INTRODUCTION Background of the Industry The Philippine coffee industry is one of the country’s major pillars in terms of foreign exchange earnings in the 1880’s. However, its glory days only lasted until 1889 when coffee rust hits the country’s shores – decimated the production to only 1/6th of its original amount. Globally, Coffee is the second largest in terms of value and traded commodity just next to oil. It is also the most valuable and widely traded tropical agricultural product in the world. Neighboring countries Indonesia (4th) and Vietnam (2nd) are the major producers in the ASEAN region in terms of production. The Philippines, being one of the top four country coffee producers before is now only placing 24 th in the world. One can blame this current status to production-related problems, the lack of support from the government, urbanization and other factors including fluctuating world prices. The government and the private sector are both making efforts to increase local coffee production, in order to reduce the reliance on imports. However, local production cannot still suffice the Philippines demand for coffee. Thus, the country is importing its remaining coffee requirements from Vietnam, Indonesia and other Asian countries. Interestingly, there is a growing local demand for Coffee as there is an increasing acceptance towards coffee culture among young individuals in the country. There is also proliferation of Coffee establishments resulting from the rising middle class and BPO industries. In addition, the developing Health and wellness trend that encourages the coffee industry to produce other coffee products like organic and decaffeinated coffee variants. It was also seen that there might be more marketing activities that will highlight the benefits of coffee, as manufacturers’ attempt to counter any negative perception about the drink. Nevertheless, unless the weaknesses and threats in the coffee industry are faced, the country can never achieve long-term sustainability and viability of the industry. In a highly liberalized global environment, innovation and creativity in the country’s coffee industry are needed for survival and revival. In order for the Philippines to be globally and locally competitive, the country must exert all efforts to increase coffee productivity and quality, lower the cost of processing coffee beans and other coffee products, and develop downstream high-value products through increased investments in research, technical assistance, expansion, rehabilitation and rejuvenation of coffee farms, millers, and roasters, and through marketing and promotions of coffee for domestic and export markets. KEY INDUSTRY STATISTICS & SUPPLY-DEMAND ANALYSIS World Coffee production Coffee production is dispersed across many countries but only four of them produce the 60 per cent of the world’s coffee – Brazil, Vietnam, Colombia and Indonesia. Brazil has long been by far the world’s largest coffee producer which accounts for about 34 percent of the world production, growing an average of 2.5 million during tons 2007-11. followed by a year This is Vietnam who averages 1.1 million tons per year accounting for 14 percent of the world coffee production, Colombia (560,000), with 7 Indonesia percent (7%) (560,000), Ethiopia (400,000), India (280,000), Mexico (270,000), Guatemala (230,000), Honduras (230,000), Peru (219,000), and Uganda (190,000) as shown in Appendix 1. Table 1. World Coffee Production (2003-2013) 160.00 140.00 120.00 100.00 Millions of Bags 80.00 60.00 40.00 20.00 0.00 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Foreign Agricultural Services/USDA Production of coffee can take place without replanting from year-to-year being it a perennial crop. Unlike short-term crops whose planting can be planned in such a way that acreage is reduced in times of excesses and expanded in time of shortfall, coffee production cannot be programmed in a The map shows the distribution of coffee growing areas across the tropics. Coffee is produced in more than 70 developing countries. with a value of $23. mostly due to production being disrupted by adverse weather such as frost or drought.9 M of bags in 2003 – a 15. while only 45 countries are responsible for over 97 per cent of world output. Coffee is predominantly a smallholder’s crop grown by millions of resourcelimited farmers averaging 10 hectares land holding. if the right growing condition is present. and Africa with 12.2 million tons. worth $16. the World Coffee production has grown to 150. mostly in developing countries in the tropics according to the Fairtrade Foundation.80 % increase.8 million tons in 2010.similar fashion.7 M bags in 2013 from 126.5 %. with the Latin America being the biggest with 60%.6%. world Coffee exports increased by 7 per cent to a record high of 6. Coffee Arabica which constitutes 65% of the world production takes 6-7 years to fully mature and attain its full potential yield.5 billion – up from 5. followed by Asia’s 25. followed . Coffee just like other commercial crops has also historically been subject to both supply and price volatility. this is below the forecasted volume for the year by 600 thousand bags. In 2011. This is an area where coffee producing countries are located. The World Coffee production is circling the equator known as the ‘Coffee Belt’. Brazil led with 2 million tons amounting to 31%.7 billion. that is. Although growth is seen in 2013. During the last ten years (2003-2013). Consumption steadily grew by around 2.by Vietnam Colombia Indonesia (17%) (9%) (6%) (1 million).3 M Tons to 8.5% a . (464.1 M tons of coffee during the last decade.000) World Coffee Consumption Global coffee consumption has grown 28% or 6.000) and (376. 2011). which takes into account re-exports and changes in the level of stocks held in importing countries. In 2010 re-exports accounted for some 38. disappearance and inventories by form of coffee over the period 2005–2010. net imports. . However. World Coffee Demand Coffee is one of the world’s most popular beverages.9 million bags. although in the past they were not as important as they are today. Table 2. Gross imports of all types of coffee have quadrupled from 33 million bags in 1949 to 132 million bags in 2010. Net imports reflect what is consumed in the country of importation plus any surplus that goes into inventories. Japan and the US.1 shows world gross imports. 