industr y updates and ana l y ses f or sound business p l annin g

A publication of the School of Economics, University of Asia & the Pacific, Philippines

In this issue
Feature

2 The Philippine Alcoholic Beverage

Industry (Part 2)
Not So ‘Sin-ful’ After All

Dr. Cid L. Terosa

Emilio Mar Antonio
Marcella Maria Karaan
Julian Lorenzo Martinez
Ivy Zuñiga

Industry statistics

11 Gross value added in other

services

12 Gross value added in transport,

storage, and communication

Industry statistics
12 Gross value added in manufacturing
by industry group

issn 0117– 1798

october The industry monitor is a monthly publication of the School of Economics of the University of Asia and the Pacific •
Pearl Drive, Ortigas Center, Pasig City, Metro Manila, Philippines 1605  •  Telephone: 637-0912 to 26; Telefax: 632-7968.
The comments and views expressed in these papers are solely the responsibility of the authors and do not represent any
 2 0 1 4 position held by UA&P. These papers may not be distributed in full or in part without prior written authorization.
Acknowledgements: Editing  Karen N. Atienza •  Layout  Rommel B. Casipit • Design  Art & Copy Communication Design
Inc.  •  Printing Inkwell Publishing Co. Inc.
 october 2014  F E A T U R E

The Philippine Alcoholic Beverage Industry (Part II)

Not So ‘Sin-ful’ After All

industry monitor

Making alcoholic beverages involves a complex process in which various ingredients and equipment are used.
This article describes the production process in detail. To explain the industry’s economic impact, this article also
presents the industry’s contributions to gdp, employment, foreign exchange, as well as its forward and backward
linkages.

Dr. Cid L. Terosa

Associate Professor
School of Economics, UA&P

and

Emilio Mar Antonio

Marcella Maria Karaan
Julian Lorenzo Martinez
Ivy Zuñiga
Industrial Economics Program
School of Economics, UA&P

T
his second part in a series of articles discusses the production process for beer
and wine, as well as the linkages created by the alcoholic beverage industry with
other economic sectors.
Production Process
The production of alcoholic beverages can be divided into
two main processes. Aligned with the industry classification,
there is the method of fermentation without distillation
(for beer and wine) and the method of fermentation with
distillation (for spirits).
Fermentation without Distillation
Beer Brewing Process
The key to making any alcoholic beverage is the source of
sugars to be used in the fermentation process. In the case
of beer, different types of cereal grains may be used; the
flavor, texture, color, and taste of the beer depend on the
type of grain used and where it came from. The smb Beer
Group use malted barley sourced from North America,
Australia, and Europe. They also add adjuncts such as
sugar and non-malted grains, including rice, corn grits,
and food starch from cassava sourced from the Philippines
and other Southeast Asian countries.

“Brewing Process,” sab Miller, (n.d.) http://www.sabmiller.com/
index.asp?pageid=74 (accessed July 15, 2013).

Annual Report. San Miguel Brewery, Inc. (2012), http://www.
sanmiguel.com.ph/image/investor_report/2012_ Annual_report.pdf
[PDF Document] (accessed July 15, 2013).
From those grains, malt is made through the process of
germination, which creates a number of enzymes that will
be used to convert the starch in the grain into sugar. The
malt is then dried and roasted at specific lengths of time to
add to the dark color and strong flavor before being crushed
in a malt mill to gently break open the grain kernels.
For some breweries, malt production is not an in-
house process; instead, they buy the malt that they use for
their beer products. In such cases, the actual brewing only
consists of the following processes (see Figure 1):
1) Mashing. The malt is mixed with hot water to
activate the enzymes that convert the naturally occurring
starch in the malt into fermentable sugars such as maltose.
Mashing could take short or long waiting periods under
various temperatures depending on the type of malt used.
2) Lautering. The extracts derived from the mashing
process are then separated from the spent grain through a
process called lautering. The sugar-laden liquid left after
lautering is called wort.
3) Boiling. The wort is boiled for purposes of sterilization,
disinfection, and stabilization, which further develop color

“Beer Brewing Process”, Sint-Sebastian Belgian Microbrewery
(n.d.), http://www.sterkensbrew.be/sbm/beer_ making.html#brewing_
process (accessed July 15, 2013).
F E A T U R E
and flavor. The bitter taste and aroma of the beer comes
from the hops, or vines with cone-like flowers or cones,
or other herbs and sugars, which are added to the boiling
liquid. The smb Beer Group also outsources the hops that
are used from other continents. Boiling is also done to
terminate enzymatic processes, precipitate proteins, and
isomerize hop resins in the wort.
4) Fermenting. At the end of the boiling period, the
wort is cooled so yeast can be added. The yeast converts
the sugars from the malt into alcohol, carbon dioxide, and
other components through fermentation or glycolysis. This
is also the point at which the product is first called beer.
5) Conditioning. This process is also called maturation,
during which the beer is improved by removing unpleasant
flavors such as diacetyle (vdk), acetaldehyde, dms,
amylacetate, and others. As the fermentation slows down,
the beer is aged in tanks or casks where the yeast starts to settle
at the bottom. The beer is cooled to around freezing point,
causing proteins to coagulate. Pressure is also maintained on
the tanks to prevent the beer from going flat.
6) Filtering. The beer is then filtered to stabilize the
flavor and give the product its polished shine and brilliance.
Small particles of yeast or protein that make the beer cloudy
are removed until the mixture becomes “bright beer”.
7) Packaging. The “bright beer” is then placed in
containers such as kegs, bottles, or cans for distribution
outside the brewery. In the Philippines, most beer bottles
are reused through a returnable bottle system.
Other types and varieties of beer may deviate from
the said process, or may involve other complex processes
and additions of other ingredients; nevertheless, the same
general process would still apply for the manufacture of
the simple beer produced anywhere in the world.
Winemaking Process
Various types of wine are produced in the market. Barr
(2000) classified them into three categories according
to their manufacturing process: table wines (red and
white wines), sparkling wines, and fortified wines. The

“Brewing Process,” sab Miller, (n.d.) http://www.sabmiller.com/
index.asp?pageid=74 (accessed July 15, 2013

Annual Report. San Miguel Brewery, Inc. (2012), http://www.
sanmiguel.com.ph/image/investor_report/2012_Annual_report.pdf
[PDF Document] (accessed July 15, 2013).

