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Why is PLDT/Smart and Meralco boss MVP going into fresh milk and agri?

By WILSON LEE FLORES, The Philippine Star Published Dec 31, 2022 5:00 am

On Dec. 22, 2022, the Philippines’ newest P2 billion fresh milk production facility held its groundbreaking ceremony in the municipality of Bay in Laguna, as a joint venture of the Manuel “Manny” V. Pangilinan-led Metro Pacific Agro Ventures Inc. (MPAV) and Israel’s LR Group Ltd. 

Called Metro Pacific Dairy Farms, this 60-40% partnership of MPAV led by president and CEO Jovy Hernandez and LR Group is an integrated dairy facility with a target production capacity of 6.5 million liters of fresh milk every year.

Among the VIPs at the groundbreaking were Israel Ambassador Ilan Fluss, whose embassy diplomats helped facilitate the deal. Also present was Paco Magsaysay, son of ex-Senator Jun Magsaysay, and whose family-owned The Laguna Creamery, Inc. (producers of Carmen’s Best ice cream and Holly’s milk) was bought last June with a 51% majority by MPIC. 

Metro Pacific Investments Corp. CEO Manny V. Pangilinan and Israel Ambassador to the Philippines Ilan Fluss

Also at the groundbreaking were officials of the National Dairy Authority (NDA) led by Administrator Dr. Farrell Magtoto (who told Philippine STAR about Vice President Sara Duterte Carpio’s project of free fresh milk for public school students), University of the Philippines (UP) Los Baños officials and National Scientist Dr. Emil Javier.

Metro Pacific Group boss, PLDT/Smart and Meralco CEO Manny V. Pangilinan and MPAV president Jovy Hernandez gave the STAR an exclusive interview. Here are excerpts:

PHILIPPINE STAR: Why did you think of venturing into Philippine agriculture? What inspired this idea? How important is agriculture to the country and economy?

MANNY V. PANGILINAN: While MPIC has been focused on infrastructure businesses—telco, water, power, toll roads, hospitals, etc.—we realize that the agricultural sector is another area that is critical to the country’s progress and it plays a significant role in the Philippine economy. It is a source of employment, a source of growth, and more importantly a source of nourishment for the people of the nation (through food security).

(From left): Joey Lim (MPIC director), Jovy Hernandez (MPAV president and CEO), Ami Lustig (LR Group co-founder and CEO,), Ilan Weiss (Innovative Agro Industries Pte. Ltd. chairman and executive director), Lior Crystal (Innovative Agro Industries Pte. Ltd. CEO)

JOVY HERNANDEZ: According to the Philippine Statistics Authority (PSA), agriculture contributes roughly 10 percent of the country’s GDP. According to the World Bank, it employed over 23 percent of the total Filipino workforce in 2021. So while the agricultural sector is no longer the big economic mover it once was, it is still key to enabling economic progress. It is worthy to note that while the sector employs a big portion of the Filipino workforce, it only contributes 10 percent of GDP, which underpins the relatively low output.

The country also has been falling behind our Asian neighbors in terms of agri exports. While these numbers are outdated, it shows how far behind we have fallen vis-à-vis neighboring countries—in 2017, Thailand had $40 billion in agri exports, Indonesia $30 billion, Vietnam $30 billion and the Philippines $7 billion.

Two major global incidents I believe have pushed us to get into agri in a more serious way: the COVID pandemic and the Russia-Ukraine war. Both global events have made the country realize how important food security and food availability is. This is especially true in the fact that we are now a net importer of food. We used to be the No. 1 exporter in some areas and we’ve lost the No. 1 position… and this is due to many factors but an underlying reason is that we have failed to adapt to modern farming practices and apply technologies that will increase yield.

(Top from left): Joey Lim (MPIC director), Jovy Hernandez (MPAV president and CEO), Ruth Hernandez (Congresswoman 2nd District Province of Laguna), Israeli Ambassador to the Philippines Ilan Fluss, Ami Lustic (LR Group co-founder and CEO); (Bottom from left): Tomer Heyvi (head of Economic and Commercial Mission, Israeli Embassy), Shahar Turgeman (LR Group Philippines country head), Galit Tamir (Innovative Agro Industries Pte. Ltd. business development), Lior Crystal (Innovative Agro Industries Pte. Ltd. CEO), Ilan Weiss (Innovative Agro Industries Pte. Ltd. chairman and executive director), Eric Ebro (MPAV CFO), Toby Gatchalian (MPAV chief commercial officer)

The other factor that was quite important to us was noting that the Filipino farmer is aging. Some studies show that the average age of the Filipino farmer is over 60 already. More importantly, none of the children of our Filipino farmers are interested in farming. They’d rather migrate to the urban areas and work in other industries. This poses a risk question for the future: who will be our farmers who will feed the nation?