57 per cent in exporting countries and by 46 per cent in emerging markets such as Eastern Europe and Asia (Table).year brought about by the 12 per cent increase demand in traditional markets such as Western Europe. A more accurate indicator of consumption is provided by Statistics on disappearance. statistics on gross imports are a poor indicator of demand as they ignore re-exports (ITC. . Philippine Coffee Industry Industry Highlights The Philippines is relatively small coffee producer with output less than one percent of Global production. importing 1. . The country is already left by its neighbors Vietnam and Indonesia. Production still remains at over half of the total supply due to limited domestic production. However. Coffee production in the last 12 years (20002012) has decline by 17.61 percent due to some shifts from coffee farming to other high value crops like rubber and bananas in Mindanao. The first seedling was first brought to the Philippines by a Franciscan monk in Lipa. at the end of the nineteenth century coffee rust disease decimated the production to just 1/6th of its original amount. Soluble coffee imports which consist of 80% of total imports rose tremendously during the last three years and is seen to increase due to the strong domestic consumption. Batangas the year 1740 and grew into a thriving industry and became the fourth top world producer following the opening of the Suez Canal (PhilCoffeeBoard. and has been only producing less than 1 percent of the world production. The Philippines is one of the few countries who can produce four (4) commercial-viable coffee varieties due to its favorable climatic and soil conditions from the lowlands to mountain regions. The country is also a net coffee importer.7 M bags in 2012. Philippine Coffee Overview Coffee thrives in the areas that have relatively stable climate with ample rainfall. The commodity has a rich history in the country. 2012). 877 97.080 106. 72% There are several varieties of coffee (Scientific Name: Coffea sp. The most common are Arabica.) grown in the Philippines.30% decrease in the last 12 years or . production has dropped from 107. in 2012 production bounced back by almost 400 tons.44% per year. large portion of the production coming from the region of SOCKSARSKGEN and Davao Region.093 97. 6% LIBERICA.557 112. Robusta. The largest drop-off in production is very apparent in Davao region showing a 46% decrease in the last 12 years particularly in the province of Compostella Valley where farmers are shifting to Banana farming. and Excelsa.536 88. L. as planted coffees in 2008 starts to bear beans. 21% Philippine Volume of production Coffee Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Producti on (MT) 107.526 88. During the last 12 years.847 104. Much of the coffee produced in the country is Robusta (71%). From years 2000-2012. Arabica.557 MT to 88. This is equal to 17. However.943 MT per annum. Liberica. there is continuous downfall of Philippine coffee production.943 ROBUS TA. and Liberica or Kapeng Barako (.EXCELS A.428 96. Excelsa and Liberica. This is under the self-sufficiency plan of the Philippine Coffee Board (PCB) which aims in making the country .1. 1% ARABICA. followed by Arabica also known as Kapeng tagalog (7%).865 105.388 102.433 94.271 107.65%) Production Philippines produce many coffee varieties but production is focused on four (4) commercial viable coffees – Robusta. Excelsa (6%). 17% of the total production in 2012.000 40. COFFEE TOP PRODUCING REGION.65% of the total Arabica production. PHILIPPINE COFFEE PRODUCTION 120. It is also the largest producer of higher quality and priced Arabica coffee in the country comprising 62.000 20. PHILIPPINE 2012 Rank Region Volume (MT) % Share 1 SOCCSKSARGEN 27.869 31% 2 DAVAO REGION 18.629 12% . with Sultan Kudarat province as the biggest contributor. Bicol Region. Eastern. rehabilitation of existing coffee farms and rejuvenating old trees.31%.943 80.self-sufficient by 2015 through establishing plantations in Mindanao.950 21% 3 ARMM 10.000 100. SOCCSARSKGEN is the only region where production is increasing despite the country’s downward production trend in Coffee. and Western Visayas with a combined production of only 1. are MIMAROPA.11% of the total production followed by the Davao region producing with 21. producing 31. Table 2.000 volume MT 60.000 88. Ilocos Region.000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 As of 2012 the largest coffee producer is SOCCSARSKGEN. The latter was also the biggest producer of coffee in 2000. The smallest producer aside from the NCR with no production. 825 Robusta coffee production has been decreasing in the last 12 years.787 1. In year 2000 production reached 73. Combined they make up 46% of the total production.000 10.000 50.70 %.000 0 63.380 MT. The production just peaked in 2001 following the increase of world prices.673 5. SOCCSARSKGEN is the largest producer of the Robusta coffee followed by the Davao region in the same year.000 30. the country only produces 63.000 80. A year after.568 5.225 1.695 5.000 volume MT 40.825 MT.699 993 813 331 239 194 193 86 0 10% 6% 6% 6% 2% 2% 1% 1% 0% 0% 0% 0% 0% 0 COFFEE ROBUSTA PRODUCTION 90. production became sluggish as growth per year is only – 1. Arabica .4 5 6 7 8 9 10 11 12 13 14 15 16 17 Robusta CALABARZON WESTERN VISAYAS CAR NORTHERN MINDANAO CARAGA CENTRAL LUZON ZAMBOANGA PENINSULA CAGAYAN VALLEY BICOL REGION CENTRAL VISAYAS MIMAROPA EASTERN VISAYAS ILOCOS REGION NCR 8.000 20. 