“Beer Brewing Process,” Sint-Sebastian Belgian Microbrewery,
(2008) http://www.sterkensbrew.be/sbm/beer_making.html (accessed
July 15, 2013).

Malting and Brewing, “The Best Beer Process Flow Chart,”
http://maltingandbrewing.com/the-best-beer-process-flow-chart.html
(accessed July 15, 2013).

“Beer Brewing Process,” Sint-Sebastian Belgian Microbrewery
(2008), http://www.sterkensbrew.be/sbm/beer_ making.html (accessed
July 15, 2013).

Heather Barr, “The Process of Wine Making” (2000), http://
www.whitman.edu/environmental_studies/WWRB/ winemaking.htm
(accessed August 9, 2013).

Figure 1 • Illustration of the Beer Brewing Process
Source: Brewing Process, http://www.ibdasiapac.com.au/brewing/
production of wines could simply be summarized through
the use of one particular ingredient, which is grapes or any
fruit, and the most important process in the chain, which
would be fermentation. The following are the specific steps
in producing wines:
1) Initial stages. This step involves the harvest of the
grapes, removal of stalks, and sanitation procedures to
keep the fruits fresh and clean. One protective measure is
sulfating, which is the treatment of the grapes with 50-75
ppm of free sulfur dioxide. This process inhibits unwanted
microorganisms and wild yeast species on the grapes.
2) Pressing/crushing. Crushing is essential to extract
the juice from the fruit. Although traditionally done by
stomping on the grapes with bare feet, pressing is now
done by machines in most wineries. The grapes are gently
squeezed for approximately 2 hours to prevent excessive
tearing of the skin, which adds an undesirable component
called tannin. The juice is then pumped into holding tanks,
chilled, and allowed to settle to separate the sediments
from the liquid portion. Residuals are finally removed and
the extract is prepared for the addition of yeast.
3) Fermentation. The grape/fruit extract is transferred
into vats and then added with yeast. It is allowed to ferment
where sugar components are broken down to produce
alcohol. Yeast cells enhance this process by converting
carbohydrates into ethanol and carbon dioxide10. The
length of fermentation depends on the desired alcohol
UNIVERSITY OF ASIA & THE PACIFIC
content of the wine. It may take about 10 to 30 days for
regular wines, but may take months for highly alcoholic
wine varieties. At other times, wines undergo a secondary
fermentation process called malo-lactic fermentation
where malic acid is converted into lactic acid. For special
purposes, malo-lactic fermentation reduces the amount of
total acidity and changes the texture of wines from “crisp
10
“Fermentation,” Merriam-Webster Online Dictionary (n.d.),
http://www.merriam-webster.com/dictionary/ fermentation (accessed
August 9, 2013).
 october 2014  F E A T U R E
and light to creamier buttery.”11
4) Aging. The wine produced from the fermentation
process is cleared and refined, and then transferred into
containers, which may be oak barrels or huge metal tanks,
industry monitor
for the wine to mature further. It is believed that the key
to the best wines is in the aging process; thus, one must be
able to identify the right amount of time needed to let the
fermented wine mature. White wine may take 3 to 7 years
while other types of wine, such as red, may take a longer
time.
5) Separation, chilling, and bottling. After fermentation,
the liquid portion of the wine is separated from its
residuals that have precipitated from the juice. The wine is
then chilled to ensure more clarification, and then finally
bottled, ready for packaging and distribution.
The manufacturing process for table wines is the same
except for the removal of the grape skin when making white
wine. Sparkling wines and fortified wines also undergo the
same fermentation process but involve additional steps
in the chain. For sparkling wines, more sugar and more
yeast are added into the bottle after fermentation. The
bottles are sealed with airtight caps to create a signature
burst of carbon dioxide upon opening. For fortified wines,
more alcohol is added during fermentation (as in the case
of port) or after fermentation (as in the case of sherry).
Port wines may have alcohol content at a range of 17-24%
while sherries have varying alcohol contents.12
Figure 2 • Illustration of Wine Making Process
Source: Wines, http://winesbygirishkanhere.blogspot.com/p/wine-production-digram.html
11
Heather Barr, “The Process of Wine Making” (2000), http://
www.whitman.edu/environmental_studies/WWRB/ winemaking.htm
(accessed August 9, 2013).
12
Ibid.
Fermentation with Distillation
Process of Making Spirits
Manufacturing spirits generally takes off from the
fermentation process. The key process in this chain is
distillation. Once the fermented extract has been achieved,
it is distilled to separate pure alcohol from the less alcoholic
components. It combines a process of evaporation and
condensation to obtain a product that has a higher alcohol
content than its previous form.
Spirits are manufactured by undergoing the following
process (see Figure 3):
1) Fermentation. Choosing the right raw materials or
base ingredients produces a variety of distilled spirits.
Differences in the types of spirits depend on the kind of
fruit or plant juice or starch material used. Some examples
include vodka, which uses potatoes; whiskey, which uses
grain mash; sugarcane/molasses for rum; fermented fruit
juice for brandy; gin, which uses juniper berries; blue agave
plant for tequila; and many others (see Figure 2). As a first
step, the extracts from these base ingredients are fermented
to perfection to achieve a desired result before distillation.
2) Distillation. Once the mash is produced from the
mentioned raw materials, the mixture is heated so that
the alcohol from it would evaporate. This process creates
the “still” or purified alcohol vapor. By condensation, this
alcohol steam is converted once again into liquid, which
now becomes the distilled alcoholic beverage that usually
has higher alcohol content than other simply fermented
drinks.
3) Packaging. The distilled spirit as a result of the
whole chain is then collected and bottled for storage.
Some examples of distilled spirits such as rum, gin, and
alcopops13 undergo the following processes:
a.1. Rum Production
The base ingredient for rum is sugarcane juice or
molasses, the sticky residue left when the juices from
sugarcane are heated. These sugar extracts undergo
mashing, which involves boiling with water to produce a
sweet liquid.14
1) Fermentation. The sweet liquid from the mixture
of water and molasses is then mixed with yeast in the
fermentation process. Producers of rum are particular
when it comes to the strain of yeast that they use and the
length of time spent on fermentation because these factors
significantly affect the quality of their finished product.
2) Distillation. The process of distillation is conducted
to remove impurities from the fermented rum. Types of
distillation include continuous distillation, which involves
13
Alcopops is a colloquial term used in the United States that
pertains to flavored alcoholic beverages, encompassing all three kinds of
alcoholic beverages because of the addition of fruit juice flavorings and
other artificial sweeteners.
14
“Rum Production,” Refined Vices, http://www.refinedvices.com/
rum-production (accessed July 15, 2013).
F E A T U R E
Figure 3• Illustration of the Distillation Process in Producing
Spirits
Source: How Moonshine Works, http://science.howstuffworks.com/innovation/
edible-innovations/moonshine2.htm
filtering through activated charcoal and distillation in pot
stills, which increases alcoholic strength and removes more
unwanted impurities. Mixtures that underwent the said
distillation processes may be blended together.
3) Ageing. Ageing is usually done in oak casks or barrels
that are usually re-charred and then added with flavors
such as vanilla, spices, fruits, and wood. Ageing in wood
also helps the rum settle, making it smoother, and affecting
its aroma, spirit, and color. tdi, for instance, ages the raw
alcohol from molasses in oak barrels for two years or longer
depending on the intended strength, flavor, and quality of
the liquor15.
4) Blending. Tanduay is also known for a combination
of distilled alcohol of different vintages compounded until
the desired alcohol proof level is reached. A blend could
use either rums of the same ages but different barrels or
rums of different ages. It could also be mixed with varying
proportions of demineralized water, sugar, and other
ingredients to achieve the spirit’s desired level of quality.
5) Bottling. Bottlers of rum ensure that no foreign
particles are in the bottles before they are filled, capped,
and sealed because such particles may affect the alcohol
inside. Bottles undergo a process of washing using a
combination of steam and strong detergents, and drying.
The clean bottles then pass through a conveyor belt for
filling, packing, and labeling. Storage facilities are divided
into the packaging of the bottles ready for distribution in
the market and the ageing facilities for the rum placed in
oak barrels.
a.2. Gin Making Process
The base ingredient for gin is the clear, distilled grain
spirit or occasionally a molasses-based spirit that is both
“Rum Process Manufacturing”, Tanduay Distillery, Inc., http://
15
www.tanduay.com/rpmwointro.html (accessed July 15, 2013).

