Local Nestlé weighs coffee importation on competitiveness woes

Nestlé Philippines, Inc., the country’s leading consumer manufacturer giant, is asking government to help make local manufacturers using local materials competitive against importers of finished products even as they weigh an option of just relocating production of coffee and coffee mixes to another ASEAN country and import finished products instead.

Nestlé is also evaluating if they can still continue to produce Nesfruta in the country after a significant drop in volume as a result of the 80 percent increase in price on higher sugar tax. From a price of 19 per one liter, the drink has gone up to 115.

Ernesto S. Mascenon, senior vice president of the Nestlé Philippines, Inc., told reporters Friday they would like the second package of the Duterte administration’s comprehensive tax reform program known as TRAIN 2, to address this particular concern by local manufacturers.

“Wearerequesting thatTRAIN 2 address the disadvantage of local manufacturers who use local products as against those importing finished products how to make them competitive. Is there a way, otherwise the option is close our manufacturing here or just move on to Indonesia or Vietnam or Malaysia and import,” said Mascenon.

Paolo A. Mercado, Nestlé senior vice president, however, was quick to qualify that given choice they prefer to produce here where the global giant employs 4,000 workers, including its coffee manufacturing plant in Cagayan de Oro.

Mercado said that importing is only for those looking at the short term but to them the consequences are loss of jobs to farmers and support to coffee farmers.

Nestlé buys 70 percent of local coffee production, implement a structured coffee program that train coffee farmers to improve their yield, spend 1100 million annually for its farmer extension workers program since 2010, and sell the pure coffee and coffee mixes to the local market.

The company imports the remaining 30 percent of their green coffee bean requirement because there is not enough production, which is estimated to hit a low of 7,000 metric tons (MT) this year. They are buying 4,000 MT.

Mascenon explained that as local manufacturer, they are challenged by high cost of sugar, which is twice the cost in the international market, high cost of power, fuel, transport cost, among others as against coffee companies that only import duty free their coffee and coffee mixes from Indonesia and repack these finished products here.

Nestlé cannot also import sugar except for the special sugar for its infant milk formula. Aside from paying premium for regular sugar, they also have difficulty sourcing amid tight supply of local sugar.

Nestlé has already raised the grant of incentives to local coffee manufacturers before the Senate and the Lower House, possibly through VAT incentive because that will impact on consumers as it will reduce retail prices of coffee rather than income tax incentive as proposed by the Department of Finance. But Mascenon noted they also understand that the Department of Finance is allergic to VAT.

“We’re just saying to pursue the President’s point when he said he wants a level playing field in the country and to effect that is to go down deep to the situation of the local manufacturers which are at a disadvantage because our cost is higher. But as to what incentives, so far we have no proposal and that is what we are looking at,” said Mascenon, who mentioned two competitors which are importers of finished coffee products duty free because these are imported from ASEAN.

Mascenon, however, has cited Agriculture Secretary Manny Piñol for his earlier pronouncement of incentivizing local manufacturers using local agricultural products.