 dairy buffalo. These activities support NDA’s Herd Build-Up program.

The Philippines exports value-added dairy products such as cream and ice cream, manufactured using imported dairy ingredients. The COVID-19 restrictions resulted in 2020 total exports declining by 54 percent to 35,809 MT, in LME. In 2021, exports are set to recover, with 32,225 MT already exported during the first half of the year. The biggest export item so far is cream at 40 percent share, with Singapore and Malaysia being the country’s top markets. Post sees 2022 exports increasing further, as exporters take advantage of duty-free market access from the ASEAN free trade agreement and COVID-19 restrictions ease further. The list of Philippine exporters is available here.

Trade Policy:
Executive Order 20 specifies the Most Favored Nation (MFN) tariff schedule for all products, including dairy products and took effect on June 30, 2017. Under MFN, the Philippines assesses a three percent tariff for fresh milk imports, one percent for skimmed milk and whole milk powders, and five and seven percent for cheese and products. Meanwhile, all milk products are duty free under the Common Effective Preferential Tariff – ASEAN Free Trade Area.

ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA): Australia, New Zealand, and the ten ASEAN members signed this FTA in 2009. The General Review was endorsed in September 2018 to make recommendations to update and improve the agreement. The review recommended to develop a chapter on government procurement to support improved transparency and cooperation, which could facilitate NDA importation of dairy animals from member countries. The agreement aims to progressively liberalize and facilitate trade in goods among the parties through elimination of tariff and non-tariff barriers.

There is no tariff duty for the importation of animal semen in FTAs. Importation of bovine and domestic animals is VAT exempt. MFN tariffs for breeding animals and genetics are also zero, provided under the Agricultural Fisheries Modernization Act, if for direct use by the importer.