tasteless and colorless.16 Depending on the brand of
gin, the types of botanicals for flavoring and process of
distilling the alcohol vary (see Figure 5 for the process of
making gin).
1) Distilling the base spirit. A column still is used to
distill the grain alcohol to a high proof, flavorless spirit.
This covers steps 1 to 3 in the figure.
2) Adding botanicals for flavor. The quality of the gin
depends on how the botanicals are added to the alcohol.
For lower-quality compound gin, botanicals and juniper
berries are soaked in the base spirit before they are distilled
a second time. For higher-quality versions, the alcohol is
vaporized and allowed to pass through a chamber that holds
the botanicals and juniper berries. This way, the essential
oil and aromatics are extracted from the botanicals as the
alcohol goes through the chamber to the condenser. Step
4 from the figure shows this part of the chain.
3) Adding water and bottling. Gin usually does not need
to undergo an ageing or maturation process; pure water is
simply added to the distilled and flavored alcohol before it
is bottled straight from the still as shown by step 5 in the
figure.
a.3. Alcopops Production Process
Sometimes called flavored malt beverages, alcopop
drinks are a cross between softdrinks and beer. They are
produced in the same breweries as beer products, but
exhibit little or no traditional beer character. They do
not derive flavors from malt or other products used in
the fermentation of beer; rather, they are usually added
with other flavorings. However, they are also marketed
in traditional beer-type bottles and cans and distributed
to the alcohol beverage market through beer and malt
beverage wholesalers. Their alcohol content is also similar
to that of other malt beverages, which is at approximately
4-6% alcohol by volume range.
The production of flavored malt beverages starts with
a fermented base of beer from malt and other brewing
materials; this base is treated using a variety of processes to
remove the malt beverage character from it. After the said
treatment, other distilled spirits are added to the base as its
source of flavor and alcohol content.17
Other alcopops differ more from malt beverages
UNIVERSITY OF ASIA & THE PACIFIC
because they are produced in the same way as softdrinks.
The base is carbonated water, which is added with a
flavored concentrate and alcohol in its pure form. Any
distilled spirit can be used, such as vodka, g in,  whiskey,
and rum18.
16
“The Distillation Process,” Gin University, http://www.
ginmonger.com/ginmonger_008.htm (accessed July 15, 2013).
17
“Federal Alcohol and Tobacco Tax”, Tax and Trade Bureau,
http://www.boe.ca.gov/sptaxprog/pdf/fmbpaper2.pdf  [PDF
Document] (accessed July 15, 2013).
18 “Alcopops”, GEA Liquids (n.d.), http://www.gea-liquid.com/
gealiquid/cmsdoc.nsf/WebDoc/webb87bfgq (accessed July 18, 2013).
 october 2014  F E A T U R E

