An Industry Perspective on the Pork Meat Processing of CALIXTRA’S Food Products1

Alexander Ken P. Libranza, Kathlene A. Aparece, Renee Grace S. Tila

  Open Access OPEN ACCESS  Peer Reviewed PEER-REVIEWED

An Industry Perspective on the Pork Meat Processing of CALIXTRA’S Food Products1

Alexander Ken P. Libranza1,, Kathlene A. Aparece1, Renee Grace S. Tila1

1BS Agribusiness Economics, School of Management, University of the Philippines Mindanao, Davao City, Philippines

Abstract

The Philippines’ food processing sector is the most dominant manufacturing sector in the country. This study aims to understand and evaluate the different factors which affects the pork meat processing of Calixtra’s Food Products, and to incorporate the determined factors in creating an industry perspective of the pork meat processing industrythat would serve as a guide to those who wants to venture in this type of business. Based on the results of the study, the researchers observed that the main problems faced by the industry are the seasonality, advertising, and storage of the products. For small-scale processors, advertising is not that important. They mainly rely on the creation ofpatrons and established consumers. The researchers recommended that the processors should be located near the city with diversified products to cope with the very high competition in the market.

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Cite this article:

  • Libranza, Alexander Ken P., Kathlene A. Aparece, and Renee Grace S. Tila. "An Industry Perspective on the Pork Meat Processing of CALIXTRA’S Food Products1." Journal of Finance and Economics 2.1 (2014): 17-23.
  • Libranza, A. K. P. , Aparece, K. A. , & Tila, R. G. S. (2014). An Industry Perspective on the Pork Meat Processing of CALIXTRA’S Food Products1. Journal of Finance and Economics, 2(1), 17-23.
  • Libranza, Alexander Ken P., Kathlene A. Aparece, and Renee Grace S. Tila. "An Industry Perspective on the Pork Meat Processing of CALIXTRA’S Food Products1." Journal of Finance and Economics 2, no. 1 (2014): 17-23.

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1. Introduction

The Philippines is one of the world’s fastest growing and youngest populations, with 65% of its 96 million people under 30 years of age (Roache, 2009). As population increases demand for food also increases, to cope with this man has successfully devised various ways of producing food in a shorter amount of time possible and prolonging its shelf life. One of its many ways is through food processing and preservation. Food processing and preservation helps ensure adequacy of food supplies in terms of quantity, quality and variety of food (FAO, 1997).

The Philippines’ food processing sector is the most dominant manufacturing sector in the country. It accounts for 40% of total manufacturing output, contributes 20% of GDP per annum and is growing at 8%-10% per annum. The sector comprises of fruits and vegetables, meat and poultry, flour and bakery, dairy products, fish and marine, beverages, confectioneries, food condiments and seasonings, food supplements, bottled water, snack foods, fats and oils. This sector is heavily reliant on both domestically produced and imported agrifood products (Roache, 2009).

Total demand for pork in 2009 reached almost 1.357 million metric tons (CWE), of which 97 percent was produced locally and the remaining 3 percent was imported. Pork supply is mostly for domestic food consumption which is about 98 percent, and the balance is manufactured into canned or processed meat. The derived consumption of pork (excluding offal and processed meats) in 2009 was 14.87 kilograms, lower than the previous two years (The Meat Site, 2010).

Filipino consumers prefer sweet-tasting foods, even for processed meat products, sauces and juices. They also have a preference for cheese and barbecue flavors. Consumers tend to prefer more affordable products in smaller package sizes (Agriculture and Agri-Food Canada, 2010).

Filipinos have a diverse palate that includes Mexican, Spanish, American, Arab, Indian, Chinese, Japanese, and Malayan cuisines. Pork is an important ingredient in Philippine cooking and is found in many popular dishes, including lechón or whole, roasted pig, longganisa or natice sausage, adobo or meat braised in garlic, soy sauce, and vinegar, deep-fried pig's leg, and hamonado or pork sweetened in pineapple sauce (Agriculture and Agri-Food Canada, 2010).

