The Sweet World of Chocolates in the Philippines1

April 2011
Joy Kristel L. Orzales Researcher Center for Food and Agri Business University of Asia and the Pacific

Chocolate is one of the most craved foods in the world. Ever wondered why many people turn to chocolates when they are sad? Studies show that chocolates have many chemicals that interact with the brain and enhance the mood. Some of the known chemicals are anandamide that causes the feeling of well-being, phenylephylamine that changes the blood pressure and blood sugar and increases the pulse rate similar to the feeling when in love, and endorphin, better known as the happy hormone, because it can lessen pain and decrease stress. This is the reason why there is a steady demand for chocolates all around the globe.

Performance
Chocolate manufacturing is a billion peso industry in the country. Based on the latest Census of Philippine Business Industry (2006), there are eight local establishments with total employment of 20 and above that manufacture chocolate and cocoa products including chocolate candies with total revenues of P3 billion. Meanwhile, according to the National Statistics Office-Family Income and Expenditure Survey, Filipinos spent P4.8 billion in 2009 for sugar products that consist of candies and chocolates, among others. Spending was up by 10 percent per annum from P3.6 billion in 2006, or 4.7 percent per annum if adjusted for inflation.

Trade
The Philippines is a net importer of chocolates. The trade deficit (exports minus imports) increased by 15.7 percent per annum fromUS$2.1 million in 2006 to US$3.7 million in 2010.

Imports. In 2010, the country imported 1,818 tons of chocolates valued at US$5.4 million. There was a decrease of 0.5 percent per annum from 2,166 tons (US$4.2 million) in 2006. Imports peaked in 2009 at 3,051 tons valued at US$8.2 million.

Figure 1. Total Volume and Value of Chocolate Imports*, 2006-2010 (Volume in tons, CIF value in US$ '000)

Description
* includes chocolate confectionery and white chocolate Source: BAS

The United States (US) was the major source of chocolates from 2006 to 2010 except in 2007 where Malaysia was the major origin. In 2010, it supplied 361 tons valued at US$534 thousand, which was 20 percent of total imports. Other leading sources of chocolates during the year were Saudi Arabia, Singapore, Indonesia, and China. The popular brands imported from the US are Hershey's, Mars, Snickers, and M&M. Gandour chocolates like Tofiluk, Demolino, and Safari are from Saudi Arabia. Delfi chocolates like Delfi Chocolate Sticks and Chic Choc biscuits are from Singapore under the management of Petra Foods Ltd. Exports. Philippine exports of chocolates were volatile from 2006 to 2010, with peak in 2007 at 898 tons valued at US$2.8 million. Exports decreased from 747 tons (US$2.1 million) in 2006 to 591 tons (US$1.7 million) in 2010. Volumes contracted by an average of 2.6 percent per annum although export values increased during the period

Figure 2. Total Volume and Value of Chocolate Exports, 2006-2010 (Volume in tons, FOB value in US$'000)

Description
Source: BAS

In 2010, Korea was the major market of Philippine chocolates, followed by Canada and the US.

Key Players
There are several companies engaged in chocolate manufacturing in the country. The three largest are Universal Robina Corporation, Commonwealth Foods, Inc. and Goya, Inc. under Delfi Foods Inc. Universal Robina Corporation. Universal Robina Corporation (URC) is the market leader in chocolates and the leading branded convenience food and beverage company in the Philippines. It manufactures enrobed chocolates and panned chocolates. Its popular enrobed chocolate brands are Cloud 9, Big Bang, Chooey, and Monster Munch while its panned chocolate, Nips, is the most popular in its category. It also exports chocolates to Thailand, Malaysia, Singapore, Indonesia, and Hong Kong. Commonwealth Foods, Inc. Commonwealth Foods, Inc. (Comfoods) is a manufacturer of chocolates as well as other products like coffee, cookies, biscuits, milk products, coffee beans, flour, and sugar. Its chocolate brands are Flat Tops, Curly Tops, Choco Mallows, and Chocolate Crunchies. Goya, Inc. Goya, Inc. is now under Delfi Foods Inc., which is a wholly owned subsidiary of Petra Foods Inc., a Singapore-based manufacturer of branded consumer confectionery. Delfi bought the manufacturing plant and sales and distribution assets of Nestle Philippines together with Goya for an aggregate deal of US$5 million in March 2006. Currently, Knick Knacks and all of the Goya products are under Petra's subsidiary in the Philippines. Delfi Foods Inc. had net sales of P1.2 billion in 2009, according to Business World's Top 1000 Corporations in the Philippines. The popular Goya products are chocolate coins and eggs.

