PHILIPPINE DAIRY UPDATE

January – December 2008

• The dairy supply situation for 2008 is characterized by increasing local milk
production and exports and decreasing imports of milk and milk
products.

The net supply stood at 229.36 million kg and was 13 percent lower than
the previous year’s net supply of 264.82 million kg. Local production and
exports grew by 2.83% and 6.22% respectively while imports declined
by 11.66 percent.

• For year 2008, imports of milk and dairy products declined by around 12
percent (down to 254.29 million kg from 287.86 million kg). In terms of value,
it increased by a higher rate of 9.13 percent (total dairy import bill of
US$712.00 million from US$652.45 million in 2007 indicating an increase in
unit import cost of 23.53 percent in dollar terms and 19.04 percent in pesos.
(appreciation of the peso by 3.64%)

Milk powder constitutes the bulk of imports, this year it accounted for 67
percent from the previous level of 65 percent. Skimmed milk powder that
comprised 31percent of milk imports in 2007 was still at the same level of 31
percent of total milk imports in 2008. However, of the milk powder, only
whole milk powder posted an uptrend of around 20%.
This was due to global exports of whole milk powder rose in 2008. And this is
expected to increase again in 2009 as global milk supplies expand. According
to FAO, whole milk powder remains the key milk product exported by surplus
milk producing regions to growing developing country markets. The largest
whole milk powder exporter noted is from the European Union. More
deliveries are expected also from New Zealand, Australia and Argentina.
A high degree of price uncertainty was noted in May, -particularly with
weather related production problems in the key exporting countries of
Australian and New Zealand, which affected their exportable supplies in early
2008. However, by July 2008, international dairy product markets started to
weaken. This tendency accelerated as a result of increasing milk product
availabilities on the international market, appreciation of the United States
Dollar and, in particular, the general downturn of the global economy.
The impact of the recent contamination of milk supply in China is so far
unclear, but it likely contributed to the reduction of demand for milk
products. However, it must be noted that dairy product prices still are some
20 percent above their trend average, and production costs remain high.

Of the dairy product imports, whole milk powder, as well as condensed milk,
butter and butterfat and cheese all recorded increases in import levels.
Evaporated milk recorded the highest decrease among imported dairy
products at 89 percent in volume, followed by cream at 31 percent, curd at
25 percent, whey powder at 21 percent and other milk products posted
decreases in import volume. (Please refer to dairy industry statistics as Annex
1)

Ready to drink (RTD) was down at 17 percent in volume and higher by

14percent in value. It accounted still for 14% of dairy import volume (same
as 14% share in ’07). The increase in local production, accompanied by
 a decrease in imports of liquid milk by 17percent, resulted in the
increase in share of local production to total liquid milk supply of
27% from the previous year level of 23%. So that, from one out of
five glasses of liquid milk being supplied locally, we are now at more
than one out of four glasses of liquid milk supply.

• In terms of sources and value share, New Zealand accounted 47 percent to

total dairy import bill. Due to Australia’s limited product exports and higher
prices, USA ranked now as second supplier followed by Australia with 22
percent and 13percent share respectively.

Total tariff collected from dairy imports amounted to US$11.96 million or

approximately Php531.86 million.

• The commercial milk importer/processors who re-export of re-processed milk

products to other Asian countries continued to be a robust activity in the
processed milk sector.

Whole milk powder and ice cream products were the big exports during the
period resulting to a higher level of exports registering a total export volume
of 38.74 million kilograms valued at US$165.70 million or 18percent more
than the previous period exports worth US$140.69 million. The big re-export
item is still whole milk powder at 93 percent share to total dairy exports.

Indonesia was the top market of Phil. dairy products, accounting for more
than 43 percent of the entire export volume. Next was Malaysia that took
27percent of the total. For the first time, South Africa was included and
ranked fourth with other countries of destination that include Thailand and
Vietnam with shares of 6%, 13% and 2% respectively.

• Local dairy producers sustained growth of 2.83% this year with actual
volume of 13.81 million liters or equivalent to 37,836 liters per day
production.

