Nestlé is here to stay, not closing any PH manufacturing plants

Nestlé Philippines yesterday said it is not planning to close any of its manufacturing facilities in the Philippines after saying they were thinking of relocating its coffee production to other ASEAN countries if the government’s second tax reform program cannot protect them against cheap finished coffee imports.

“Coffee under our Nescafé brand remains to be a core pillar for us, and we are committed to support the local coffee industry and our coffee farmers to growth. We have been operating in the Philippines for 107 years now, and we look forward to doing business here in the next 100 years. Nestlé is here to stay,” said Nestlé Philippines in a statement.

Last week, Ernesto S. Mascenon, senior vice president of the Nestlé Philippines, Inc., told reporters they would like the second package of the Duterte administration’s comprehensive tax reform program under TRAIN 2, now known as “Trabaho Bill” to address the disadvantage of local manufacturers using local raw materials as against importers of cheap finished coffee products and mixes.

“We are requesting that TRAIN 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.

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 this year.

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 tax-free their coffee and coffee mixes 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 corporate income tax incentive as proposed by the Department of Finance under the Trabaho Bill. 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 tax-free.