Other players. There are other chocolate manufacturers like Multirich Foods Corp. (Choco Mucho), Columbia International Food Products Inc. (Klicx Cruncher and Chocquick bars), Monde Nissin (Snitch Choco Bar), Twin Oaks Foods Corp. (Mayfair), Stateline Snack Food Corp. (Stateline Nimble Chocolates), New Unity Sweets Mfg. Corp. (Choc-Nut), Annie Candy Manufacturing (Hany Milk Chocolate), and Gracepoint Enterprises (Lala).

Aside from the manufacturers, there are also importers and distributors in the industry. These include Nestl Philippines Inc. (Kitkat and Crunch), Hershey's Philippines Inc. (Hershey's Kisses and Hershey's Milk Chocolates), Valiant Distribution Inc. (Hershey's Kisses), Cadbury Adams (Philippines) Inc. (Cadbury), Grand Dragon Ent. Inc. (Meiji chocolates, Yan Yan and Hello Panda), Mars Philippines Inc. (Mars, M&M, Snickers, and Malteeser), Sweetie Shoppe Inc. (Toblerone), Gandour Philippines Inc. (Tofiluk, Demolino, Safari, and Pik-One), Kenda International Inc. (Butterfinger, Baby Ruth, Frey, Swiss Delice, and Rittersport), Delfi Marketing Inc. (Delfi), Mega Marketing Inc. (Ferrero Rocher and Ferrero Tronky), and Rustan Marketing Specialists, Inc. (Marks and Spencer). There are also kiosks that sell high-end chocolates like Royce' and Leonidas. Royce' is a Japanese chocolate manufactured by Royce' Confect Co., Ltd. which offers chocolatepowdered chocolates that melts in the mouth. Royce' chocolates cost more thanP500 for a 20-piece chocolate box. Kiosks can be seen at Powerplant Mall and Greenbelt 5 in Makati, Trinoma Mall and Eastwood Mall in Quezon City, and Robinson's Place in Manila. Meanwhile, Leonidas is a Belgian brand that offers 100 percent pure cocoa butter for the coating with many flavors available. The price ranges from P1,700 to P3,500 for tin cans, P250 to P2,500 for boxes, and P200 for singles. Leonidas kiosks are located at SM Mall of Asia in Pasay, Alabang Town Center in Ayala-Alabang, The Podium in Ortigas, and Shangri-La Plaza Mall in Mandaluyong.

Prices and Distribution

People can buy local chocolate bars for as low as P4.95 for a 28-gram (g) Klicx Cruncher or Chocquick to as high as P78.50 for a Goya Chunky chocolate. Meanwhile, packed chocolate prices ranged from P21.50 (Curly Tops, 15 pieces) to P154.50 (Goya chocolate coins). Imported chocolates are much more expensive. Prices can vary from as low of P20.00 (Nestle Kitkat) to as high as P149.50 (Lindt Almond) for chocolate bars and from P54.50 (Ferrero Rocher, 3 pieces) to P564.50 (Ferrero Rocher, 30 pieces) for packed chocolates. Table 1 shows the indicative prices of selected imported and local chocolates.

Table 1. Indicative Prices of Selected Imported and Local Chocolates (in pesos)

Chocolates Imported (90-100g)

Price

Lindt Almond

149.50

Lindt Double Milk

139.50

Frey Classiq

84.50

Rittersport White

83.50

Toblerone Chocolate

84.50

Toblerone White

91.50

Table 1. Indicative Prices of Selected Imported and Local Chocolates (in pesos) - continued

Chocolates Imported (90-100g)

Price

Goya Chunky

78.50

Goya Indulgence

78.50

Table 1. Indicative Prices of Selected Imported and Local Chocolates (in pesos) - continued

Chocolates Imported (35-55g)

Price

Nestle Kitkat

20.00

Butterfinger Crisp

31.50

Nestle Crunch

31.50

Snickers Almonds

44.50

Snickers Classic

31.50

Toblerone White

46.50

Toblerone Chocolate

44.50

Cadburry Dairy Milk

42.50

M&M peanut

31.50

Table 1. Indicative Prices of Selected Imported and Local Chocolates (in pesos) - continued

Chocolates Local (35-55g)

Price

Nips

11.50

Goya Cookies n' Cream

18.50

Goya Almond Choco

17.50

Goya Milk Choco

17.50

Goya Strawberry n' Cream

17.50

Table 1. Indicative Prices of Selected Imported and Local Chocolates (in pesos) - continued

Chocolates Local (25-30g)

Price

Cloud 9 Crunchy

6.50

Cloud 9 Berry Burst

5.95

Cloud 9 Nougat

5.95

Goya O' Nuts

15.00

Goya Dark Chocolate

19.50

Goya Intense Dark

28.50

Choco Mucho

5.50

Klicx Cruncher

4.95

Snitch Chocolate Bar

5.50

Chocquick

4.95

Table 1. Indicative Prices of Selected Imported and Local Chocolates (in pesos) - continued

Chocolates Imported (In Packs)