because the industry is known to be contributing most of

Figure 4 • Illustration of the Gin-Making Process
its revenues to taxes. Table 1 shows the amount (in billion
pesos) of excise taxes collected from the alcoholic beverage
industry from 2002 to 2010. Meanwhile, Figure 7 (which
industry monitor

presents the year-on-year share of excise tax on goods,

alcohol, and tobacco products) indicates a decline in the
overall share of excise tax on goods to the overall revenue
collection. The percentage shares of tobacco products are
indeed seen to be higher than that of alcohol. The share of
tobacco products are observed to be fluctuating from its
lowest point of 3.3% in 2007 to a growth of 0.6% in 2010
with a 3.9% share.
The increase or decrease of percentage share for alcohol
and tobacco products are also not consistent with each
other. From 2002 to 2003, for example, the share of
tobacco decreased while the alcohol products’ share did not
Source: G&J Greenall, How is Gin Made?, http://www.gjgreenall.co.uk/expertise/how-is-gin-
made/#step1 change. By contrast, from 2006 to 2007, while the share
of tobacco products decreased, that of alcohol increased.
The Alcoholic Beverage Industry and the Lastly, from 2009 to 2010, the share of tobacco products
Macroeconomy increased while that of alcohol products decreased. These
Contributions to GDP fluctuations in product shares were not further explained
The contribution of alcoholic beverages to the overall gross by the Bureau of Internal Revenue (bir), but perhaps
domestic product (gdp) of the country is not so significant several other economic and social factors could account
compared to that of other manufactured products. For 2011 for such behavior.
and 2012, the alcoholic beverage
Table 1 • Revenue Collection from Excise Taxes (in billion pesos)
industry contributed only 0.93%
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010
and 0.92%, respectively, to the total
gdp per year. In the manufacturing Total Revenue Collection 394.5 426.0 468.1 542.7 652.7 713.5 778.6 750.3 822.6

sector, the share of the industry Excise Tax on Goods 56.9 57.0 59.5 61.8 58.2 54.9 61.4 60.5 67.2

is also observed to be minimal at Alcohol Products 12.9 13.9 15.9 17.0 16.0 18.7 19.8 20.6 21.7

4.15% for 2011 and 4.16% for Tobacco Products 20.0 19.9 23.0 23.7 26.8 23.2 27.5 24.2 31.7

2012. The share of the alcoholic Source: Bureau of Internal Revenue (BIR)

beverages industry increased from

2011 to 2012 but, on the overall gdp, its share declined by Figure 6 • Share of Alcoholic Products to Total Revenue
0.01%, which is very small but might be significant to the Collection (2002-2010)
said industry (see Figure 5). Excise Tax on Goods Alcoholic Products Tobacco Products
16 14.4
Figure 5 • Share of Manufacturing and Alcoholic Beverages 13.4
14 12.7
to Total GDP 11.4
12
8.9
Percentage

Share of Manufacturing to GDP 10 7.9 8.1 8.2

7.7
Share of Alcoholic Beverage to Manufacturing 8
30% 5.1 4.7 4.9
25% 25% 24% 24% 24% 24% 24%
6 4.4 4.1 3.9
23% 23% 3.3 3.5 3.2
25% 22% 22% 4
21% 22%
20% 2 3.3 3.3 3.4 3.1 2.8
Percentage

2.5 2.6 2.5 2.6

0
15% 2002 2003 2004 2005 2006 2007 2008 2009 2010
Year
10%
4.15% 4.16% Source: Bureau of Internal Revenue (BIR)
5%

0% Figure 6 shows the share of total excise tax to total gdp.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Year
Source: National Statistical Coordination Board (NSCB) and indexmundi.com
Despite the lack of data, the industry’s contribution
to the total revenue collection from excise taxes is notable
Evidently, there is a decline of these shares every year,
but the decrease was halted in 2007 and 2008. A further
decline was observed in 2009 and again sustained the same
percentage share in 2010. The probable reason is that since
the share of excise tax has become consistently lower since
F E A T U R E 

2000, there has been a stabilization in its share after almost Compensation, on the other hand, increases through
7 to 10 years. The shares from 2003 are now below the time. This increase may account for the yearly inflation and
average share of 1.2%. need to increase the price of labor, because, as defined by
the nso, this compensation is factored into other employee
Figure 7 • Percentage Share of Excise Tax to GDP benefits such as life insurance, securities, health care, and
many others.
Excise Tax to GDP Average=1.2% In 2006, the nso started to specify the different sectors
2.0
1.8
1.72 under the beverages industry, thereby providing some
1.51
1.6 1.36 information in the particular production of alcoholic drinks
1.4 1.25
1.16
1.09 in the Philippines. The highest number of employees of
Percentage

1.2
0.93
1.0 0.80 0.80 0.75 0.75
the beverage sector belonged to the softdrinks section,
0.8 followed by the malt liquor workers, and then by the
0.6
0.4
distillers and ethyl alcohol producers. Thus, it would not
0.2 be logical for the rank on the number of establishments
0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
to follow this order. In this same year, the manufacture of
Year beverages was only divided into five main sections by the
Source: National Statistical Coordination Board (NSCB) psic (see Table 3).

