THE Philippines’ cold chain industry is optimistic that despite facing some challenges, business will improve 5% year-on-year in 2014, according to Anthony Dizon, president of the Cold Chain Association of the Philippines, Inc. (CCAP).
Dizon’s projection is anchored on such growth drivers as high domestic consumption, the market’s growing food safety concerns and awareness, and the continuing shift in buying pattern — with more consumers buying frozen products from supermarkets than from wet markets.
In the past three years alone, the cold chain industry has grown an aggregate 20%.
The 100 or so CCAP member-firms account for 250,000 metric tons aggregate holding capacity of refrigerated warehouses in the country, “just about right to support present demand”, Dizon told PortCalls in an interview.
Among notable CCAP members are Frabelle (processor and warehouse operator), Royal Cargo Combined Logistics (warehouse and transport operator), 2GO (shipping operator), KFC (quick service restaurant) and Robinson’s (retail distribution).
“In actual terms, the scope of the cold chain industry covers more than that because it also includes the capabilities of other sectors that contribute directly and indirectly to the supply chain for perishable food products, e.g., food processors, refrigerated transport operators, etc,” Dizon pointed out.
It also has linkages with all food production sectors, such as poultry, meat, dairy, fisheries and aquaculture, fruits and vegetables, as well as importers of raw materials and finished products.
As is expected in an archipelago, “the production centers are clustered in the predominantly agricultural communities while the major consumption areas are in the urbanized areas, hence the need for an efficient and effective supply chain”, Dizon said.
He pointed out there is no “statistical lack of capacity” in the domestic cold chain. Rather there sometimes seems a discrepancy in where the facilities are and where there is actual demand. This reality is at times rooted in the decision by some businessmen to turn their idle assets into something productive which, in some cases, end up to be a cold chain facility, Dizon said, with little regard for whether they are needed in that area or not.
The cold chain industry is certainly not one for the faint of heart, not least because it requires substantial capital; it also calls for a delicate balancing act: “You have eight months of normal season then four months of the peak season” that builds up to the Christmas and New Year holidays, Dizon explained, where “demand is anywhere from 200% to 250% of normal season volume.”
So how does the cold chain manage the sudden volume surge? “It’s a crazy coordination between the producer, storage operations and market operations,” Dizon replied.
In an ideal world, he said, there should be government intervention, with the state establishing a facility that could handle overflows during peak months for later distribution during lean ones.
One thing the government has done right, Dizon acknowledged, was to develop a nautical highway that boosted efficiency of logistics, “one of the most important components of the cold chain industry”.
Implemented by the previous administration, the Strong Republic National Highway (SRNH) is an integrated network of highway and vehicular ferry routes that, when combined with other road and ferry routes not formally part of the SRNH, forms the backbone of a nationwide vehicle transport system.
Thanks to the SRNH, one shipper Dizon knows now transports assorted goods from Cavite to Davao on a roll-on/roll-off vessel then returns home with his reefer van laden with tuna, a situation difficult to pull off without the nautical highway.
High cost of electricity
Still, many challenges continue to plague the cold chain industry, foremost of which is the country’s cost of power, acknowledged as the highest in Asia.
Power now accounts for at least 50% of total operating cost for cold chain operators compared to 30% in 1997 when the cost of power was more or less at P4 per kilowatt hour, Dizon said.
An impending increase in power rates by Meralco – currently held in abeyance due to a Supreme Court temporary restraining order – will jack up operating costs even more.
Dizon said while the cost of power has doubled over the years, the industry’s revenue stream has remained the same. He noted the cold chain industry cannot simply hike its service charges because most products handled are agri-based and, therefore, “politically sensitive”.
“I fully agree with the position of some of our politicians who have now stood up and said it’s all the fault of EPIRA (Electric Power Industry Reform Act of 2001) why power costs are so high,” Dizon said.
EPIRA, or Republic Act 9136, deregulated the electric power industry. Under it a Wholesale Electricity Spot Market (WESM) was created to establish a competitive, efficient, transparent and reliable market for electricity.
But Dizon describes WESM as at the “very least questionable”, a view shared by not a few in the business community. Under EPIRA, they said, deregulation jacked up power costs, as a result of inadequate regulatory safeguards; defective WESM structure and rules; market abuse by industry players; and the simultaneous shutdowns of power plants, among others.
As if the issue of power was not enough, the cold chain industry also grapples with the “seeming disconnect between government policy and business operations,” Dizon said.
One glaring example is the policy declared by the National Meat Inspection Service allowing meat to be kept in ambient condition for as long as eight hours. The Codex Alimentarius, a collection of internationally recognized standards and guidelines relating to foods, food production and food safety of which the Philippines is a signatory, on the other hand, is clear about this issue: Meat cannot be kept out for over two hours.
Dizon also recalled a recent experience at a Department of Agriculture (DA) public consultation on the National Food Safety Act of 2013 implementing rules and regulations.
He said someone proposed the exemption of small companies from the Hazard Analysis and Critical Control Points certification because they could not afford its cost, noting the small companies can just adopt other measures.
Dizon, however, pointed out this runs counter to the Act’s intent to standardize the food safety business. “Do you mean to say we should have two standards? That what we can give the poor dirty food?”
He said that if there is a cost to certification then that is “where the government should come in.”
While everyone waits for what shape the Act’s IRR will take, Dizon points to one encouraging news for the cold chain industry: the recent launch of the four-year Winrock International Institute for Agricultural Development-Philippine Cold Chain Project funded by the United States Department of Agriculture.
The project – focused on the CARAGA Region in northeastern Mindanao — is especially welcome since the area does not have a single cold chain facility, making it an ideal site for investors, Dizon said. — Photo and text by Roumina M. Pablo