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An Argentine Company’s Journey to Investing in the Philippines

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An Argentine Company’s Journey to Investing in the Philippines

Farmesa is one of the rare South American companies with a presence in Southeast Asia. What drove the firm to cross the Pacific Ocean and what hurdles did it face?

An Argentine Company’s Journey to Investing in the Philippines

Farmesa’s plant in the Philippines, which opening in January 2021.

Credit: Farmesa

Farmesa is one of the few South American companies with investments in the Philippines. Is an Argentine company with more than 60 years of history focused on the development, production, and commercialization of food ingredients, including functional, texture, nutrition and flavor systems.

The company exports to all continents from its production plant in General Rodríguez, Buenos Aires, Argentina – and from the recently inaugurated plant in Batangas, Philippines. In addition, Farmesa has commercial offices and warehouses around the world in key trading points.

Agustín Pérez, grandson of one of the founders and today part of the company’s management, received Reporte Asia at Faremsa’s plant in Argentina and told us about his experience in Southeast Asia, the steps taken to launch Farmesa in the Philippines, and the construction of the industrial plant that today manufactures carrageenan, a product of high consumption in the Philippines and worldwide, which was key for the consolidation of Farmesa as a company with a global profile.

How did Farmesa start and how did it become what it is now?

Farmesa is a company that was created in 1959. The original founders were my grandfather Oscar Pérez and his partner Juan José Gorro. The company started out as a very small company, which simply made some spice mixtures, very basic things for the meat industry above all.

Today Farmesa is a company dedicated exclusively to the development, production and marketing of food ingredients and additives, with applications in different industries, such as meat, dairy, snack, food service, etc. We have greatly expanded our portfolio.

Farmesa has been active in the Argentinean market since its foundation and by the 1990s the doors were opened to start exporting products to neighboring countries such as Uruguay, Paraguay, a little bit to Chile, Brazil, and Bolivia.

By 2004, Farmesa became the first Argentine company to inaugurate a texturized soy protein plant. Textured soy protein is a derivative. The oil is removed from the soybean, a flour is left, and that flour is textured and used in hamburgers, sausages, etc. That was in 2004. And the truth is that it gave us a great impulse that took us all over the world, beyond the neighboring countries.

How did you reach the Asian market, in general, and the Philippine market, in particular?

It was with textured soy protein that we began to have our first contacts with Asia. In the case of the Philippines, we started exporting protein in 2007. The Philippines is a huge market; there are 100 million inhabitants with a particular food consumption. They eat a lot, constantly, and they eat a lot of processed products; within this world of processed products, they consume a lot of sausage. Being a country with a meat deficit, protein is an ideal supplement. So we started to have a lot of business volume with the Philippines from that year onwards, which we still maintain to this day.

How is Farmesa’s business in the Philippines? You sell to a Philippine company and they make the sausages for the domestic market?

Exactly, that is, we have many direct customers, very large users there and some smaller customers who also distribute to other smaller customers. We have set up a fairly efficient distribution system. This started more or less in 2007.

In 2011, 2012, with the third generation already quite involved, my cousin, Federico Nochella, my brother, Juan Manuel Pérez, and I, started to have the idea of going a little bit beyond Argentina. To go out, to set foot in another country. And if it is in another continent, all the better, so that Farmesa, little by little, starts to become more global. So in 2012, after doing market research and so on, we decided that the Philippines was the most suitable place.

Why the Philippines?

First, because of its strategic location, in the middle of Asia, the Southeast Asian region. There, if you start adding up the number of inhabitants per country, you get to a very interesting number. And if you add India and China on top, you have almost half of the world’s population, growing at interesting rates.

The Philippines at that time was also growing well, and today it is still growing; it has had its ups and downs but it is still growing. Why the Philippines? I think it ended up being more than anything else because of the similarities we have with them. Among the Asian countries, the Philippines is the one that most resembles us: They were a Spanish colony, 80 percent are Catholic, the cultural shock is not the greatest. They all speak English, which is very important because language is fundamental for doing business. So, we decided to go to the Philippines.

How was the experience of opening the first office there?

I went to the Philippines alone to deal with everything new. That is sometimes the problem with SMEs. Today Farmesa is no longer a small SME, it is a big SME, but in 2013 we were a little smaller than now and companies like us do not have the resources to say “well, I’ll send a whole team.” For us it was: “Go there, settle in and we’ll see what happens.” So I left in 2013, we opened a company (FARMESA ASIA PACIFIC, INC.) and we started to develop businesses but without our own operation in the Philippines; they were all businesses tied to production in Argentina.

Was the process of registering a company in the Philippines easy?

Look, the Philippines is a country – in that sense it is also similar to us – with a lot of bureaucracy. The truth is that it is not that easy. I mean, it is not that dream where they tell you “come and open the company in a month.” Impossible.

When the directors are foreigners, it is always a little more difficult, isn’t it?

