Agri-Food Trade Service
The Battle over Pork Importation1
Senior Agribusiness Specialist
Center for Food and Agri Business
University of Asia and the Pacific
Pork imports reached 178,905 tons in 2010, an increase of 56.4 percent compared to 114,365 tons in 2009. The huge surge in imports irked domestic producers who have been clamoring for government support to limit importation.
The local hog sector is focused on serving the fresh meat requirements of the wet market, which accounts for 80% of the total market. Meanwhile, meat processors import to meet their requirements for processed meat products. Higher cost of local pork and the inability of the industry to produce lean and fat trimmings have resulted to the importation of pork and buffalo meat.
Local hog raisers claimed that they are experiencing losses because of the uncontrolled entry of frozen meat imports into the country. They want the practice to stop and is urging the government to provide safeguards to keep them in the business.
There has been a continued increase in all import types - pork cuts, bellies, deboned, fats, offals and rind/skin (Table 1). Records of the Bureau of Animal Industry (BAI) show that the importation of various pork products tripled in 2010 compared with the volume five years ago.
From 2006 to 2010, pork imports increased at an average of 30 percent annually. Imports dropped to a single digit growth of five percent in 2009 but this was again offset by the large importation in 2010, which grew by 56.4 percent.
Imports of pork cuts reached 56,791 tons in 2010, an increase of 56 percent over last year's import of 34,296 tons. Importation of pork bellies also increased significantly during the same year with a 91 percent growth to 16,411 tons from 8,587 tons a year ago.
Offals and Fats
Imports of pork offals behaved similarly with a 91 percent growth from 28,959 tons in 2009 to 55,247 tons in 2010. Imports of pork fat remained high with 11 percent growth in 2010 to 29,425 tons. Pork fat is used in the manufacture of hotdogs and other processed meat. Rind/skin imports reached 20,924 tons during the same year.
Seasonally, pork importation peaks during April to June, with imports jumping from about 5,000 tons per month five years ago to more than 15,000 tons per month last year (Figure 1). It is during this period that farm stocks are at their lowest due to disposal during the holiday season. With local stocks at low levels, meat processors have to import their raw material requirements. The lowest volume of importation occurs during November to December.
Local producers oppose further imports and have asked the government to encourage domestic production to allow hog farmers more profit.
The government allows pork importation to plug domestic shortages especially during times of calamities and disease incidences. Imported pork products, however, are meant mainly for use by the processing sector and not intended for sale in the wet market. There are reports, however, that imported pork is now being sold in the wet markets not only in Metro Manila but in big cities like Cebu, Davao, and Cagayan de Oro. Allegedly, vendors thaw the imported pork, mix it with the local slaughtered pork, and pass it off as fresh pork in the wet markets. An inherent advantage of local pork is the domestic market's preference for fresh meat. Customers who go to the wet markets to buy warm meat may end up purchasing imported pork without noticing the difference.
Further, there have been complaints about the influx of cheap pork offal, which is making its way into the wet market. Pork offals refer to parts usually discarded as waste or set aside for use in meat by-products, including the tail, hooves, blood, head, brain, heart and liver. Local producers claim that the importation of pork offal is a cover by meat importers to smuggle choice pork cuts into the country and is affecting the sales of local pork, thereby hurting the industry.
Imported pork is supposed to be supplied only to meat processors. However, it is being reportedly sold in the wet markets. Moreover, hog raisers assert that the huge amount of imports of pork offal, including fats and skin, has created more competition. Pork offal, made from pork innards, which has little value in the exporting countries, is sold at very low prices. Imported pork skin, for example, is much cheaper at about P50 per kilogram (/kg) than locally-produced pork cuts priced at around P160-P180/kg. Hog raisers have complained that the sale of imported pork offals - pig lips, cheeks, head and liver - in the wet markets is dampening demand for local pork. Aside from these, pork bellies and deboned meat that are entering the country also compete with local pork.
Food Safety Issue
Local producers are also concerned with the safety of imported pork sold in wet markets. Imported pork sold to meat processors has the appropriate sanitary regulations but those that enter the wet markets do not have the same safeguards. This poses a larger threat to health and business viability in the wet market. All hogs slaughtered in abattoirs have to be stamped with the seal of the National Meat Inspection Service (NMIS) or City Veterinarian before these are sold in the wet markets. Local hog raisers claimed that frozen pork must also have the seal of approval before they are sold locally, since the safety of the meat is compromised when it goes through defrosting and freezing and defrosting again. This is where possible contamination of the meat may take place and may pose risk to the health of the consuming public.