The Bureau of Agricultural Statistics disclosed that the consistent dairy output
expansion was due to in particular, the volume of cow’s milk from the dairy
cooperative farms grew.

Our local milk production is derived from dairy herd that had increased by 7%
(31,791 head). Of this herd, dairy cattle registered an increase of 9% (to
15,073 head). There was also a significant increase of 69 percent in the
number of dairy goats (to 3,207 head). Carabao inventory totaled to 13,511
head. By animal source, 63% of the volume of milk production was cow’s
milk, 36% carabao’s milk and less than 1% goat’s milk.

Of the total milk output of 13.81 million liters, NDA-assisted projects'

accounted for around 70percent or a total 9.67 million liters. Milk production
increased from 25,458 liters per day to 26,483 liters per day.

• Dairy recorded a 5.26% increase in gross earnings of P411.95 million

as a result of higher production.
• The dairy sector accounted for 0.04% and 0.23% of total agricultural and
livestock production value (at current prices) of Php1,162.34 billion and
Php180.98 billion respectively. NDA-PMSD3/11/09

Philippine Dairy Industry, 2007 and 2008

CY 2007 CY 2008
Livestock population # 10,079,313 10,077,347
Total dairy herd 29,265 31,791
Total dams and does 13,982 15,033
Producers
· Number of farm families 14,405 15,212
· Number of primary 317 347
cooperatives and institutions
In million In Million Liters In million In Million Liters or
kilograms or ‘000MT(LME) kilograms ‘000MT(LME)
Net Supply of Milk Products 264.62 1,469.30 229.36 1,333.67
Local milk production 13.23 13.23 13.81 13.81
Net imports of milk products 251.39 1,456.07 215.55 1,319.86
Exports of milk products 36.47 283.80 38.74 298.85
Total imports 287.86 1,739.87 254.29 1,618.71
Volume of skim milk powder imports 89.81 720.24 78.16 626.87
Volume of other imports in powder 97.48 767.12 92.62 731.18
form
Volume of UHT imports 45.21 44.28 37.53 36.63
Volume of other dairy imports 55.36 208.23 45.98 224.03
% Share of Supply
Net Supply of Milk Products 100 100 100 100
Local milk production 5 1 6 1
Net imports of milk products 95 99 94 99
Number of dairy processors and 138 117
importers
Volume of imports accounted for by top 58% 55%
three processors
Volume of imports supplied by top two 53% 58%
country sources
Basic Sources: NSO Foreign Trade Statistics 2008, BAS 2008 statistics , NDA-PMSD Philippine Dairy Update 2008
# - includes cattle, carabao and goats Note: LME – liquid
milk equivalent
(Livestock population/inventory -as of Dec. 31 MT – metric tons)
* - revised by BAS; 2008 figures - ** prelim.
NDA-PMSD3/11/09

Source: National Dairy Authority (NDA) website

www.nda.gov.ph
Selected list of major players in the dairy industry:

1. Magnolia Inc,
A subsidiary of San Miguel Corporation
40 San Miguel Avenue, Mandaluyong City
1550 Metro Manila, Philippines
Tel. (+632) 632-2000

2. Universal Robina Corporation

Fl. 43, Robinsons Equitable PCI Bank Tower, ADB Avenue,
corner Poveda St., Pasig, Metro Manila, Philippines
Tel. +63-633-7631
Fax +63-633-9207
Ms. Ivy Cayayan
Investor Relations Director

3. Nestle Philippines, Inc.

Nestle Center, 31 Plaza Drive, Rockwell Center Makati City
Mr. John Martin Miller
Chairman & CEO

4. Alaska Milk Corporation

6/F Corinthian Plaza, 121 Paseo de Roxas,
Makati City
Tel. 02 840-4500
Fax 02 894-4929

5. Kraft Foods (Philippines) Inc.

8378 Dr. A. Santos Avenue,Sukat Paranaque City, MNL
Tel (632) 826.5546/(632) 826.9006
Fax (632) 820.2294

6. RFM Corporation
RFM Corporate Center, Pioneer St. cor. Sheridan St.
Mandaluyong City, Metro Manila
Tel: 637-9043
Fax: 631-5039