The objectives of this study is to understand and evaluate the different factors which affect the pork meat processing of Calixtra’s Food Products, and to incorporate the determined factors in creating an industry perspective of the pork meat processing industry. Results of this study can provide information to the readers and future researchers regarding the industry, and could be used as a future reference to those who wishes to continue the study. This might also be a guide to those who wants to venture in this kind of business and could provide prior knowledge of the industry.

2. Industry Analysis

Food, evidently, is one of the basic needs of man to survive. Increasing population pressures for enough food produce to feed everyone. Product longevity (i.e. shelf life), packaging and distribution are highly affected by the Philippines’ tropical climate, high humidity and archipelagic nature. Food processing is the use of methods and techniques to transform raw ingredients into intermediate products or food for human consumption.

The Food Processing Industry is a mature sector that loosely tracks underlying demographic trends, such as population and income growth. Companies generate revenue from the sale of food and ingredients to a whole host of customers, ranging from supermarket chains and local bodegas to restaurants and other players further down the processing chain (Van Liew, n.d.).

The food sector in the Philippines is extremely fragmented due to the excessive numbers of food retail and service outlets; the convoluted supply chains; under-developed warehousing; distribution, cool chain and transport infrastructure; and the archipelagic nature of the country (Van Liew, n.d.).

A study done by Agriculture and Agri-Food Canada (AAFC) within the last three years has ranked the Philippines as one of the largest markets for retail processed/packaged foods in the ASEAN region. Hypermarkets and supermarkets, whose presence is continuously growing, has catered to the changes in the local market’s behavior towards retail and processed foods (An Overview of the Philippine Food Market, 2012).

3. Methodology

The researchers mainly use qualitative analysis in discussing the results of their study. Issued and challenges concerning the industry are identified and analyzed in each node of the supply chain. The transformation process is discussed as part of the identification of the quality assurance of production. The results of the study are then analyzed and integrated using SWOT Analysis and Matrix, and Porter’s Five Forces Analysis. These analyses will be used to clearly discuss the internal and external market factors of the pork meat processing industry.

4. Results and Discussions

CALIXTRA’s Food Products is located in Cabantian, Davao City. The food processing plants is owned and managed by William Sam and ventures in this business for almost thirty years. The business itself was started by his mother in-law in 1983, and since 1997 the management has been under Mr. Sam and his wife. The business organization follows a sole-proprietorship or family proprietorship operation. It can be organized very informally, with the simplicity and freedom in operating the business and flexibility in making decisions regarding investments, purchases, sales, enterprise combinations, and input levels.

Table 1. Cost Structure and net profit of Calixtra’s Food Products

Table 1 shows the daily cost structure of the establishment. It also shows the current price of their products in the market and its estimated net profit in a monthly basis.

The establishment has 18 laborers which includes the two supervisor/owners who also take part in the production, 14 staff, officers and plant workers, and two drivers. Regular laborers work 8 hours a day, six days per week from Monday to Saturday, with a wage of Php 5, 400 per month. The driver is paid Php 400.00 daily. The establishment produce 143 kg daily, which are stored in their facility and delivered to different malls in Davao.

The processing plant is located near their house. This becomes an advantage because there is an ease of access to the plant and direct supervision from the family members. They comply with the Regulated Safety Precautions and Quality Assurance Monitoring securing a yearly renewal of their business and sanitary permits.

Calixtra’s is strictly a pork meat processing establishment. They are now extending their processing methods to beef using the same method used with pork meat. The main reason why they monopolize their production in pork is because it has a longer shelf life compared to beef and chicken. They ventured in chicken for a year but their supplier stopped, and chicken tocino processing is less profitable than pork tocino.