It is in this light that MPIC made a bold decision: that we needed to invest in the agri space and contribute to developing agriculture, implementing new technologies and new modern farming practices, improving yield and improving quality—and making agri “sexy” again so that the younger generation will be enticed to get involved again in agriculture.

(Top) Dr. Elpidio M. Agbisit, Jr. (dean, Agri and Food Sciences), Dr. Nathaniel Bantayan (vice chancellor for Research and Extension), Roberto Cereno (vice chancellor for Community Affairs); (Seated from left): Dr. Enrich Supangco (executive director, UPLB Foundation) Dr. Jose V. Camacho (UPLB chancellor), Jovy Hernandez (MPAV president and CEO), Eric Ebro (MPAV CFO)

Why and how did you invest in Holly’s Milk of ex-Senator Jun Magsaysay and Carmen’s Best of his son Paco Magsaysay? How long was the negotiation?

MVP: There is purpose in what we’re doing. We have an import substitution objective. We provide the local market with fresh dairy products produced locally. We feel that Filipinos will support local, especially if we produce world-class quality products.

Paco Magsaysay (founder and chief product officer, Carmen’s Best), Büm Tenorio (Philippine STAR), Joey Lim (MPIC director), Ambassador Ilan Fluss, Ray Espinosa (Meralco CEO), Atty. Mike Toledo (MPIC), Jovy Hernandez (MPAV president and CEO), Julie Carlceller (PLDT/Smart), Alex Caeg (PLDT/Smart SVP)

HERNANDEZ: The investment opportunity in Carmen’s Best came and, frankly, the negotiations didn’t take that long. It was about six months. The process was quite smooth given that it was based on the following principles:

  • Carmen’s Best was a good brand. Awareness could still be improved but it was a strong brand.
  • Distribution was the weakness and we felt that with MPICs investment, we should be able to improve on that area.
  • The investment is beyond just ice cream. The investment is dairy.
  • The business had an existing farm with about 90 milking cows that produced 11 to 12 liters of raw milk per cow per day. The global average yield is 40 liters per cow per day. So with MPIC’s investment, we could aggressively pursue two things: first, increase the number of milking cows to a more sizable number; and second, increase the milk yield per cow per day by employing modern farming practices and modern dairy technologies.
  • 99 percent of Philippine dairy consumption is imported and 70 percent of that (total) is milk powder-based products. We believe that fresh is the best and Filipinos deserve nothing less than fresh.

What is the total market size for milk in the Philippines per year? What is your company’s target market share over how many years?

HERNANDEZ: Total industry value as of 2021 is P59.6 billion or $1 billion, of which 99.14 percent is imported. Total dairy volume as of 2021 is 3,062 million liters. Locally produced is only 26.3 percent. Powdered milk accounts for 81 percent of all imports.

Metro Pacific Dairy Farms targets to produce 6.5 million liters of fresh milk per year by 2025. Commercial operations start in November 2024. This will increase the national dairy production by 25 percent, ceteris paribus (all other things being equal). That would mean that MPDF will get 20 percent market share in terms of volume of locally-produced dairy. Will we stop there? Most likely not. While we can get a bigger share of the locally-produced milk, the imported segment is a much bigger segment and hence our import-substitution objective.

With President Bongbong Marcos personally taking the helm of the Department of Agriculture and with its budget increased significantly, what are your hopes for Philippine agri? What other areas does Metro Pacific Agro Ventures plan to invest in?

MVP: Metro Pacific Agro Ventures will not stop with dairy. There are other agricultural subsectors that we are targeting to invest in. The whole agri sector is so big… we cannot be in everything. We are guided by our principles on where we want to focus:

  • Agri subsectors where we think adapting new technologies and modern farming practices will be able to increase yield and quality.
  • Agri subsectors where we think the Philippines should be No. 1 in the world. For example, we used to be No. 1 in coconuts. We’ve lost that position and we are just No. 2 now. We are exploring possible investments in this area. The Philippines is also known for our banana exports. We would also be interested in this space.
  • Agri subsectors where we import a substantial portion. Is there a play where we can produce locally and efficiently so that we don’t need to import?
  • In the end, we have the objective of contributing to the food security of the country. We must feed our people first.

HERNANDEZ: We are very hopeful that, with the President’s focus on agri development, the agri industry will definitely improve. We are also hopeful that the government will support agri projects such as Metro Pacific Dairy Farms.