12 years later.000 70.000 60. COFFEE ARABICA PRODUCTION 21.682 MT.196 MT the same year.500 Production of Arabica remains torpid in the past 12 years.500 21.783 18. About 86% of it is from Sultan Kudarat province contributing 10.783 MT of coffee in 2012 from 20.500 volume MT 19.000 17.691 MT and ARMM with 1.928 MT in year 2000.000 19. The largest producer is still SOCCSARSKGEN producing 62.000 20.25% of the total production. producing just 18. Liberica & Excelsa .500 20. This is followed by the Davao region with only 2.000 18.500 18. together producing 60% of the total volume.000 volume MT 6.000 8. they only constitute about 7% of the total coffee production in the country. Western Visayas.000 4.000 1.000 800 volume MT 600 400 2. Production of Excelsa decreased as much as 4. Majority of the production are from CALABARZON. Combined. Liberica production is also in a downward trend since 2000. and ARMM which comprises 438 MT or 73% of the total production in 2012.000 200 0 0 P roduction of Liberica and Excelsa is minimal in the country and only reached 598 MT and 5. respectively.000 1. Annual growth is at – 4%.COFFEE EXCELSA PRODUCTION COFFEE LIBERICA PRODUCTION 12. PHILIPPINE COFFEE AREA . There is also a volume downfall in the last 12 years. Major Excelsa producing regions are ARMM and Davao region.737 MT in 2012.000 MT since year 2000 with a – 3.400 10.200 1.4% growth annually. 000 135.637 Hectares but lower compared to the prior periods. it produces more beans than other species. The relatively lower quality Robusta coffee can grow in lower altitudes and is also less susceptible to pests and diseases. Ecelsa. Moreover. All Regions exhibits decrease in coffee planted areas except Central Visayas and SOCCSARSKGEN with an increase of about 190 and 360 hectares since year 2000. total land area devoted to coffee production is 119.03%. Coffee Rubosta is still the largest in terms of land area committed to Coffee farming with 90.000 125.000 The country’s total area devoted to coffee decrease over the last 12 years with an average growth of – 1. respectively in 2012. The latter is also the biggest in terms of land area devoted to coffee with a total of 25.1%.000 115. and 1. This is followed by coffee Arabica.000 120.PHILIPPINE COFFEE PLANTED AREA (HA.000 130.354 hectares or 75. This is higher in comparison with the 2011 figure of 119.) 140.225 hectares which is just 57 hectares more from the second largest producer Davao region with 25. The only expansion seen is in year 2012 due to replanting of devastated coffee farms from Typhoon Pablo in 2010.000 110. . more favored by coffee farmers.166 hectares. respectively. 7%. and Liberica with 16%. Davao region dominated the top spot since 2000 and was just overtaken last year by SOCCSARSKGEN.999 Hectares.29% of the total coffee planted land. hence. In 2012. 17% NORTHERN MINDANAO. 11% Others.114 hectares of farm followed by . In year 2000 the land area for Robusta is around 96.000 88.) 98.000 90. 21% Largest region in terms of land area is Davao region with 19. However. REGIONAL AREA ARMM.000 In 2012.354 Hectares in 2012. the land area devoted to Robusta coffee production has been decreasing by -0. 27% CALABARZON.Robusta ROBUSTA AREA (HA. Robusta comprises 75% of the total land area devoted to coffee farming.000 92.6% in the last 12 years.000 86.716 hectares which slowly shrink to just about 90.000 94.000 96. 12% DAVAO REGION. This is significantly higher than 70% from 2000. 12% SOCCSKSARGEN. Dedicated land area for Arabica decreased in the last 12 years. 9% SOCCSKSARGEN. 19% Coffee Arabica comprises about 16% of the total land area devoted to coffee farming. Although tastes better and has higher .000 21. the four regions represent 62. ARABICA AREA (HA. 10.) ARMM.000 22. 14% WESVIS.000 18.) 24.848 and 10. Combined.000 20. 44% DAVAO.000 23.457 hectares respectively. 9% NORVIS.SOCCSARSKGEN.714.000 Arabica REGIONAL ARABICA (HA.000 19. CALABARZON and Northern Mindanao with 15.2% of the total area devoted to Robusta. 3% OTHERS.000 17. 000 4.916 hectares from 11.000 10.000 500 0 EXCELSA AREA (HA.369 hectares in 2012.765 hectares. growth per se is negative 1. The largest region in terms of land devoted to Excelsa farming is .119 hectares in 2000 and shrank to just only 19. In 2012 Excelsa shrank to only 8. Total land area planted with Arabica was around 23.000 1.560 hectares in 2012.460 hectares of year 2000 with a growth rate of – 1.35 % due to its sensitivity to climate.593 hectares comprising around 44 % of the total Coffee Arabica plantation followed by the Davao region with 3.) 2.000 0 Excelsa and Liberica coffee represents 7% and 1. Coffee Excelsa and Liberica LIBERICA AREA (HA. No region exhibits growth except ARMM which expanded from 713 hectares in 2000 to 1.000 6.000 2.000 8.) 14.quality than commercially grown coffees. The largest Arabica planted area is SOCCSARSKGEN with 8.500 1.000 12.1% of the total land area committed to coffee farming.84% in the last 12 years.500 2. 22% the total production area.CALABARZON with 2. . Other Excelsa producing regions are Davao and ARMM which constitutes around 42% of the total Excelsa planted area. there are also farms that exhibited robust yield per hectare like the Nestlé Experimental and Demonstration Farm (NEDF) in Manolo Fortich Bukidnon which produces 3. total area planted with Liberica is merely equal to 1360 hectares in 2012. From 2082 hectares in 2000.406 Hectares which also comprises 27% of the total Excelsa production. However.2 Tons/hectare. Both varieties have minimal production in the remaining regions. Liberica coffee on the other hand. Other producing regions are Western Visayas.88 % growth in the last 12 years.a 20% descent in productivity. Largest producing region in terms of land area is ARMM with 600 hectares Liberica plantation which comprises 44% of the total Liberica land area. Senility and inadequate nutrition are seen as the main cause of the productivity. Productivity of Coffee trees The country’s coffee yield has declined from 922 Kg/hectare in 2000 to only 739 Kg/hectare in 2001 . also exhibits negative 2. CALABARZON and MIMAROPA which together consist 42. 00 800. . & Domestic Consumption Broadly speaking. at the consumer level coffee can be divided into three commercial categories.00 1.Yield Per Hectare in Kilograms 1. Importation.00 400. Exemplary quality: limited availability – fine to unique taste experience.00 0.00 600.00 200.000.200. Premium quality: moderate availability – good to very good taste experience.00 Exportation. dealers and traders. but many roasters. The international trade plays a vital role in the worldwide marketing and distribution of coffee. Mainstream quality: very widely available – acceptable taste experience. although the increasing concentration at the roasting end of the industry has led to a substantial reduction in their number (ITC. Coffee is generally sold FOB (free on board).47 29 485 7 1252. This allows plenty of scope for the various middlemen involved in the trade to operate and perform useful functions. Trade Structure Coffee is generally purchased from the exporting countries by international trade houses. roasters tend to buy their coffee from international trade houses or from specialized import agents who represent specific exporters in producing countries. 