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Nestlé plans to close coffee factory

Multinational food company Nestle plans to exit coffee production in the Philippines, amid rising prices of raw materials, higher taxes, dwindling local supplies and increasing imports.

Nestlé, which produces coffee products from a factory in Cagayan de Oro City, is among the companies affected by the implementation of the first package of the Tax Reform for Acceleration and Inclusion law, which imposed excise taxes on sweetened beverage.  

Coffee is a core business of Nestle in the Philippines, along with other beverages such as juices, tea preparations, and milk products. 

Nestlé Philippines vice president for communications Ernesto Mascenon said local coffee producers needed government support against increasing import volumes.

“We’re requesting them [the government] for Train 2 to address the disadvantage of local manufacturers who use local agricultural products against those who are importing finished products, especially from Asean. Otherwise, we will close down our manufacturing here and just move on to Indonesia, Malaysia or Vietnam and import finished products,” Mascenon said.

He said the government “should include local manufacturers [in the discussion of Train 2] to make us more competitive, not only export-oriented industries.”

Mascenon said the company was also feeling the pinch of inflation as prices of electricity and raw materials, including sugar, went up.

He said Nestle might also stop the production of fruit juice brand Nesfruta after sales dropped 30 percent this year amid the implementation of the first package of Train law.

Prices of sweetened beverage surged 80 percent when Train 1 took effect on Jan. 1, 2018. The price of Nesfruta increased to P16 per sachet from just P7 to P8 per 1 liter pack in 2017.

Milo, its choco malt beverage, registered flat sales year-to-date. Nescafe, the company’s flagship brand, could also register a decline in sales if concerns on the availability and pricing of sugar and the inflation factor were not properly addressed, he said.

Mascenon said compared with companies importing manufactured coffee products, local manufacturers were at a gross disadvantage as sugar and electricity prices were cheaper in other countries. He said local manufacturers should be given proper incentives. The Agriculture Department supported the plan to incentivize local manufacturers that use local raw materials for production.

Mascenon said despite issues affecting its manufacturing operations, Nestle was committed to assisting farmers to increase their productivity by exposing 10,000 farmers to technologies that could help them increase yield sustainably.

“We do not hold them captive to sell their products to us. They have an option to sell to us or to smaller brewers where they can get a premium pricing. We only want sustainability for both of us―we as manufacturers and them as suppliers,” Mascenon.

Topics: Nestle , Tax Reform for Acceleration and Inclusion law , Ernesto Mascenon
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