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FEMSA exits Philippines, sold 51% stake to Coca-Cola Co.

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The board of Coca-Cola FEMSA Philippines Inc.’s Mexican parent, Coca-Cola FEMSA has decided to sell its controlling stake in its Philippine operation of 51%. The Coca-Cola Co. will take over operations here through its Bottling Investments Group (BIG), the Coca-Cola Co. said.

The Atlanta-based Coca-Cola Co. said in a statement that the entry of BIG is still subject to regulatory approval. FEMSA is the world’s biggest franchise bottler of Coca-Cola trademark drinks.It acquired 51% of Coca-Cola FEMSA Philippines, previously named Coca-Cola Bottlers Philippines, Inc. (CCBPI), for $688.5 million in an all-cash transaction way back 2013.

John Murphy, President of the Coca-Cola Co.’s Asia Pacific Group said in the statement, “We respect Coca-Cola FEMSAs decision, and we appreciate the progress made during their five-year tenure in the Philippines.”

Murphy added, “The market is better positioned than ever before for future success, and we are confident about the potential ahead. The Coca-Cola Co. will work to ensure a smooth transition of the Philippines bottling operations to BIG, for all customers, business partners, consumers and, importantly, for all those who work in the bottling operations.”

While there was no disclosure of reason behind the development, Coca-Cola FEMSA Philippines has been struggling since last year after the government regulated imports of high fructose corn syrup (HFCS), a sweetener used by the food industry as an alternative to cane sugar.

The Sugar Regulatory Board has expressed fears that imported HFCS ingredient has been taking up a major share of the sweetener market to the detriment of cane sugar farmers.

The government levied a P12 tax on HFCS-sweetened drinks at the start of the year, double that of beverages using sugar. And since the new tax regime was put in place, Coca-Cola FEMSA Philippines has laid off an undisclosed number of workers and has reduced volumes of of some products

Winn Everhart, President and General Manager of the Philippines for the Coca-Cola Co., said “long-term, sustainable success is built on strong fundamentals.In every markets evolution, there will be ups and downs. We are confident both in the opportunities that we have ahead and in the plans we have in place for the Philippines.”

The Coca-Cola Co. formed BIG in 2004. With 45,000 employees around the world, BIG’s Asian operations include Nepal, Bangladesh, Vietnam, Cambodia, Brunei, Malaysia, Singapore, Myanmar, Sri Lanka and India.

Calin Dragan, President of BIG said,  “Southeast Asia is an important market for us, and we look forward to the Philippines joining our portfolio. We want all customers and consumers to know that we are fully committed to ensure a seamless transition with Coca-Cola FEMSA. And most importantly, we want all employees to know that we appreciate the progress they have made in moving the Philippines business forward, and we believe that this will continue to improve as part of BIG.”

 Meanwhile, President Rodrigo Duterte’s Cabinet Officials have expressed their respective opinion and concern on this surprising move of Coca-Cola FEMSA Philippines Inc. selling their 51% share back to to the Coca-Cola Co..

Trade Secretary Ramon Lopez calls for the review of the system of sugar importation to make it more accessible at competitive cost with ample protection to sugar producers.

Lopez said, “It has been a concern in terms of access to and cost of sugar. So we shall review the system of sugar importation to make it more accessible at competitive cost with ample protection to sugar producers.”

 He made it clear though that the measures being contemplated do not include lowering tariffs for sugar imports. “The desired outcome will still have “appropriate tariff protection for local producers.” It will however involve “opening up to more importers, and industrial users and not a select few. And no other fees. So tariff revenues go to the government, which can support sugar farmers in their modernization programs,” he added.

The Trade Chief said that the DTI is drafting a plan that will facilitate direct sugar imports by removing middlemen and effectively reducing the retail price of sugar.

For his part, Socioeconomic Planning Secretary Ernesto M. Pernia said that “sugar imports should be liberalized.Imports will increase supply, supplementing domestic production. Intermediation cost should be minimized if not eliminated.”

Meanwhile, Sugar Regulatory Administration (SRA) Administrator Hermenegildo Serafica said that FEMSA’s Philippine unit did not obtain sufficient sugar before the new sugar-sweetened beverage excise tax under the Tax Reform for Acceleration and Inclusion (TRAIN) law was imposed in January 2018.

“In my personal opinion, Coca-cola was scrambling for sugar supply since they weren’t buying as much sugar in the past. So when TRAIN law kicked in, most of the domestic sugar traders committed their volume to their other long-standing and previously contracted buyers.”

Serafica added,“These traders would only be able to accommodate Coca-Cola if they had sugar in excess of the demand of their long-standing buyers but unfortunately for Coca-Cola, production was lower this year so there was no excess supply to fill Coca-Cola’s demand.

We must understand that he TRAIN law imposed a P12 per liter tax on drinks with high fructose corn syrup sweeteners, and a P6 levy on caloric sweeteners such as sugar for health measures.

While other heavy sugar users manufacturers have warned the Duterte administration on the inevitable loss of jobs due to high cost of raw materials and production, the dread is now happening according to another beverage manufacturer that THEPHILBIZNEWS contacted who asked not to be identified.

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