Price

Ferrero Rocher, 30 pieces

564.50

Ferrero Rocher, 16 pieces

314.50

Ferrero Rocher, 5 pieces

99.50

Ferrero Rocher,3 pieces

54.50

Ferrero Tronky, 108g 6's

112.50

Hershey's Kisses, 235 g

239.50

Hershey's Kisses Almonds, 235g

239.50

Table 1. Indicative Prices of Selected Imported and Local Chocolates (in pesos) - continued

Chocolates Local (In Packs)

Price

Flat tops, 30's

38.50

Choc-Nut, 24's

33.50

Curly tops, 15's

21.50

Curly tops, 24's

34.50

Goya Chocolate coins, 500 g

154.50

Goya Silver cups, 420 g Source: Selected Supermarkets in Metro Manila, March 2011

104.50

Chocolates are patronized by people from all ages and gender. They are highly in demand during the months of February (Valentine's Day) and December (Christmas) because people usually give them as gifts. Chocolates can be bought in supermarkets, grocery stores, convenience stores, drugstores, department stores, and duty free shops. They are usually packed in foil or boxes.

Challenges and Opportunities

Local chocolate manufacturers face several challenges. For one, production of cocoa, a key raw material, remains lacking in terms of both quantity and quality. It also has to be shared by different industries like beverage, baking, ice cream, food service, and chocolate, among others. Manufacturers are also affected by the rising prices of sugar, another important ingredient. In late March this year, the retail price for refined sugar stood at P64 per kilogram (kg) from only P53 per kg during the comparable period last year. Aside from the price of sugar, tariff is also a concern. The current tariff imposed on imported sugar is higher than the tariff for processed chocolate imports. Since 2009, the tariff is 38 percent for in-quota and out-quota shipments from countries under theASEAN Free Trade Area (AFTA) and 50 percent for in-quota and 65 percent for outquota from other countries. This is higher than the tariff imposed on processed chocolates which is zero for AFTA countries and seven percent from other countries. This puts local chocolate manufacturers at a disadvantage compared to just importing processed chocolates. Tariff on sugar though will be lowered to 18 percent in 2013 and to five percent by 2015 for AFTA countries. The lower tariff on chocolates has also led to intensified competition between local and imported chocolates. Local producers have to exert more effort to be competitive in the local market.

Amid the challenges, there are opportunities in the local and international markets. The advantage that local chocolate manufacturers have is the ability to cater to the majority of the population by offering low- to mid-priced chocolates in small packages. They also pursue continuous product innovations to cater to changing consumer tastes and preferences. Some have products which are already comparable with imported brands. There are also international chocolate manufacturers like Askinosie Chocolate and Mars, Inc. thathave started to import Philippine cacao. Askinosie Chocolate sources out some of its cocoa bean requirements from Davao. Mars, Inc. has established a Mars Cocoa Development Center in Davao to help farmers produce quality cocoa beans, which has started to import at market value. This shows that the Philippines has the potential to produce high quality chocolates that can compete in the international market. An increase in the production of high quality cacao beans will help propel the local chocolate industry. In this regard, the government provides support in terms of improving the production of high quality cacao beans such as Criollo. A research, development, and extension program for cacao from 2008 to 2012 has been funded by Department of Agriculture - Bureau of Agricultural Research (DA-BAR). The agency's National Research and Development Extension Agenda and Programs for 2011 to 2015 has listed cacao as a priority crop. The DA Agri-Pinoy High Value Crops Development Program also includes cacao production that will give the farmers technical assistance, technologies, and choice planting materials. There are also programs for the development of the local cacao industry initiated by private organizations such as Cocoa Foundation of the Philippines (CocoaPhil), a nonstock and non-profit organization of farmers, cacao buyers and processors, and professionals. A cocoa road map, which aims to plant 50 million cacao trees by 2020 to supply the demand of 30,000 tons of cacao beans per year by the local manufacturers, was initiated by CocoaPhil and the Agricultural Cooperative Development International/Volunteers in Overseas Cooperative Assistance (ACDI/VOCA), a US-based non-government organization. ACDI/VOCAalso implemented the SUCCESS Alliance program aimed to improve cocoa production and marketing linkages in the country from 2002 to 2005 for the first phase and 2006 to 2009 for the second phase. The project was funded by US Agency for International Development and US Department of Agriculture (USDA), respectively. Another project of ACDI/VOCA is the CoCoPal (Cocoa, Coconut, and Palayamanan), a three-year USDA-funded project that aims to equip the farmers with skills and introduce them to new technologies so they can produce beans and sell premium black chocolate that will pass international standards. This project started in 2010, in collaboration with four local agencies: CocoaPhil, PhilRice, Landcare Foundation, and Philippine Association of Small Coconut Farmers. All these initiatives to increase the production of high quality cacao beans will help boost the local chocolate industry. And hopefully, the industry will enjoy sweet success in the future.