Pork offals including rind/skin are subject to an import duty of five percent. The said tariff is way below the 40 percent regular and 30 percent MAV (minimum access volume) tariffs on pork imports. The five percent duty is mandated through Executive Order (EO) No. 84 issued on March 15, 2002. Under this EO, pork offals - except for liver - were to have a seven percent duty in 2002 to 2003 and five percent starting in 2004, while liver was to have a five percent duty from 2002.
Pork offals are relatively low-priced because these products are treated as waste in countries like the US and Canada. While pork ears, tongue, cheeks, intestines, etc. are low value products in these countries, these are used as food in the Philippines.
The Philippines imposes a 30 percent MFN (most favored nation) tariff for fresh, chilled or frozen pork and a five percent tariff under the ASEAN CEPT (Common Effective Preferential Tariff) scheme starting in 2010. Meanwhile, for processed pork products, the country implements a 40 percent MFN tariff and five percent tariff under the CEPT scheme.
Local hog farmers have asked the Department of Agriculture (DA) to review the current five percent tariff on pork offal imports. This is being studied by DA for possible recommendation to increase the duty.
For the meat processors, however, the increase in the pork offal import duty would disadvantage them and the local consumers. The entry of offals enables consumers to purchase pork products at cheaper prices. Low income households consume processed pork offal - lips, cheek, liver, skin and head - as substitute for fresh pork and chicken. Filipino consumers use offal - pork liver, cheeks, and ears - in sisig, a popular Filipino dish. Skewered grilled ears and skin are also a popular street food. Meat processors use pork skin and fat for processed meat products. Increasing offal tariff will result to increasing prices of raw material and thereby, higher price for processed meat products.
Meat processors clamor for the continued importation of offals since the local hog producers have not developed a market for offals. The practice is to sell whole hogs and therefore, local producers cannot compete with those selling by-products such as offals. Looking at price competitiveness, however, Philippine pork is competitive with imports.
For pork bellies, which are sourced mainly from the US, the CIF price amounted to US$2.80/kg. This includes freight and insurance of US$0.20/kg. At the exchange rate of P43.40 to a dollar, the landed import price in Manila port would be about P121.52/kg. Adding the cost of handling, traders' margin and tariffs resulted to a derived wholesale price of about P188.36/kg. On the average, local pork bellies are priced lower at P169.00/kg, which is price competitive with pork bellies from the US, assuming similar quality (Table 2).
|ITEM - In US$/kg||TARIFF - 40% - Hams||TARIFF - 40% - Pork bellies||5% Pig fat|
|FOB Price (a)||3.00||2.60||1.10|
|+ Insurance and Freight||0.18||0.20||0.18|
|= CIF Manila (b)||3.18||2.80||1.28|
|ITEM - In PhP/ton (PhP43.40/US$1)||TARIFF - 40% - Hams||TARIFF - 40% - Pork bellies||5% Pig fat|
|+ Handling and margin||20.70||18.23||8.33|
|= Derived wholesale price||213.92||188.36||66.66|
|Domestic wholesale price||178.00||169.00||48.00|
|Derived wholesale price / Domestic wholesale price||1.20||1.11||1.39|
Note: Competitiveness exists if the ratio of the derived wholesale price to the domestic wholesale price is greater than one.
In the case of pig fat, the FOB price is about US$1.28/kg, including insurance and freight of US$0.18/kg. Adding handling costs, margins as well as the tariff of five percent, the resulting import parity price was P66.66/kg at the exchange rate of P43.40 to a dollar. The price of local pig fat was lower at only P48.00/kg, on the average, which means that local pig fat is price competitive with imports.
The country's supply of pig fat is localized, mainly sold in the wet market. Pig fat and other offals are severely short of the requirements of the meat processing industry for hotdog and sausage production. The comparatively low domestic price may have been due to small and dispersed volumes.
The key is to improve the local hog industry to supply the processors with their needed requirements that consumers can afford. Competitiveness is also about supply reliability. Until such time that adequacy in supply has been achieved, the Philippines will continue to import pork.
 Published in the June 2011 issue of the Food and Agri Business Monitor, a monthly magazine of the University of Asia and the Pacific's Center for Food and Agri Business, Pasig City, Philippines.