Market Information
Southeast Asia

A Spread of the Peanut Butter Industry ⁽¹⁾

Ronald Mark G. Omaña
Researcher
Center for Food and Agri Business, UA&P

At the thought of the word peanut, one would not miss mentioning the legume's most popular use - as peanut butter!

Peanut butter is one of the many products that fall under the bread spreads category. (Other well-known spreads include butter, cheese spreads, jams, jellies and marmalades, sandwich spread, and mayonnaise). Like the other spreads, peanut butter is normally added to ordinary bread to give it a distinct and specific flavor. At times, it is used in baking, and also in cooking to create savory sauces for various vegetable, meat, and pasta dishes.

Peanut butter is made from roasted, peeled, and ground peanuts mixed with sugar, salt and oil.

HISTORY

The origin of peanut butter can be traced back in 1890 when American physician George A. Bayle, Jr. experimented by grinding peanuts to produce ground nut paste, intended as a nutritional protein substitute for people with poor teeth (PeanutButterLovers.com). Since then, peanut butter has been used in the United States but it was only in 1904 when it was introduced to the world market. According to the US National Peanut Board, peanut butter had its first world exposure at the Universal Exposition in St. Louis through C.H. Summer. The product received tremendous consumer patronage, raking in US$ 705 in sales signaling the spread's very bright potential.

In the United States, peanut butter is part of the staple breakfast food. Statistics say that 89% of the entire US' households consume the spread. Moreover, about one-third of the country's peanut harvest is utilized for peanut butter manufacturing! Even the world's largest producer of peanut butter is located in the US - Procter & Gamble, maker of the Jif brand. The company can churn out 250,000 jars every day (NationalPeanutBoard.com). In the Philippines, the largest manufacturer of peanut butter is Unilever Bestfoods (formerly California Mfg. Co. Inc.).

PLAYERS

Although not a staple part of the typical Filipino breakfast meal, the popularity of peanut butter has not missed the Philippines. There are local companies that have long established their presence in the market. Leading the list are Unilever Bestfoods (Lady's Choice and Bestfoods), Newborn Food Products Inc. (Lily's), and Samuya Food Manufacturing Inc. (Ludy's, Yummy, and Sunny Cheers). Other smaller players include San Felipe Food Products (Queen Bee), and Barrio Fiesta Manufacturing Corp. (Barrio Fiesta). Unbranded peanut butter, meanwhile, is also sold in wet markets and small bakeries and bread houses.

There are also a number of foreign peanut butter brands in the market like Skippy, McKester's, and Peter Pan.

SOURCE: Supermarket Survey

Unilever Bestfoods Inc. (formerly California Mfg. Co. Inc.). Unilever Bestfoods is the leader in the Philippine spreads industry. It was established in 1955 as California Mfg Co. Inc. (CMC), a 50-50 percent venture between CPC International and Ajinomoto Japan. The company is also a subsidiary of Bestfoods Asia Ltd. until Unilever Plc. bought Bestfoods in 2000.

In the peanut butter segment, the company controls an estimated market share of 60%. Aside from peanut butter, Unilever also produces bread fills like jams, jellies, sandwich spread, cheese spread, and mayonnaise - also using the Lady's Choice and Bestfoods brands. According to a company source, sales from bread spreads contribute a huge percentage to overall revenues.

Figure 1. Estimated Market Shares for Peanut Butter, 2000

Other Unilever Bestfoods products are Knorr food seasonings and soups, Royal pasta and noodles, Mazola corn oil, Alsa gelatins, Karo syrup, Lipton Ice Tea, Lady's Choice Banana-Tomato Catsup blend.

Newborn Food Products, Inc. Newborn Food Products Inc. is the manufacturer of Lily's peanut butter. Aside from this, it also produces the Lily's coco jam. The company is already the third owner of the Lily's brand, which was established in the 1950s.

Samuya Food Mfg., Inc. Established in 1971, Samuya Food Mfg. Inc. produces peanut butter under the Ludy's, Yummy and Sunny Cheers brands. The company's founder Mr. Gonzalo Tianzon, was a former employee of another peanut butter manufacturer, Newborn Food Products Inc.

Samuya's peanut butter products are classified into three categories. Ludy's targets the broad C market and is made with high quality peanuts while Yummy makes use of lower grade peanuts and targets the D market. Sunny Cheers, on the other hand, is made from 25% reprocessed and 75% newly produced peanut butter and targets the E market. The company's brands, along with Newborn Food Products' Lily's shares about 25% of the peanut butter market.

Samuya has its own marketing unit - Rodzon Marketing Corporation - to distribute its products. Apart from peanut butter, Samuya also manufactures the Ludy's coco jam and ginger juice.

TRADE

The Philippines is both an importer and exporter of peanut butter. Over the last five years, however, imports have outweighed exports.