The establishment’s main product is Skinless Pork Chorizo, but they also produce Skinless Beef chorizo, Pork Longganisa, Pork Tocino and Pork Barbecue (Appendix 1). The establishment’s major suppliers are direct suppliers and dealers from Davao City. For the meat, they utilize the Pierna and Pork fats. Their major suppliers for the meat are Lisa’s Tender Lean Meats and Jude Philan Meat Products. They acquire their products from established meat shops and distributor to assure the quality and sanitation of their inputs to production. This assurance is also applied to other raw materials that they use.

4.1. Supply Chain Analysis
Figure 1. Supply Chain of the processed meat products of the establishment

Suppliers: The main suppliers of the establishment are from Davao Region. They purchase their supplies from trusted and established dealers to assure quality and sanitation of their inputs. They also purchase their inputs in bulk to avail discounts from dealers. Shown in Figure 1, node 1 is the acquisition of the different inputs of production form different dealers. The main challenge faced in this node is the constant change of dealers from the company (dealers are representatives of the company which the establishment communicates with to make an order). This becomes an issue because the establishment already established contact with the previous dealer.

Figure 2. Calixtra’s Business Perspective under Open System Perspective

Production Establishment: The production establishment refers to the processing of products by the company. The processing includes but not limited to meat curing, packing and storage of produce. Node 2 in the Supply chain is the gathering of inputs from suppliers and the pre-processing of products. This includes quality assurance of inputs–inputs are of good quality, unspoiled (unexpired) and clean. Node 3 is the actual processing and meat curing. This includes processes like washing, slicing, grinding and mixing (Section 4.2 and Figure 2 discusses the full transformation process). Node 3 includes freezing, packing and storage of the final products.

The main goal of this part of the supply chain is prolonging the shelf life of the meat. The challenge here is obtaining that goal. Plant rules and regulated safety precautions should be observed in every part of the process. Storage facilities are very important in the production process. However, proper storage facilities are very costly. The establishment has two storage systems; one is the Chest-type freezer for raw and unprocessed meat which is used in Node 2, and the other is Cold Storage for processed and packed products.

Marketing Agents: Marketing agents are the different establishments and agents that participate in marketing the produce. The main goal of this part of the supply chain is to make the product accessible to consumers. The challenge here is to properly market the goods to target consumers and to properly address competition among the same products. Under marketing, one weakness of the establishment is the lack of advertising campaigns to promote their products. Their main advertising method is through word of mouth. Among competitors, the toughest ones are Porky Bests, CDO and Virginia which are more popular and established in this industry.

Another challenge faced by the establishment is the rotating brow-out in other cities. There has been an increase in product returns since 2010. Cold storage in different malls and retail stores has been compromised because of this problem which promotes spoilage of their products. This product returns contribute to direct loss of the company.

Consumers: Target consumers are the different malls and household in Davao Region. Their products are widely accepted in the region especially in the cities of Tagum, Digos, Kidapawan, and Davao. Sadly, Calixtra’s Food Products does not allow direct selling or walk-in customers in their plants. Also, one weakness of the establishment is the seasonality of their products. Their products are widely accepted and considered as a breakfast food. Their main consumers are students and their products are most consumable from June to March, excluding December and summer.

Figure 2 shows the business perspective of the establishment when I comes to their supply chain, and the summary of the different processes conducted in each node of the chain. The open system perspective is adapted from biologist Ludwig von Bertanlanffy’s theory of open system which demonstrates how input transformation constantly process and respond to environmental feedback. In the context of Calixtra’s, environment feedback comes with quality assurancein input gathering, food safety precaution during transformation process, and addressing competition among the same product through marketing strategies and stetting a quality standard for production.

4.2. Transformation Process

Calixtra’s skinless pork chorizo is 70% lean meat and 30% pork fats. It is necessary to cure the meat to lengthen its shelflife. Brine solution is used in curing meat. The meat is then sliced into pieces so that it will fit inside the grinder.

