Market Information
Southeast Asia

A Closer Look at Philippine
Vegetable Imports^*

Ditas R. Macabasco
Agribusiness Specialist
Center for Food and Agri Business
University of Asia and the Pacific

Local vegetable growers have been complaining since last year about the influx of imported vegetables into the country.

In 2002 alone, the country imported about $6.4 million (P328.7 million1) worth of fresh/chilled vegetables as compared to $5.8 million (P295 million2) the previous year, according to the National Statistics Office. The figure excludes those that have entered the country through illegal means (smuggling). According to news reports, the latter have been quite rampant in the past several months.

Import trends

The Philippines imports more than 30 kinds of fresh/chilled vegetables which include tomatoes, onions and shallots, garlic, leeks, cabbage, cauliflower and broccoli, Brussels sprouts, cabbage lettuce (head lettuce), witloof chicory, carrots, turnips, radishes, cucumber, peas, beans, mushrooms, truffles, celery and spinach.

Since the country's accession to the World Trade Organization (WTO), imports of fresh/chilled vegetables have grown about seven-fold from 3,900 tons in 1996 to 27,500 tons in 2002, with peak at 37,800 tons in 1999 (Figure 1). Import value likewise increased during the period from $2.6 million to $6.4 million. Mean annual growth rate was 60% on volume and 25% on value.

Figure 1. Volume and Value of Fresh Vegetable Imports, Philippines, 1996-2002

Source: National Statistics Office (NSO)

Imports grew by 3% on volume and 10% on value in 2002. Substantial increases were registered for peas, cucumbers and gherkins, and carrots (Table 1).

Garlic (in-quota) accounted for the bulk of imports with shares of 60% and 59% on the total volume and value of fresh/chilled imports, respectively. Onion (in-quota) followed with 24% share on volume and 16% on value.

Source: NSO

Meanwhile, the country's main supplier was China, accounting for 82% of the total volume of fresh/chilled imports in 2002 (Figure 2). Other sources include Hong Kong, Netherlands, India and Australia (Table 2).

Figure 2. Volume of Fresh/Chilled Vegetable Imports, 2002

Source: NSO

Source of basic data: NSO

The leading vegetable importers in 2002 include Rustan's Supermarket, Leysan Commercial, Santag Commodities, Australasia Food and Beverage Corp., Wendenberg International, Asian Development Bank Commissary, Philippine Airlines, Tuckerbag Inc., Australian Prime, Macro Asia Eurest, Pacific Alliance, Blue Dairy Corp., AFPC Property Ltd., and Mount Zion Express.

Smuggled vegetables

Official statistics indicated import growth for fresh/chilled vegetable between 2001 and 2002 at only 3% on volume and 10% on value. The figures are lower compared to the growth rates registered in the previous years. Local vegetable growers, however, are complaining. The reason? They noticed a slowdown in the trading of their products especially in July and August of last year. The culprit? The increasing incidence of smuggling (of vegetables and other agricultural products like fruits, meat, etc.) into the country despite the low tariffs on imports. The smuggled vegetables, said to be coming from China, Taiwan and Australia, include broccoli, lettuce, carrot, cabbage, cauliflower, celery, potato and mushrooms. These are locally known as "Baguio vegetables."

La Trinidad, Benguet and Mountain Province are the country's leading producers of the so-called "Baguio vegetables." According to Mayor Fongwan of La Trinidad, Benguet, official figures from the Department of Agriculture (DA) on imported vegetables are understated. For instance, from July to October 15, 2002, the DA estimated vegetable imports to have reached only 300 tons while a La Trinidad Task Force indicated the volume of smuggled vegetables have amounted to 900 tons (Philippine Daily Inquirer, November 1, 2002).

In a meeting of the National Agriculture and Fishery Council (NAFC) Subcommittee on Fruits and Vegetables last February, the smuggling of agricultural products into the country was discussed. Atty. Eden Dandal of the Bureau of Customs (BoC) cited that smuggling rose by more than 100% after the termination of the contract with Society General d' Surveillance, an international organization which, among others, pre-inspects in all points of origin agricultural goods for export to the Philippines. Atty. Dandal also reported that when the BoC's Special Task Force on Anti-Smuggling and the DA conducted an inspection of the reefer vans at the Port of Manila and at the Manila International Container Port, they found 64 out of 670 reefer vans, or about 10% contained vegetables that have been misdeclared as fruits.