2011). Small roasters often prefer to buy in small lots on a delivered in-store or exstore basis. prefer to buy on an ex-dock basis.4 2004 1020 199. Philippine Coffee Consumption and Importation (1000 bags) Calen Producti Domestic Surplus/De Exportat Importat dar on Consump ficit ion ion Year tion 1238.07 12 682 7 1219.9 2005 1040 212. 2011).98 34 650 8 . For the mainstream quality. Precise figures neither unavailable nor is the situation static. especially in the United States. but it is generally accepted that between 80% and 90% of all coffee consumed worldwide is of mainstream quality (ITC.0 2003 917 321. The remaining volume is for raw coffee beans primarily Philippine marketed to roasters and roasted and ground coffee Exportation of for specialty coffee shops. the roasted and ground coffee and Soluble coffee.200 MT in 2012.00 consumption we became net importer.05 7 1385 2125 -992.00 2012. According to the USDA Foreign Agricultural Services imports of soluble coffee and coffee concentrates grew more than doubled from 19. 1060 1060 181 108.78 6 1550 2175 -1125.2 2010 2 1049. Indonesia and Malaysia.293 MT in 2009 to 40.6 2011 3 1063. only 3000 bag of coffee has been exported.00 largely from neighboring Asian countries such as Vietnam.00 Trade data from Indexmundi show that imports of 200 9 6.314.338. In 7 32.8 38 32 490 525 1720 -551.105. Exportation is 200 very minimal since 1990’s with the production limited 6 35.8 1168. Soluble Coffee (Bags) Yea The country used to be exporter of coffees before but r Volume due to the supply deficit and high domestic 200 5 33.2006 2007 1241 1168.37 10 1665 2175 -1111.71 M bags in 2012.435. 200 8 4.7 2012 5 Source: BAS.636.37 4 990 1820 -664. . ICO.00 200 to less than half of the domestic consumption.9 2009 5 1132.00 coffee beans increased from 682 thousand bags in 201 2000 to 1. Imports are sourced 0 6.646.25 3 1715 & Indexmundi There are many forms of coffee exported and imported from and to other countries: the raw coffee beans.6 2008 3 1155. The soluble coffee import or instant coffee accounts 95% in the Philippines. Although the per capita is less than 1 kg per year. supermarkets and hypermarkets. Soluble or instant coffee accounts for about 95% of all the coffee consumed in the country. Consumers can also buy in small quantities usually in small packs.org. Surprisingly. Domestic coffee consumption is estimated to increase by 6% per year due to a predicted increase in overall food and beverage consumption as population and income continues to rise. Without significant increases in production and with continued growth in domestic consumption. Market sector Coffee is generally considered to be a household staple even among the lower economic classes. 2013). Sari-sari stores accounts 70% of the total sales of consumer products including coffee (Wikipedia. the country still is import dependent. The country is importing an average of 1. exporting countries like Thailand and Indonesia also import coffee from other countries probably other grades of coffee. where the majority of plantations are located and coffee manufacturers are operating (USDA.8M bag of coffee per year from Malaysia according to International Trade Centre (ITC). the country is still a significant importer. The chances are whether there is a formal or informal trade. and wholesalers and food brokers. . coffee shops. 2011). 2010). coffee bean and soluble coffee imports will likely remain high due to increasing domestic requirement. The booming BPO industry which has long and varied operating hours from the normal Philippine workforce is also expected to contribute to the increase in coffee consumption (USDAFAS.The import figures cannot be 100% accurate due to the reported robust informal trade between Indonesia and the southern island of Mindanao. Filipinos frequently buy in these stores because of its presence in almost every corner making it very convenient. Structure of the retail market Retail sales of coffee (both roasted and instant) in the country are channeled through a combination of retail shops like sari-sari stores. According to the results of a survey conducted by international market research firm Nielsen. many have now begun to move to supermarket shopping for the supply of their essential items (Nielsen as cited by Philippine Daily Inquirer. sari-sari stores retail share for coffee might be lesser and lesser in the coming years. The figure ____ shows this trend. Supermarkets like SM. Whereas Filipinos used to secure their day-to-day household item needs from neighborhood sari-sari stores.However. Puregold. however. Rustans. in the country sachets are very popular especially ‘3-in-1’ instant coffee . More importantly. Source: Nielsen Roasted coffee is sold in ground form or as whole bean and is packaged in various types and sizes of cans and packets.a pre-mixed coffee with sugar and a creamer. 2013). From being packed in big packs of 500 grams and small jars of 50 grams. Robinsons. coffee now commonly packed in small sachets of 15 grams . Soluble coffee in other countries are generally sold in jars. local buying habits for grocery items – especially coffee .are also changing rapidly because of the proliferation of supermarket chains which are growing their branch networks to cover areas previously served only by “mom and pop” convenience stores. and 7- eleven among others today play a much larger role in the retailing of coffee than they ever did before and supermarket own brands now account for a sizeable proportion of retail coffee sales. Filipino shoppers now opt to shop frequently with smaller baskets brought about by the close proximity of the supermarkets to the homes. It can be noted that because of the changing shopping habits of Filipinos. but not exclusively for consumption in the home. and vending machines. although still small. Most small roasters tend to specialize in one segment. The consumption trend is due to convenience of preparation. hospitals. Filipinos