Contributions to Table 2 • Summary Statistics for Manufacturing Establishment with Average Total
Employment of 20 and Over by Industry Group, Philippines (Values in Thousand Pesos)
Employment
Manufacture of Beverages
As of 2010, the beverage
2001 2003 2005 2006 2008 2009 2010
sector accounted for 1.9% of Number of
107 94 115 95 78 76 64
the total employment of the Establishments
manufacturing industry. 19 Total Employees
(Average for
This figure may be too small the Year as of 24,574 21,033 17,448 15,179 14,014 19,478 16,714
for the manufacturing field November
Per Year)
15

compared with other leading Number of Paid

24,440 20,892 17,403 15,140 13,899 19,383 16,702
manufactured products Employees
Number of
such as electronics, but Unpaid Employees 134 141 44 39 115 95 12

this contribution is proven Compensation 4,891,669 4,759,084 5,164,897 4,418,297 4,804,596 6,392,749 6,993,243
beneficial to almost 15,000 to Notes: * According to the NSO, “unpaid workers include working owners who do not receive regular pay, apprentices and learners
without regular pay, and persons working without regular pay for at least one third of the working time normal to the establishment.”
30,000 employees of beverage ** According to the NSO, compensation is the sum of salaries and wages, separation, terminal pay and gratuities paid by the
companies. This sector has establishment to its employees and total employer’s contribution to SSS/GSIS, ECC, PhilHealth, PAG-IBIG, and others.
Source: Annual Survey of Philippine Business and Industry, NSO 
also proven to be the fastest-
growing fmcg sector in the Table 3 • Summary Statistics for Beverage Classifications
country, according to the Kantar Worldpanel Study, 2006, Philippines (Values in Thousand Pesos)
which grew at 7.3% in the first quarter of 2013, outdoing Manufacture of Beverages, 2006
other sectors such as Food, Dairy Products, Home Care
fermented materials

Manufacture of malt
spirits; ethyl alcohol
Distilling rectifying

and Personal Care Products.

production from

liquors and malt

and blending of

Manufacture of

Manufacture of
drinking waters
Manufacture

softdrinks
of wines

Table 2 shows fluctuations in the figures under the

manufacture of beverages per year. The average total
number of employees per year ranged from 14,000 to
UNIVERSITY OF ASIA & THE PACIFIC

24,000 workers from 2000 to 2010 but the trend seems Number of
24 4 6 41 20
to be declining every year. This decrease in the number of Establishments
workers could be attributed to the increasing preference for Total Employees
capital force or machinery instead of physical and manual (Average for
the Year as of
2,661 195 3,260 7,990 1,073
labor. Due to reduced costs and efficiency, producers now November 15
Per Year)
choose to invest in plant and equipment and simply deal
Number of
2,658 195 3,260 7,966 1,061
with depreciation rather than pay a monthly compensation Paid Employees
and provide other employee benefits. Number
of Unpaid 3 0 0 24 12
19
From Table 1a, Summary Statistics for Manufacturing Employees
Establishments with Total Employment of 20 and Over by Industry Compensation 567,884 10,631 1,208,794 2,442,891 188,097
Group: Philippines, 2010 (continued), National Statistics Office Source: Annual Survey of Philippine Business and Industry, NSO
(NSO).
 october 2014  F E A T U R E

In 2009, however, the beverage sector was further

  Table 6 • Philippine Exports by Commodity Group
divided into eight classifications. Due to the increasing (January to April 2013 and 2012;
variety of beverage products in the market, the psic had FOB in Thousand US Dollars)
to adjust its criteria and data gathering. The production 2013 2012
Growth
Rate
industry monitor

Commodity
of ethyl alcohol was already separated from distilling, the
Jan-Apr Jan-Apr
manufacture of wines was further divided into fruit wines, 27.96
Processed Food and
and some additions included the manufacture of flavored Beverages
477,674,002 373,308,941

fruit juices and syrups (see Table 4).

In this year, the manufacture of malt and malt liquor
sections already surpassed the number of employees in the
beverage sector, with 495 employees over 393 employees per
establishment. Nonetheless, the number of establishments
were not mentioned, so we cannot conclude if the total
employment of malt liquor producers indeed exceeded the
labor force of the softdrink companies.
Source: NSCB
These numbers show that the processed food and beverage
exports is currently experiencing rapid growth (27.96%)
but is practically an invisible performer among the
plethora of other Philippine exports. As of April 2013, this
commodity ranked only 12th among the top exports of the
country, with a share of only 3.5% of the total exports.