Further, in a more recent NAFC meeting, the Customs Intelligence and Investigation Service (CIIS) of the BoC reported that as of June 9 this year, they have apprehended nine (9) container vans of vegetables worth about P5.4 million. Three (3) of the container vans contained carrots with estimated worth of P1.8 million and six (6) had onions valued at P3.6 million. The shipments were either abandoned or did not possess the necessary import permit from the Bureau of Plant Industry (BPI). The consignees were Magnificent Touch Commercial and Asia Golden Sun, Inc. for the carrot shipments and Carl's International Traders, Pine Trade International Services, and Asia Golden Luck, Inc. for onions. Just recently, the BoC has also apprehended four (4) container vans of carrots and two (2) container vans of ginger from China.

In addition, the CIIS also reported that they have condemned 40 container vans of vegetables last May. These were abandoned shipments containing rotten vegetables which have been at the ports for about 3 months to a year already

Why the influx of imported vegetables?

The main contributory factor is the reduction in tariff rates. Other reasons include the changing landscape for fresh produce marketing as well as increased demand for the products.

Tariff reductions. The rise in imports is attributed mainly to the reduction in tariffs brought about by the WTO. Tariffs on most fresh/chilled vegetables have gone down to 3% to 10% in 2003, with the exception of a few products, namely, garlic, onions, shallots and cabbages whose tariffs are at 50% (Table 3).

* prior to issuance of EO 197
** based on EO 197 dated April 16, 2003
Source: Tariff and Customs Code of the Philippines

Amid the influx of cheap vegetables especially from Taiwan, China and Australia, however, local vegetable growers filed a petition with the Department of Agriculture (DA) for an increase in vegetable tariff rates from mostly 7% to 40%. Thus, on April 16, 2003, Malacañang issued Executive Order (EO) No. 197 modifying the nomenclature and the rates of import duty on various products under Section 104 of the Tariff and Customs Code of 1978 (Presidential Decree No. 1464, as amended). Under the EO, tariffs on most vegetables were increased to 20 to 25%. The approved rates were lower than what was petitioned because higher tariffs may push prices up and further encourage smuggling.

Imported vegetables are said to be cheaper by about 30-50% compared to locally produced ones (Business World, January 17, 2003). Further, imports are better packaged (especially those coming from Australia) which makes them more attractive to supermarkets. (Domestic producers, however, claim that the country's vegetables are better tasting and more nutritious.) Further, some companies turn to imports to provide them with year-round supply of a wider variety of vegetables.

Changing landscape for fresh produce marketing. In the past, fresh vegetables (and other fresh produce) are sold mainly in the wet markets. Now, supermarkets, food chains, hotels and restaurants, airline food service providers have emerged as important buyers.

Many supermarkets (e.g. SM, Rustan's, Robinson's) now have a "fresh section" offering products ranging from meat, fish, fruits and vegetables. To ensure a year-round supply of a wider variety of quality fresh products, imports are brought in.

Meanwhile, rapid urbanization and fast-paced lifestyles have increased the incidence of eating out and thus, have also boosted demand for fresh produce by the food service sector.

Increased demand. Consumption of fresh vegetables has also expanded partly because of increased exposure in supermarkets, restaurants and hotels. In fact, a number of large hotels and supermarkets have started to directly import fresh vegetables to ensure reliable supply of quality vegetables. In addition, rising incomes and increasing health consciousness among consumers are expected to further boost demand.

Conclusion

Imported vegetables, both legally and illegally sourced, have indeed found a lucrative market in the Philippines. Evidence is the rising volume in the past year or so, which has affected trading and prices of local vegetables.

These are the very reasons why farmers have pushed for higher tariffs and a tighter watch on smuggling. It is a good thing that Malacañang heeded the call of farmers for higher tariffs on vegetable imports. It is also good that the DA, through the BPI, in coordination with the BoC, has intensified efforts to curb smuggling by tightening inspection procedures and import permit issuance.

In other countries, quarantine inspection is the first line of defense against imported fruits and vegetables which do not comply with their sanitary and phyto-sanitary requirements. Thus, the NAFC came up with a resolution urging the BPI to implement mandatory quarantine inspection of all imported fruits and vegetables in coordination with the BoC. According to the BoC, such is already being done. Further, the DA and the Department of Finance also plans to recommend the issuance of an EO to penalize smuggling of agricultural products.

But much remains to be done to make the local vegetable industry competitive. The supply chain must be addressed. For instance, there is need to enhance production technologies to further increase supply and improve quality. There is need to develop marketing infrastructure (e.g. cold chains and packing houses to lessen post-harvest losses, farm to market roads to lower transport/freight costs, etc.). Overall, there is need to continue improving on cost, quality, supply reliability, appropriate product innovation and customer service which are the very attributes of competitiveness.