prefer quite obviously soluble coffee and the instant coffee of Nestle is the favorite brand. and so on. where coffee is destined for the out-of-home market e. coffee shops and bars. 2011). while larger and in particular multinational roasters usually service both. the quality and taste of which depend largely upon the coffee growths that make up the blends. where coffee is purchased largely. Roasters in the country have two distinct market segments: The retail (grocery) market. South Korea (95%) and Great Britain (90%). More recently there has been a significant shift towards single-serve filter coffee brewing methods in the United States and Europe with the development of new single serve filter machines as well as the single-serve pour-over filter system. known generally as the ‘chemex’ system.g. market for ready-to-drink (RTD) liquid coffee beverages sold in cans or bottles (ITC. restaurants. however. consistency of quality and easy mess-free disposal of spent coffee grounds.representing the change in consumption behavior of Filipino market. A similar percentage of coffee percentage of instant coffee can be found in Thailand (95%). Each segment accepts a wide range of products. the degree of roast. The instant coffee came . Instant coffee represents 95% of the coffee sold in the Philippines and is reflects 90% of the total of its coffee imports. it is once again accelerating with the rapid acquisition of small specialty roasters by the multinationals. There is also a strongly growing. controlled by a handful of huge multinational roasters and the degree of concentration is increasing. The major part of the retail market is. The market for sealable 3-1 coffee is also becoming popular. offices. the type of grind. The institutional (catering) market. Although this trend was temporarily halted by the growth in the specialty trade. Coffee Shops Coffee shops or cafés in the Philippines have been gaining popularity but for more peaceful reasons. Cafés and specialty coffee shops have also become a status symbol for younger consumers. Universal Robina Company or the Starbucks are only nibbling on the outer edge of the complete coffee cake market. Nestle Philippines with its brand Nescafe monopolizes 85% of the country’s coffee market. posting a double-digit percentage increase. 2011). making coffee-drinking more than just a morning ritual. In the county. new drinks like specialty teas as well as food products have also contributed to the rise in cafés. specialty coffee shops outgrew other establishments like bars and restaurants in 2007. one of the world’s leading independent providers of business market and industry reports. And from the looks of it. a multinational roaster. Filipinos have become more discriminating coffee drinkers moving from ready-to-drink brands to more complex and traditional varieties. the country’s brewing café scene has yet to be fully experienced. offering more than just coffee and food. while the working elite find these establishments’ convenient places to hold casual business meetings.onto the country from the American soldiers at the end of the 2 nd world war (Bethge. Other companies like Commonwealth Foods. . General Milling Company. This. cafés have become a community’s watering hole. according to Euromonitor. According to Euromonitor International. And while coffee remains to be the top product for these establishments. From big foreign brands to local and independent establishments. An Indonesian company PT Torabika Eka Semesta is also getting strong position in the 3 in 1 instant coffee segment with its halal certified Kopiko brand. is partly due to the growing popularity of coffee and its advertised health benefits. as well as the mushrooming business process outsourcing industry which has significantly enhanced coffee product sales. Another coffee shop. According to analysts. Local players are also significant players in the specialty coffee shops market. Starbucks became more of a status symbol among domestic consumers. more such outlets are likely to appear. Due to its premium signature coffee strategy and international appeal. With international coffee chains gaining popularity and other specialty coffee shops following suit. Figaro known for keeping up with their customers and more recently for their health conscious market has also been a significant player with 160 stores. in general. Starbucks performed better than international counterparts such as the Coffee Bean & Tea Leaf and Gloria Jean’s due to the unique experience it offers consumers. have started to be more discriminating in their preferences for coffee.The leading coffee shop in the country is Starbucks operated by the Rustans groups of companies with 206 stores around the country. The support of the local government and agriculture sector to farmers has also helped to rejuvenate the Philippine coffee industry. Specialist coffee shops grew in terms of number of outlets. The strong growth is mainly attributed to excellent consumer demand. Factors Influencing Demand 1. transactions and value sales. many Filipino companies and even growers of locally produced coffee beans have opened their own businesses. specialist coffee shops in the Philippines are expected to continue growing in the coming years. Coffee shops have become a status symbol for younger consumers and Filipinos. the Bo’s Coffee Club is catering to the very high end coffee market that has its services and products tailored to suit the needs of high society coffee drinker. Recognizing the continued growth potential for coffee shops. They are able to be at par with other foreign coffee shop franchises and maintain their name as one of the respected coffee shops in the Philippines. Income . as coffee drinking has become a very popular social activity. ‘Let’s have a coffee’ is a phrase often used to cover a general request for an informal get-together. but also seen as a social lubricant fulfilling a very necessary function enabling people to socialize. 