Figure 3. Calixtra’s Transformation Process Flow Chart

The meat is compressed inside the machine and minced. The ground pork is mixed with the other ingredients such as garlic, garlic powder, and soy sauce to add flavor. In order for the meat to absorb the seasoning, it is placed in individual packages then place into crates. The crates is the moved to a cold storage. Temperature is very important to preserve the meat. It is set to 18 degrees Celsius. The meat is then placed into individual packages to make the chorizo. It is either put it foodwrap, cellophane or gut. After making the chorizo, it will be packed in a Calixtra's skinless pork chorizo labelled package. The final product is placed in a chest type refrigerator. This will now be distributed to the supermarkets and retail stores.

4.3. SWOT Analysis

Strengths: Calixtra’s is accredited with Good Manufacturing Practices by the National Meat Inspection Services. They do quarterly sanitary inspection of the processing plant. Their products are also widely distributed in Davao City (NCCC Mall, Uyanguren ect.), Kidapawan, Digos, Toril, and Tagum. The location of their processing plant is conveniently located in Davao City. One of their edge over other meat processors is the use natural preservatives like curing salt and fresh ingredients to prolong the shelf life of their products. They also use three types of food drafts use to shape the Longganisa, one of which, the intestine casing is imported from Germany. This diversity gives the consumer choices and the establishment in return has diversified products. Lastly, Calixtra’s has been established long enough to have patrons and established consumers.

Weaknesses: Marketing is very important especially in the meat processing business. However Calixtra’s rely solely on word of the mouth. Also, their products are widely accepted and considered as a breakfast food. The seasonality of demand is one weakness that is identified.

Opportunities: Davao City is in the process of industrialization. Rising hotels, resorts and restaurants cater customers mostly tourists. They offer package deals inclusive of breakfast, lunch and dinner. One of the goal of the establishment is to extend their delivery to hotels, restaurants and resorts in the region.

Threats: Processed meat require special handling especially in storage. Problems like the rotating brown-outs in cities, and supermarket freezer malfunctions are the greatest threat faced. These damaged goods are considered direct loss for the company. Also, when it comes to competition, there has been a wide selection of brands of processed meat. Some are known nationally who have better advertising and strong marketing strategies. Customers tend to consume these popular products.

4.4. PORTER’S Five Forces Analysis

Threat of New Entrants [High]In this industry, there is a high threat of new entrants because of the weak barriers to entry. The practice of meat curing is performed by small-scale home-based entrepreneurs. Thus, this industry is made up many but small entrepreneurs. Hence, this shows a perfectly competitive market with no or very weak barriers of entry. Since the information about the process of meat curing/processing is widely available from different sources, new entrants are encouraged by the market.

Bargaining Power of Suppliers [Low]In this industry, there is a low bargaining power of suppliers. Raw materials used for meat processing/curing are widely available and accessible in the market.

Bargaining Power of Costumers [Low]This industry has a large number of costumers since Filipinos are mostly meat eaters. Also, costumers tend to buy in small and consumable quantity because of the perishability of the product.

Threat of Substitutes [High]–Threat of substitute products are high in this market. As the population of health conscious people rises, consumers tend to buy healthier protein-rich products.

Rivalry among Existing Firms [High]There is a relatively high rivalry among existing firms. This is due to the fact that the products are the indifferent, and there are small but many meat processors. This increases competition between firms. And lastly, the product is perishable. Thus, the producers tend to sell their products immediately before the product perish.

5. Summary and Conclusion

The study aims to understand and evaluate different factors which affect the pork meat processing of Calixtra’s Food Products, and to incorporate the determined factors in creating an industry perspective of the pork meat processing. It was found out that the factors greatly affecting the small-scale pork meat processors, such as Calixtra’s, are the products’ perishability, storage of the product, and advertising. One of the contributing factors of product longevity is the country's tropical climate, high humidity and archipelagic nature. Because of this, the industry must give its focus on high standard packaging and efficient distribution of its products to make sure that their products reach their consumers before it spoils. Investments in technology and space should also be highly considered, especially storage technologies and storage space. Cold storage for food helps prolong its shelf life. It is also good for food safety, to avoid food contamination. Unstable product stability due to power disruptions should also be taken into consideration. Small-scale pork meat processors, Calixtra’s, often uses word of mouth for promotion. But it is also good to consider other forms of advertisement such as tv, newsprints or radio. Investing on advertisements is good for the business to promote the product in a vast population. It is also very helpful considering that other established competitors, such as Porky Best, CDO, and Virginia, already have established their brand.