The Philippines is quite friendly if you open a company with a local partner who owns 60 percent of the company. There it is quite easy, the share capital they ask you for is, I think, $2,000, it is very accessible. Now, when you want to set up a 100 percent foreign company, the rules of the game change completely, they ask for a minimum investment $200,000, a board of directors of at least five people, three of whom must be Filipinos, and the approval regulations are stricter. The process, until they told me “you have opened the company” took about seven months, more or less.

And how do you actually open a plant in the Philippines?

Having already opened a company, we could start doing some things. During the first two years, we also had the idea of having a production base there, taking advantage of the fact that there was a market, that we were already present, that we had customers; then we started to decide what to do. The Philippines has a product that is widely used in the food industry, also in cosmetics and other applications, especially processed meats and dairy products, which is carrageenan. Carrageenan is a product made from algae that after processing ends up as a powder, which is capable of great water retention. Therefore, it is used as a stabilizer, and has a lot of other applications in the industry. These algae grow in the Philippines and Indonesia, the only two places in the world.

We were using that carrageenan as a raw material in our products. So we said, “Well, we have the algae there, it’s a product that goes hand in hand with our industry, let’s go that way.” So we decided to explore the possibility of having a carrageenan production plant to stop buying this input and start producing our own carrageenan.

Does Farmesa today export carrageenan from the Philippines to other countries?

Today we export carrageenan from the Philippines and from Argentina. What we did was to divide the investment into two stages. The first stage is the transformation of algae into chips and then that chip is used to make carrageenan (the second stage). So, from algae to chips was done in the Philippines and we set up a plant in Argentina to transform those chips into carrageenan. We sent a semi-finished product from the Philippines and here we transformed it into a product. That helped us to start exploring the market, especially here in Argentina and South America.

Farmesa, within the South American sector, is a renowned company, so we used that reputation as a growth lever for new developments. We grew a lot in the market. For example, in the second year of starting to commercialize our own carrageenan, we were already the leaders in Argentina, we had more than 25 percent of the market. We also did very well in Chile, Uruguay, Paraguay, Colombia, the truth is that it was a boom.

So we said, “Well, now it is time to start exporting carrageenan from the Philippines.” So we built a plant, a plant expansion in fact, to be able to make the final product. That plant was inaugurated in January of last year, so today Farmesa is exporting carrageenan as a finished product from Argentina and the Philippines. The main [export] destinations of the Philippines plant are obviously Southeast Asia, the Middle East, Europe, and Mexico.

Was the investment in the Philippines all Farmesa’s, or did you partner with a local company?

No, the investment was ours. The Philippines has a very interesting system of investment incentives with an export focus. We applied to one called PEZA, which is an organization that offers benefits taking into account the investment you are going to make, the number of employees you are going to have and the commitment to export at least 80 percent of what you produce. The benefits range from importing machinery free of duties, or not paying VAT or income tax, for example.

We applied, we were approved, but the condition to operate under PEZA is that you have to set up in industrial parks authorized by them. So, once we got the permit, we started looking for industrial parks. We ended up buying more than 2 hectares in an industrial park called LISP 4, south of Manila, in the Batangas area. It is a new industrial park. In fact, Farmesa is the first company operating [in LISP 4], there are some under construction but we were the first to be operational.

Were you able to obtain financing in the Philippines for the installation and expansion of the plant?

We invested an initial capital, then for the land we had to go out and look for financing and we were able to get it. The truth is that getting financing in the Philippines is very difficult. They ask for collateral (physical guarantee). We presented the project to start getting financing and buy the land. It was very difficult for us, so we ended up getting financing in the United States. We got enough money to buy the land, we bought it and used it as collateral in the Land Bank, which is a local investment bank.

As it was an investment that was going to generate jobs, it was going to boost the seaweed market, they were interested in the project. The Philippine embassy in Argentina also helped us a lot, they made us contacts, some meetings with the minister of agriculture and so on. The Land Bank gave us an interesting loan to finance the construction of the plant.

How has the performance of the plant in the Philippines been since January?

Fortunately we are growing. We had made a rather conservative growth ramp and we said we were going to sell 150 tons, which was not very ambitious. We ended the year with 300-odd tons, it was spectacular.

What we thought for year two was a growth [goal] of 100 tons, well, we are going to 550. The problem is that if you want to grow you need financing. So we are in the process of financing, but with very good possibilities.

What do you see for the future of Farmesa?

In the short term, I can tell you that we have a lot of room for growth with this plant in the Philippines. Although today our main markets are the Mexican market, the European market, the African market (Southern Africa more than anything else), and the Middle East, and obviously Southeast Asia, there is still a lot to do in these markets.

We have ambitious market objectives, so I would say that we have to focus on that. More than anything else, now we have to work very hard on the commercial side to be able to achieve the volumes and obviously that the plant responds. And beyond carrageenan, Farmesa is always trying to innovate, looking for new challenges, new opportunities, we are with projects to continue investing, with expansion projects here in Argentina, so we are always trying to get work. Plants abroad I do not know yet; we have already suffered a lot, we need a few years of calm to return to the battle.

This piece was originally published in Spanish by ReporteAsia.