2. Construction. Lifestyle and diet Coffee is traditionally recognized as an everyday beverage that is frequently seen as a stimulant and an aid to alertness. as meals are becoming less formal and structured in the Philippines. It is interesting to note that coffee is more likely to be consumed at breakfast. average Filipinos have more disposable income to spend to basic commodities like Coffee. but also. Value addition Downstream processing is often seen as a way of adding value to a raw product at origin. In many ways this is not there is clear evidence that consumption is highly dependent not only on absolute income levels. In the last years the coffee consumption in the country has been increasing due emerging trend set by American-style coffee bars and perceived health benefits. Tourism Industry. There were also an increasing trend in other beverage like bottled water and tea. and booming business brought about by the MSME’s. this is not as straightforward as it at first . Competing drinks Competition from other beverages has also been an important factor affecting the demand for coffee. In the Philippines. this hasn’t affected the consumption for coffee. on changes in real-income levels. due favorable macroeconomic condition. 3. lunch or dinner if these are taken as family meals rather than eaten alone. and probably more importantly. however.Income is an important factor affecting the demand for coffee. However. and BPO industries. outside consumption of coffee is growing particularly in Specialty coffee shops and stores. Unfortunately. but not to all. The solvents are water. with a jet of hot air.5% caffeine. evaporation takes place under low vacuum and low temperature conditions. which sell their product by promoting their brand name and image through large-scale advertising. . Caffeine is an alkaloid with stimulant properties that are pleasing to the majority of coffee drinkers. In 2010 (calendar year) just 7. Usually.appears if it were. freeze-drying is used for the finer and more expensive blends of instant coffee (ICC. This is almost40% higher than 10 years ago.6% of all coffee exports from the country were processed coffee. Nestle Philippines is one of the highest spender in advertising in Television usually using Jingles. Decaffeinated Arabica coffee beans contain 1%–1. Different processes are used. whereas Robusta contains more than 2%. Normally advertising expenditure is equivalent to between 3% and 6% of sales revenue. 2013). mainly multinationals. organic extraction agents or carbonic acid. The caffeine in the green coffee beans has to be extracted to about 97-99 %. Decaffeination caters for those who do not want the stimulant effect of caffeine. but given the low starting point this is still fairly slow progress. Consequently. The processing steps are vaporization. there would be a far greater trade in processed coffee products from origin than there is today. The concentrated liquor is introduced into the top under pressure. And (3) Freeze-drying consists of freezing the coffee liquor into a ¼ inch (about 6 mm) thick cake on a moving conveyor at a temperature of -45° C. The consuming market for coffee is dominated by a few very large companies. Coffee Soluble The Coffee Soluble includes the three processing methods. The wet granules are then dried as they descend through a second tower and are sifted to provide a uniform final granule size. (1) Evaporation which is necessary to reduce the liquor’s water content to 50%. (2) Spray-drying which requires a large cylindrical tower with a conical base. However. blends of roasted coffee from different origins remain the most predominant roasted coffee (i. RTD liquid coffee in plastic bottles and in PET packs is also very popular and is generally sold in supermarkets. It also a distributor of world class coffee machines like the Swiss-made Jura. it commands only a small premium over non-decaffeinated coffee and frequently is sold for the same price. where it is sold mainly through vending machines. Although there is no available data for decaffeinated coffee in the country it is estimated that decaffeinated coffee currently accounts for around 10% of all coffee sales. It currently accounts for just fewer than 10% of all coffee consumption in Japan. particularly in . Canned coffee products are also finding a good market in many emerging markets in Asia. It is very noticeable that the RG is already penetrating other booming cities. In 2010. it accounted for close to 20% of total consumption in Japan. Conlins. this is decreasing. the development of the specialty sector has slowed the trend. In terms of supplier.decaffeination and drying Decaffeinated coffee is seen as having to compete with other specialty coffees and although consumers of decaffeinated coffee tend to be very loyal to the product. Usually. Consequently the economics of the decaffeination are tight. German-made WMF espresso Machines and Italian-made Wega semi-automatic espresso machines. ready-to-drink (RTD) coffee was originally developed by the Ueshima Coffee Company. caffeine no longer appears to be an issue that most consumers are particularly concerned about.e Café amadeo) product in the overall market today and this makes it difficult for producers to enter the retail market on their own. Roasted Coffee The market for roasted coffee is somewhat less concentrated than that for soluble coffee. Although market concentration in the roast and ground (RG) sector increased significantly in urban areas particularly in greater manila area (GMA). a full service coffee company is the leading supplier for premium roasted coffee beans. Ready to Drink and Concentrates Canned. however. Top Kenya AA and Guatemalan Antiguas. the main of the production is now in the Davao and ARMM. Many coffees are suitable only for blending or processing into neutral or anonymous end products. there are only two countries that can produce the Coffee Liberica also known as Kapeng Barako. reliable and consistent grading procedures. Specialty coffee It is often neither viable nor possible to add value to green coffee by processing at origin. How much these developments do for coffee consumption or indeed coffee quality is debatable – the coffee content is usually not very high and the coffee taste is often masked by flavoring (ITC. Hawaii Kona. including soluble. For such coffees it is not possible to add monetary value as prices are determined solely by market conditions. Examples include Jamaican Blue Mountain. although the success of the product depends very much on its availability in vending machines. in Asia. however. there is a growing coffee vending machine business. As mentioned earlier the country is one of the countries who can grow 4 commercial coffees. on the other hand. It can be seen in almost every corner and convenience store usually priced at 5-10 pesos/cup. Nevertheless. For example. The top Kenyan grades regularly achieve prices more than double that achieved by other growths with some small parcels selling in early 2011 for as high as US$ 20/lb. it is a new and growing niche market. Moreover. 