Table 4 • Summary Statistics for Beverage Classifications Figure 8 • Top Philippine Exports by Commodity Group
2009, Philippines (April 2013 and 2012)
Manufacture of Beverages, 2009
Average Average Annual Forest Products 3.58
Employment Per Compensation (in 5.77
Establishment Thousand Pesos)
Special Transactions 123.83
Manufacture of distilled, potable 64.92
alcoholic beverages (e.g., whisky, 100 172.3
brandy, gin, etc.) Petroleum Products 41.31
30.13 April '12
Production of ethyl alcohol 102 274.7
181.54 April '13
Fruit wine manufacturing 7 194.5 Mineral Products 243.16

Wine manufacturing, n.e.c. 28 121.1 327.97

Total Agro-Based Products 311.27
Manufacture of malt liquors and
495 429.1
malt 3,956.95
Manufactured Goods 3,386.00
Manufacture of softdrinks 393 354.0
Manufacture of drinks flavored FOB Value In Million US Dollars
with fruit juices, syrups or other 39 162.6
materials Source: NSCB

Manufacture of drinking water 5 90.1

Source: Annual Survey of Philippine Business and Industry, NSO
San Miguel Corporation (smc) is the only brewer
and distiller of alcoholic beverages that publicly releases
Contributions to Foreign Exchange
its annual reports. According to its 2012 report, the
Data regarding the absolute sales of alcoholic beverages
corporation has more than 90% market share of beer
overseas are extremely limited. The National Statistical
brands and is also the leader in the liquor market. This
Coordination Board (nscb) released data on Philippine
establishes the fact that smc has already built its dominance
exports by commodity group from January to April 2013 and
in the Philippine market in terms of domestic sales.
compared it with 2012 results. However, the sale of alcoholic
However, there is a need to analyze how the corporation
beverages was not highlighted as a sole commodity. Rather,
fared in the international market to understand how
processed food and beverages were consolidated in only one
an industry giant contributes to the inflow of foreign
commodity class, barring a more specific understanding of
currencies to the country.
the contribution of alcoholic beverages to foreign exchange.
The 2012
Some of the
Table 5 • Philippine Exports by Commodity Group (April and March 2013, and April smc Annual
results released 2012; FOB in Thousand US Dollars) R e p o r t
by the NSCB 2013 2012
Growth Rate (%)
indicates the
on processed Commodity April March April following data
food and FOB % FOB % FOB %
Monthly Annual regarding
beverages are Value Share Value Share Value Share
Processed Food
their overseas
presented in 141,370 3.5 142,338 3.29 95,512 2.06 -0.68 48.01
and Beverages operations:
Table 5. Source: NSCB
F E A T U R E 

2012 (Beer)
• Revenue of international beer operations rose by 6%
• 38 million cases were sold
• Operating income was at php 489 million
•  Foreign operations accounted for 24.05% of
consolidated sales and 1.02% of consolidated net income
Data for foreign sales of liquors and spirits are not
disclosed in the company’s sec Form 17-A for 2013, as all
available data are limited to domestic sales.
Overall, data for exports of alcoholic beverages in
the Philippines are too limited to demonstrate how this
industry contributes to the inflow of foreign currency.
There is a need for a breakdown of nscb data to determine
how much alcoholic beverages comprises the “processed
food and beverages” commodity group.
Linkages with the Rest of the Economy
The alcoholic beverage industry may be termed as one of
the “sin” industries in the economy. Despite its negative
social connotation, the production of alcoholic beverage
still contributes significantly to the growth of other
industries through its forward and backward linkages. This
is shown through the 240-sector input-output transaction
table in which the alcoholic products are classified into two
Before those raw materials finally turn into the bottled
gin, rum, wine, vodka, brandy, and other liquors that are
sold in the market, they first have to go through various
chemical processes. These procedures are facilitated by the
use of other chemicals that make the machines run and
the sources of energy that fuel the production facilities.
Thus, the manufacture of basic industrial chemicals as well
as the refineries of petroleum and lpg are also part of the
backward linkages.
Packaging also counts as an important step in the value
chain of an alcoholic beverage. The manufacture of glass
containers in which the liquors are stored, the manufacture
of paper and paperboard containers in which the bottles of
wine and liquor are packaged before distribution, as well
as the manufacture of metal containers for metal caps also
form part of the backward linkages. Moreover, to aid in the
successful marketing and distribution of the said products,
advertising activities are conducted.
Table 7 • Backward Linkages of Alcoholic Liquor
and Wine
Amount of
Percent Share
in Total
Intermediate Source of Input Contribution (in
Intermediate
thousand pesos)
Input

sectors: alcoholic liquors and wine, and malt liquors and Wholesale and retail trade 959,951 19.534%

malt. In the following sections of this paper, the discussion Sugar milling and refining 911,081 18.539%

on the linkages and cost structures of the alcoholic Manufacture of glass container 709,081 14.429%

beverage industry are also divided into two classifications. Manufacture of basic industrial
515,212
10.484%
chemicals
The aforementioned division may be due to the difference
Petroleum refineries including 302,331 6.152%
in the production process of the various types of alcoholic LPG
drinks, as well as their main ingredients. Manufacture of paper and 268,840 5.471%
paperboard containers
Alcoholic Liquors and Wine Other fruits and nuts 165,225 3.362%
Backward Linkages Coconut including copra-making 139,191 2.832%
Unlike malt beverages, the main ingredient in the production in the farm

of alcoholic liquors and wine is sugar, whether in its raw Manufacture of metal containers 135,472 2.757%

form or in its processed form. This fact explains why sugar Advertising activities 115,692 2.354%

milling and refining is among the top intermediate sources Source: 240-Sector Input-Output Transaction Table, 2000

of input for alcoholic liquors and wine, as shown in Table

7. For example, rum, which is the flagship product of Forward Linkages
Tanduay Distillers Inc., is made mainly from molasses or The utilization of various distribution channels has always
sugar cane juice. The said company sources all its sugar been a strength of companies in the alcoholic liquor
UNIVERSITY OF ASIA & THE PACIFIC