6. Recommendation

The researchers observed that the main problem faced by the industry is on the seasonality advertising, and storage of the products. Thus, the researchers formulated an industry perspective for new entrants to the industry.

Product: If people want to venture in meat processing industry, they should ensure the quality of their products. In competing with homogenous products like processed meat, taste become the main edge of your products. In addressing the seasonality of processed meats products (as a breakfast food) providing diversification in your products would help. Adding cured barbecue to the list of menu would help.

Place: For small-scale and home-based processors, define your target market. Also it’s advantageous if your processing plant is located in accessible areas like in the city. This will allow you access to certain markets and consumers. If possible, you could allow walk-in customers or direct selling for additional income. If your processing plant is also near the city, storage and transportation of your produce will become easy.

Promotion: For small-scale processors, advertising is not that important. What you need to create are patrons and established consumers. But if you want to make it big, promotion play a crucial part when it comes to introducing and establishing your product to the market.

Price:

The new entrant should start with selling its produce at price greater than Php 100 to ensure a positive profit. For small-scale entrepreneurs, they should start selling at 10 kilos for Php 100.00 per kilo to have a breakeven profit. For establishments, they should start selling at 150 kilos for Php 150.00 per kilo to have a breakeven profit. Laborer should be 2 and 10 for small-scale and establishments, respectively.

7. Recommendations for CALIXTRA’S

To maximize their profit, they should hire 15 processing workers; 6 for Chorizo, 4 for Longganisa, 2 for Tocino and 2 for Barbeque. Profit maximizing quantity of production per month is 3,631 kilos with 1493 kl, 878 kl, 897 kl and 363 kl of Chorizo, Longganisa, Tocino and Barbeque, respectively. CALIXTRA’S should also invest Php 438,332.

At the available price of the establishment, the maximum profit that can be generated by the establishment monthly is Php 331,034.09. This is 75% return of investment.

References

[1]  Roache, T. (2009, June). Department of Environment and Primary Industries. Retrieved August 29, 2013, from Analysis of the Food Sector in Philippines-Opportunities for Victorian Exporters: http://www.dpi.vic.gov.au/__data/assets/pdf_file/0019/32626/Analysis-of-the-Food-Sector-in-Philippines-Opportunities-for-Victorian-Exporters.pdf
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[2]  FAO. (1997). Agriculture, food and nutrition for Africa: a resource book for teachers of agriculture. Retrieved from FAO Corporate Document Repository: http://www.fao.org/docrep/W0078E/W0078E00.htm
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[3]  The Meat Site. (2010, August 05). Retrieved August 28, 2013, from Philippines-Hog Industry Updates: http://www.themeatsite.com/articles/1017/philippines-hog-industry-updates
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[4]  Agriculture and Agri-Food Canada. (2010, October). Retrieved August 28, 2013, from Consumer Trends: Pork in the Philippines: http://www.ats-sea.agr.gc.ca/ase/5615-eng.htm
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[5]  Van Liew, N. C. (n.d.). Value Line. Retrieved August 28, 2013, from http://www.valueline.com/Stocks/Industry_Report.aspx?id=7242
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[6]  An Overview of the Philippine Food Market. (2012, August 27). Retrieved August 28, 2013, from Agricultue and Agri-food Canada: http://www.ats-sea.agr.gc.ca/ase/6225-eng.htm
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[7]  Calixtras Longanisa & Tocino. (n.d.). Retrieved August 28, 2013, from http://calixtra.weebly.com/
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