2011). strict compliance with contractual obligations and regular delivery will add value in the sense that the product will be preferred by primary buyers over those from less consistent origins. may be highly prized for their flavor characteristics and attract a suitable premium. In the Philippines. This species is primarily grown in Calabarzon before. in the early 2000s Jamaican Blue Mountain attracted such a large premium that the unit value of coffee exported from Jamaica was over 13 times higher than the average of all ‘Other milds’ producers and more than 16 times higher than the average achieved by all origins. However. Some of these growths regularly attract extremely high premiums. Certain growths of coffee. The specialty coffee is primarily marketed to .China. Year after year they have taken over market share from the specialized shops. organic producers have difficulty in setting their prices since the market do not view organic products as premium. Coffee drinkers around the world have been drinking more specialty or gourmet coffee in recent years. After watching its neighbors become global coffee heavyweights. The organic coffee is also a bright spot for the Philippine coffee industry because of the changing market. Recently. Support sector The Philippine government has been very supportive just recently to the once neglected industry. 2011). Green Bean Organic Coffee Co. 2013). to the point where they drive most of the growth in the market share of organic food today (ITC. 2007). Export of soluble coffee to Japan is also anticipated to prosper. Although Filipinos are slowly catching up to the organic trend. There is indeed a bright coffee for special coffee varieties for the country. . where quality was secondary as long as the products were organic. (GBOCC) has just landed in the Philippine with its signature blend called Eco Blend priced at only P65. big corporations have already introduced organic coffees such Nestle Organic coffee. In the Philippines. However. But then in the early 1990s supermarket chains started paying systematic attention to organic food. and Environmental concerns are seen continually grow and sustain this segment.Middle East while the other species Coffea Arabbica from Benguet high-end market in the United States (PCCARD. organic products are marketed to niche markets. Demand for specialty coffee. GBOCC only produce 100% organic coffee and does not use refined sugar (Turistatrail. The growing Health Considerations. Organic Coffee Organic products have come a long way since small groups of consumers started buying organic food directly from farms or from small health food shops. the Philippines is taking tentative steps towards regaining its status as a formidable grower of the bean. " which loosely translates to "Island Coffee" and is a trademark to distinguish specialty coffees grown in the Philippines.made from beans eaten and excreted by civet cats. Special varieties found only in isolated areas are also being developed. and this was becoming stronger as society modernized. So they are aiming for niche markets and targeting the fast-growing number of young Filipinos who crowd cafes across the country of 93 million people. Filipinos are drinking more coffee with the change in lifestyles. among the top five coffee exporters in the world in the 1880s after Spanish friars brought beans with them to their colonial outpost. In this way. The Philippine Coffee Board. This marketing and promotion on specialty coffees are done because the country cannot surely compete in terms of volume. In contrast. Marketing and Credit Support The PCB is promoting "Kape Isla. Coffee board co-chairwoman Pacita Juan said the Philippines had long had a thriving coffee-drinking culture with a populace that favored coffee over tea. whose local outlets sell specialty coffees generally only from Africa and South America. BPO industries as well as Hotels are growing market opportunities for better coffee not just instant coffee. an industry group spearheading the revival attempt. as is production of "civet coffee" -. In the country the number of coffee processing facility can be only count by hand. The gourmet coffee products that the Philippines are starting to offer include special "premium Arabica" blends and the strong "Barako" bean that is favored by Filipinos. other Asian countries produce beans on large plantations with advanced processing technology. knows the country cannot compete with the likes of current regional exporting giants Indonesia and Vietnam in volume.However. that era is a long way back for the Philippines. It is also helping entrepreneurs set up small coffee shops across the country where they can offer their own regional blends. Coffee farmers often complain about the lack of roasting facilities in their area making them dependent to low prices of their raw . they can compete with the global giants such as Starbucks. The Philippines has a lot of exotic coffee that can capitalize on. The government also allotted 3. employing about 70. and other Coffee industry stakeholders. diversify by promotion local consumption. Moreover. Technical Support PCB estimated that leading efforts to revitalize the local coffee sector. The former Nicomedes P.blogspot. through the da-high value crops development program (HVCP). and look beyond the traditional market.1 Million pesos for the rehabilitation of coffee farms in Compostella valley where significant decrease in production is seen. the OIC of NCRDEC also commits to increase the coffee production and productivity. the improved facilities also enabled them to Provide a more informed and updated technical knowledge and support to coffee farmers.000 each. The Land Bank of the Philippines and the Development Bank of the Philippines offer production loan assistance to interested coffee farmers. Technical highly trained people from the different universities and the private sector has been made available for consultation. Senator Kiko Pangilinan in 2011 has also allotted P10 Million pesos for the Echo demo farms to be set in coffee growing regions and funding 10 for Coffee demo farm with P 150. and make the Philippines a net coffee exporter again in about 10 to 15 years. 