needs from its subsidiary, Victorias Milling Corporation,
the largest sugar miller and refinery in Asia, as well as from
other sugar millers and refineries in the Visayas region.
Other than sugar from sugar cane, flavors and extracts are
also added to the different liquor products. The additional
taste and aroma of alcoholic beverages come from other
fruits, grains, crops, and nuts. This also explains why the
production of other fruits and nuts as well as coconuts
is also included in the list of the backward linkages of
alcoholic liquors and wine.
and wine industry. Distribution could be classified into
two: on-premise and off-premise. Table 8 shows that as
a forward linkage, the on-premise distribution channels
such as restaurants, bars, canteens, and other eating and
drinking places contribute a larger share than the off-
premise distribution channels that are included under
wholesale and retail trade. Moreover, malt liquors and
malt also count as a forward linkage because there are times
when the distilled and/or fermented alcohol in its raw form
is used in producing malt beverages such as beer.
 october 2014 10 F E A T U R E

Table 8 • Forward Linkages of Alcoholic Liquor and Wine Table 9 • Backward Linkages of Malt Liquors and Malt
Percent Share in Percentage Share in
Intermediate Amount of Amount of
Total Intermediate Important Source of Input Total Intermediate
Destination of Output Contribution Contribution
Demand Input
Restaurants, bars, Malt liquors and malt 9,707,650 67.829%
industry monitor

canteens and other eating 1,486,006 52.724%

Electricity 837,621 5.853%
and drinking places
Petroleum refineries including
626,677 4.379%
Wholesale and retail trade 476,510 16.907% LPG
Manufacture of glass container 426,042 2.977%
Malt liquors and malt 374,124 13.274% Alcoholic liquors and wine 374,124 2.614%
Source: 240-Sector Input-Output Transaction Table, 2000 Wholesale and retail trade 281,793 1.969%
Manufacture of electrical,
257,091 1.796%
industrial machinery and
Malt Liquors and Malt apparatus
Backward Linkages Legal activities 233,235 1.630%
For malt liquors and malt beverages, agricultural crops Other agricultural crops
such as wheat, milled oats, cereal crops, and spice crops (wheat, milled oats, cereal
222,762 1.556%
crops, spice crops and
only account for a meager 1.556% share as a total construction-related crops)
intermediate input, despite the fact that these grains are Water 203,267 1.420%
supposed to be the primary ingredient in the production Source: 240-Sector Input-Output Transaction Table, 2000
of beer and similar products. The reason is that the
companies that locally produce beer, such as smc, source Forward Linkages
their main ingredient, which is the malted barley and Majority of the output from malt liquor and malt
hops, from other countries in North America, Australia, production, or 73.624% of total intermediate demand, also
and Europe. Grains that are produced locally are only comes from itself. Moreover, while alcoholic liquor and
used as adjuncts or as additional ingredients to enhance wine products are notably more saleable on-premise than
the taste and aroma of smc products to suit the Filipino off-premise, the same may not be said for malt beverage
taste. This fact also explains why the important source products. Off-premise distribution channels comprise
of input of the malt liquors and malt industry is itself, 13.122% of intermediate demand, while on-premise
at 67.829%. Other important raw materials in the channels, such as restaurants, bars, canteens, and other
production of beer are alcoholic liquors and wine as well eating and drinking places as well as hotels and motels,
as water, which account for 2.614% and 1.42% of total account for 8.475% and 3.823%, respectively.
intermediate input, respectively.
In another context, the production facilities Table 10 • Forward Linkages of Malt Liquor and Malt
of the different beer manufacturers require Percentage Share in
Amount of
electricity, petroleum, and electrical, industrial Important Destinations of Output Contribution
Total Intermediate
Demand
machinery and apparatus; thus, they account
for a 5.853%, 4.379%, and 1.796% share in Malt liquors and malt 9,707,650 73.624%

total intermediate input, respectively. The Wholesale and retail trade 1,730,151 13.122%

manufacture of glass containers for the storage Restaurants, bars, canteens, and 1,117,518 8.475%
other eating and drinking places
and packaging of malt beverage products is also
Hotels and motels 504,092 3.823%
among the important sources of input because
Source: 240-Sector Input-Output Transaction Table, 2000
it contributes a 2.977% share. Interestingly,
legal activities are also part of the industry’s backward The subsequent issue will discuss the alcoholic beverage
linkages at 1.63%. industry’s supply conditions for competitiveness. IM
statistics 11

Gross value added (GVA) in other services

Q1 2012 to Q3 2014 (current prices)
Unit: P million
2012 2013 2014
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Education 91,950 112,896 98,665 110,546 100,959 128,397 114,826 126,445 106,381 137,061 116,545
Health and social work 34,409 42,777 37,355 40,023 35,701 46,393 41,668 44,260 41,009 53,534 49,890
Hotels and restaurants 43,920 38,841 45,345 50,694 49,384 42,448 48,805 53,530 53,695 48,036 54,107

Sewage and refuse disposal sanitation

and similar activities 1,143 1,110 1,248 1,203 1,299 1,167 1,362 1,319 1,398 1,203 1,401

Recreational, cultural and sporting

activities 44,133 47,910 47,004 65,353 53,209 53,458 47,705 67,982 55,933 52,990 49,592
Other service activities 17,530 15,081 13,782 16,005 17,854 16,368 14,496 17,112 19,455 16,624 14,931

GVA in other services 233,087 258,615 243,399 283,824 258,406 288,232 268,862 310,647 277,870 309,449 286,467