Imports. Peanut butter imports were erratic. From a peak of almost 1,000 tons (US$1.9 million) in 1997, imports fell by nearly 70% in 1998 to 301 tons (US$637,100) before expanding by 70% to 517 tons (US$762,300) in 1999. Volume fell again in 2000 to 310 tons (US$ 377,700) and increased by 60% in 2001 to 496 tons (US$481,000).

Volume in tons; Import value in CIF$; Export value in FOB$
SOURCE: National Statistics Office (NSO)

Over the last five years, total imports reached 2,600 tons worth US$4.2 million. Major sources were the United States, (64% of volume), followed by China (20%), Indonesia (7%), and Canada (6%). The United States was the leading supplier of peanut butter to the Philippines with volume reaching almost 2,000 tons worth US$3.5 million.

Figure 2. Philippine Peanut Butter Imports, 1997 to 2001

Source: NSO

Exports. From 1997 to 2001, the country has exported a total of 244 tons of peanut butter worth US$665,500. In 2001, volume declined by 85% to 21 tons after expanding by more than three times to 142 tons in 2000 from only 42 tons in 1999. Value of shipments overseas also dropped by 8% to US$65,700 from US$71,600 in 1997. It was also lower by 78% compared to the value in 2000 of US$294,400.

The leading country buyers in 2001 were the United States (41% of volume), followed by Italy (21%), Australia and Japan (8% each), and Kuwait (4%). The consistent leading buyer during the five-year period was also the United States with purchases totaling US$296,000 - about seven times bigger the value purchased by Italy for the same period.

Figure 2. Philippine Peanut Butter Exports, 1997 to 2001

Source: NSO

KEY CONCERNS

Peanut butter manufacturers indicated that there is a need to develop the quality of local peanuts. Currently, a substantial percentage of total peanuts used are imported (usually from China) because they are cheaper and have relatively low moisture content. According to a major player, his company uses 50% locally produced peanuts while the remaining 50% is imported. Local peanuts, albeit tastier and with better aroma, cannot be completely relied on because of their high moisture content. Players are critical about the moisture content of peanuts because a high moisture level will cause molds to develop allowing the growth of a carcinogenic substance called aflatoxin. The Department of Health's Bureau of Food and Drugs (BFAD) imposes a limit on the amount of aflatoxin at 20 parts per billion.

Another concern is the unimproved market base. Sources say the entire spreads industry also suffers from slow movement in supermarkets and groceries. This makes the peanut butter industry specifically more vulnerable to the new and more affordable spreads that have entered the market. With this and the changing breakfast food patterns from bread with spreads to the more convenient and varied instant "no-cook" noodles, porridges, biscuits, and cookies, peanut butter stands to lose its hold on its market.

PROSPECTS

The market for peanut butter has remained relatively steady in the past years. The entry of breakfast substitutes like instant noodles, however, have led companies to be more creative. Players have learned to address consumer demand and preference for more nutritious and healthier foods by fortifying their products with Vitamins A, B1, D3, and E. Another is the introduction of peanut butter with stripes of chocolate and fruit jams like guava and grape, notably from Unilever Bestfoods. And since bread and spreads go hand-in-hand, another hope for the peanut butter industry is the expected growth the bread industry will post in the medium term.

Packaging is also a potential growth consideration. Store checks revealed that peanut butter substitutes like sandwich spreads, mayonnaise, and cheese spreads have been enjoying tremendous sales after manufacturers, particularly Unilever Bestfoods and Kraft, introduced these in smaller retail packs at a cheaper cost.

Reports say Unilever is positioning its marketing strategy towards the mass market. This strategy clicked with its shampoos in sachets and is expected to enjoy the same success in its mayonnaise, sandwich spread, and the recently launched Bestfoods Say Cheez cheese spread in sachets. It would not be a bad idea if peanut butter producers adopt a similar scheme and experiment by introducing peanut butter in sachets. Currently, the smallest peanut butter available is in 150-gram containers.

Institutional users could also be tapped to widen the spread's market. Jams, jellies, and marmalades have been successful in this part. A leading player revealed that part of his company's growth plans is tapping toll-packers and entering into private labeling agreements with supermarkets and food stores.

What the industry needs is to maintain producing high quality peanut butter coupled with a little marketing push. The development of more varieties and a touch of advertising could definitely help it compete with more popular spreads.

REFERENCES:

Francisco, Carol Grace. An Analysis of the Peanut Butter, Jams, Jellies and Marmalades Industry. 2001. A Research Paper submitted to the Center for Food and Agri Business - University of Asia and the Pacific.
National Statistics Office-Foreign Trade Statistics.
http://www.peanutbutterlovers.com
http://www.dofa.com
http://www.nationalpeanutboard.com

1.^* This industry brief was published by the Manila-based University of Asia & the Pacific, Center for Food & Agribusiness in the February 2002 issue of the Food & Agribusiness Monitor, primarily for a Philippine audience. This industry brief is being made available to Canadian businesspeople in order to provide basic market information should there be export interest in relevant agrifood commodities.