2011. The PCB has already committed and hoping to regain coffee selfsufficiency in the country. Reference: Bedge. philippines. the chief of bureau of agricultural research (bar) committed to sustain the Philippine coffee industry.000 farmers in 22 provinces (Dumlao.insights- .de/nescafe. In the Nescafe Country. and trade relations. students. strengthen coffee processing to improve quality. Eleazar.coffees.html in : http://www. Mojia.htm http://turistatrails. to be worth P40 billion.com/p/about-me. Another support activity from the government is the allotment of P5 Million to develop the CVSU-NCRDEC to boost-up Research and Development for coffee processing. 2013). The PCB and the National Competitiveness Council are working together to draft a roadmap to increase the competitiveness of the Philippines in the coffee world. And marketing had been strengthened and advanced. Nestle provides buying stations at strategic locations in the country and it also offers a guaranteed floor price of P45/kg of green beans. Dr. has already crafted the coffee roadmap Allotting support to address the decline in coffee production. Meanwhile. Furthermore. Ruel M. W. Da. Recognizing the continued growth potential for coffee shops. In addition. Specialist coffee shops grew in terms of number of outlets. With international coffee chains gaining popularity and other specialty coffee shops following suit. In the Philippines. In 2012. as coffee drinking has become a very popular social activity. Due to its premium signature coffee strategy and international appeal. led cafe/bars sales with a value share of 5%. have started to be more discriminating in their preferences for coffee. in order to reduce the reliance on imports. local production in the Philippines still did not . The support of the local government and agriculture sector to farmers has also helped to rejuvenate the Philippine coffee industry. specialist coffee shops in the Philippines are expected to continue growing in the coming years. Some 6% of cafe/bar transactions were made at Starbucks. COMPETITIVE LANDSCAPE In 2011. Rustan Coffee Corp. However. more such outlets are likely to appear. transactions and value sales. multinational chains dominate specialist coffee shops and have experienced robust growth since the late 1990s. Starbucks performed better than international counterparts such as the Coffee Bean & Tea Leaf and Gloria Jean’s due to the unique experience it offers consumers. the domestic operator of all Starbucks outlets in the Philippines. local coffee chains have also experienced strong growth over the past several years. there is no universal grading and classification system – each producing country has its own. in general. The strong growth is mainly attributed to excellent consumer demand. which it may also use to set (minimum) standards for export.Grading and Classification Green coffee is graded and classified for export with the ultimate aim of producing the best cup quality and thereby securing the highest price. Starbucks became more of a status symbol among domestic consumers. Popular foreign franchised specialist coffee shops include Starbucks. Seattle’s Best. TRENDS The government and the private sector are both making efforts to increase local coffee production. The Coffee Bean & Tea Leaf. however. According to analysts. Coffee shops have become a status symbol for younger consumers and Filipinos. with the chain benefiting from the fact that its brand name is recognised throughout the country. many Filipino companies and even growers of locally produced coffee beans have opened their own businesses. Gloria Jean’s and UCC Coffee. Index Mundi. opened a new coffee centre in Batangas City that will increase access to new coffee farming techniques in a bid to increase the number of coffee producers and production in the Philippines. Nestlé Philippines Inc. the key player in the coffee industry. Source: BAS. The company’s Nescafé brand was one of the first instant coffee brands in the country and hence was able to establish a large and loyal consumer base through effective advertising. The country imports the rest of its coffee requirements from Vietnam.meet coffee demand in the country. & ICO . continuous innovation and the good quality of its coffee products. due to its strong positioning and leadership in the instant coffee sector. The positive economic outlook in the forecast period will benefit both the instant and fresh coffee categories. Its programmes to help develop the domestic coffee industry also give the company an competitive edge. Indonesia and other Asian countries. In 2012. as manufacturers’ attempt to counter any negative perception about the drink. COMPETITIVE LANDSCAPE Nestlé Philippines Inc dominates coffee sales with a value share nearly 90%. PROSPECTS The more widespread health and wellness trend in the forecast period will encourage various brand manufacturers to produce organic and decaffeinated coffee variants to prevent a decline in the consumer base and capture a greater share of health-conscious consumers. There might be more marketing activities that will highlight the benefits of coffee. 220 2007 1.220 .390 2004 1.380 2009 1.300 2005 1.285 2008 1.310 2006 1.690 2010 2.Marketing Domestic Coffee Consumption (1000 bags) Calend Volume ar Year 2003 1. 660 2013 2.839 2012 3.2011 2.600 Source: indexmundi Problems and Constraints . 00 40.00 10.00 50.00 60.Coffee and Banana area in Compostella Valley 40000 35000 30000 Hectares 25000 Banana 20000 Coffee 15000 10000 5000 0 Farmgate Price in Pesos Per Kilogram 70.00 30.00 0.00 20.00 . 200.000.00 .00 1.00 0.00 600.00 200.00 800.Yield Per Hectare in Kilograms 1.00 400. 20 0.00 30.10 0.00 NET PROFIT-COST RATIO 1.00 15.60 0.00 0.00 .80 0.50 0.00 25.30 0.Cost Per Kilogram in Pesos 45.00 40.00 35.00 0.70 0.00 20.00 5.00 10.90 0.40 0.