GVA in other services

Q1 2012 to Q3 2014 (constant prices)
Unit: P million
2012 2013 2014
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Education 69,436 78,608 65,810 65,552 74,800 86,483 73,493 73,516 78,031 90,783 72,949
Health and social work 22,189 24,718 20,867 20,090 22,395 26,024 21,813 21,706 25,803 30,079 25,967
Hotels and restaurants 28,976 25,596 28,242 32,095 30,140 27,131 29,503 32,375 31,530 29,195 31,159

Sewage and refuse disposal sanitation

and similar activities 693 669 745 719 761 682 790 766 793 683 790

Recreational, cultural and sporting

activities 30,901 33,845 33,240 44,536 36,524 36,986 32,928 45,207 37,458 35,944 33,761
Other service activities 10,213 8,670 7,634 9,398 10,062 9,116 7,813 9,806 10,718 9,061 7,870

GVA in other services 162,408 172,106 156,537 172,391 174,683 186,423 166,339 183,375 184,332 195,745 172,496

GVA in other services

Q1 2012 to Q3 2014
Implicit price index
2012 2013 2014
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

Education 132.43 143.62 149.93 168.64 134.97 148.47 156.24 172.00 136.33 150.98 159.76
UNIVERSITY OF ASIA & THE PACIFIC

Health and social work 155.07 173.06 179.02 199.22 159.41 178.27 191.03 203.91 158.93 177.98 192.13
Hotels and restaurants 151.58 151.75 160.56 157.95 163.85 156.46 165.43 165.34 170.30 164.54 173.65

Sewage and refuse disposal sanitation

and similar activities 164.90 165.95 167.58 167.27 170.70 171.07 172.42 172.07 176.28 176.19 177.44

Recreational, cultural and sporting

activities 142.82 141.56 141.41 146.74 145.68 144.53 144.88 150.38 149.32 147.43 146.89
Other service activities 171.65 173.96 180.52 170.31 177.44 179.55 185.54 174.51 181.52 183.46 189.71

GVA in other services 143.52 150.27 155.49 164.64 147.93 154.61 161.64 169.41 150.74 158.09 166.07

Source: Philippine Statistics Authority

 october 2014 12 statistics

Gross value added (GVA) in transport, storage, and communication

Q1 2012 to Q3 2014 (current prices)
Unit: P million
2012 2013 2014
industry monitor

Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Transport and storage 90,135 102,201 91,019 88,993 94,222 108,137 99,199 98,662 105,250 124,376 108,095 107,163
Land 52,759 60,073 55,310 53,117 55,971 64,349 59,650 58,162 60,410 71,148 63,278 62,005
Water 5,953 8,102 4,673 4,995 6,287 7,512 4,475 5,234 6,421 7,853 4,736 5,644
Air 14,464 14,025 11,740 12,118 14,022 13,852 13,154 14,778 17,033 17,781 15,321 16,479
Storage and services
incidental to transport 16,960 20,001 19,297 18,763 17,942 22,423 21,920 20,487 21,386 27,595 24,761 23,036

Communication 78,841 81,847 69,733 82,482 79,387 88,255 73,713 88,449 83,746 90,135 76,199 93,227

GVA in transport, storage,

and communication 168,976 184,048 160,752 171,475 173,609 196,391 172,912 187,111 188,996 214,511 184,294 200,391

GVA in transport, storage, and communication

Q1 2012 to Q3 2014 (constant prices)
Unit: P million
2012 2013 2014
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Transport and storage 44,193 49,959 41,427 43,171 45,774 52,508 44,846 47,345 50,998 60,371 48,653 51,181
Land 25,285 28,002 22,757 24,631 26,553 30,052 24,523 26,928 28,613 33,173 25,775 28,472
Water 3,831 5,275 3,062 3,284 4,046 4,891 2,933 3,441 4,132 5,113 3,103 3,711
Air 5,247 5,522 4,133 4,218 4,931 5,232 4,504 5,033 6,022 6,820 5,253 5,610
Storage and services
incidental to transport 9,831 11,159 11,475 11,038 10,244 12,334 12,886 11,943 12,231 15,264 14,522 13,389

Communication 77,584 78,369 66,702 80,689 77,672 84,353 70,062 86,526 81,937 86,088 72,400 91,102

GVA in transport, storage,

and communication 121,777 128,328 108,129 123,860 123,446 136,861 114,908 133,871 132,935 146,459 121,052 142,283

GVA in transport, storage, and communication

Q1 2012 to Q3 2014
Implicit price index
2012 2013 2014
Industry/industry group Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Transport and storage 204.0 204.6 219.7 206.1 205.8 205.9 221.2 208.4 206.4 206.0 222.2 209.4
Land 208.7 214.5 243.0 215.7 210.8 214.1 243.2 216.0 211.1 214.5 245.5 217.8
Water 155.4 153.6 152.6 152.1 155.4 153.6 152.6 152.1 155.4 153.6 152.6 152.1
Air 275.7 254.0 284.1 287.3 284.4 264.8 292.1 293.6 282.9 260.7 291.6 293.8
Storage and services
incidental to transport 172.5 179.2 168.2 170.0 175.1 181.8 170.1 171.5 174.9 180.8 170.5 172.0

Communication 101.6 104.4 104.5 102.2 102.2 104.6 105.2 102.2 102.2 104.7 105.2 102.3

GVA in transport, storage,

and communication 138.8 143.4 148.7 138.4 140.6 143.5 150.5 139.8 142.2 146.5 152.2 140.8

Source: Philippine Statistics Authority