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Vitarich Corporation

A Business Plan Presented to the


University of Santo Tomas
Alfredo M. Velayo College of Accountancy
in Partial Fulfillment of the requirement for the
Degree of Bachelor of Science in Management Accounting

By

Caole, Tim Ivan T.


Dayanghirang, Ruth Maureen D.
Del Carmen, Mariah Ganielle M.
Diasanta, Ellysse Marinella J.
Ronquillo, Donna R.
4MA8

Submitted to:

Gerardo M. Castro, MBA

March 16, 2018


Contents
CHAPTER I: INTRODUCTION .......................................................................................................................... 4
Background of the Business ...................................................................................................................... 4
Nature of the business .............................................................................................................................. 5
Financial Highlights ................................................................................................................................... 5
Major consumer groups served ................................................................................................................ 6
CHAPTER II: VISION/MISSION/OBJECTIVES .................................................................................................. 6
Current Vision ........................................................................................................................................... 6
Evaluation ................................................................................................................................................. 6
Proposed Vision ........................................................................................................................................ 7
Current Mission......................................................................................................................................... 7
Evaluation ................................................................................................................................................. 7
Proposed Mission...................................................................................................................................... 9
Strategic Objectives .................................................................................................................................. 9
Conclusion ............................................................................................................................................... 10
CHAPTER III: EXTERNAL ENVIRONMENTAL ANALYSIS ................................................................................ 10
General Environment .............................................................................................................................. 10
Demographic ....................................................................................................................................... 11
Political-Legal ...................................................................................................................................... 11
Economic Development ...................................................................................................................... 12
Socio-Cultural Trends .......................................................................................................................... 13
Technological Trends .......................................................................................................................... 13
Environmental Trends ......................................................................................................................... 14
Global Trends ...................................................................................................................................... 14
Opportunities and Threats ...................................................................................................................... 15
Market demand .................................................................................................................................. 15
Products or services offered ............................................................................................................... 15
Intensity of competition ..................................................................................................................... 16
Suppliers, supply chain, distributors, and distribution channels ........................................................ 16
Financial aspect ................................................................................................................................... 17
Other aspects deemed relevant ......................................................................................................... 17
Industry and Competitor Analysis........................................................................................................... 17
Porter’s Five Forces Framework .......................................................................................................... 17
Threat of New Entrants ....................................................................................................................... 18
Competitive Rivalry ............................................................................................................................. 18
Bargaining Power of Buyers ................................................................................................................ 19
Bargaining Power of Suppliers ............................................................................................................ 19
Threat of Substitutes........................................................................................................................... 19
Affected Areas......................................................................................................................................... 19
Market size and growth rate............................................................................................................... 19
Current buyers and suppliers .............................................................................................................. 20
Technology developments .................................................................................................................. 21
Industry prices..................................................................................................................................... 22
Critical success factors in the industry ................................................................................................ 22
Summary ................................................................................................................................................. 23
Sources .................................................................................................................................................... 24
CHAPTER I: INTRODUCTION
Background of the Business
According to the official website of Vitarich, In 1950, brothers Feliciano, Lorenzo and Pablo

Sarimento became the first commercial animal manufacturer in the Philippines, under the name Philippine

American Milling Co. Inc. (PAMCO). In 1962, PAMCO eventually moved to Marilao, Bulacan because of

its attempt to modernize production. PAMCO adopted the trade name “Vitarich”. After years of

development, the corporation was registered with Securities and Exchange Commission (SEC) under the

name “Vitarich Feedmill, Inc.”.

Vitarich Corporation, also known as VITA, was incorporated and organized on July 31, 1962. The

corporation entered the poultry business and built an experimental poultry farm that made them unite with

United States of America companies like, Cobb International, and Babcock Poultry Farms to have exclusive

franchise of breeds in the Philippines.

By the early 1970s, the corporation further expanded its operations and extended its vertical

integration by acquiring dressing plants and cold storage facilities. In 1981, the corporation expanded

outside Luzon by setting up the Davao satellite feed mill. The following year it upgraded the Bulacan mill

to increase its capacity.

In 1988 the corporation entered into a joint venture agreement with Cobb-Vandress, Inc.(CVI) and

formed Breeder Master Inc.(BMI). CVI is 100% owned by Tyson Foods, Inc., the largest chicken company

in the world. BMI is 20% owned by CVI and 80% owned by Vitarich. In 2002, the corporation decided to

dispose all of its BMI investments and agreed to pay its liabilities to BMI by returning all of its shares of

stocks to BMI. Thus, on February 12, 2003 the shareholders of BMI, namely CVI and Vitarich, entered into

a Memorandum of Agreement (MOA). Under the MOA all of Vitarich’s shares are returned to BMI leaving

CVI as the sole shareholder of BMI.

On May 31, 2007, The Regional Trial Court of Malolos, Bulacan approved the rehabilitation plan

of Vitarich which is composed mainly of the restructuring of debt worth P3.2 Billion, resulting to longer

payment terms and decrease of interest.


March 30, 2012, approval of extension of corporate life which was registered on February 8, 1995.

October 16, 2013, approval of debt to equity conversion and increase in the company’s authorized capital

stock. Consequently, Kormansic acquired 85.29% ownership of the company. In 2014, the Board of

Directors decided to dispose a major feed mill located in Marilao and other noncore assets to further reduce

its liabilities and increase its working capital. On November 5, 2015, the company filed with the

Rehabilitation Court a motion to exit the plan. On September 16, 2016, it was approved.

Nature of the business


Vitarich Corporation is engaged in feed and livestock operations in plants located throughout the

Philippines. They produce hog, poultry, aqua, and other specialty feed requirements for our livestock

operations. They formulate, produce, store, and market our feed which come in mash, pellet, crumble, and

extruded forms. The product line consists of broiler, layer, hog, aqua, and other specialty feeds. We sell our

animal and aqua feeds to distributors, dealers, and end users. The livestock operations involve everything

from breeding and growing to marketing of animals.

Vitarich Corporation focuses on the variety of feeds. There are 5 different kinds of products which

are Hog, Aqua, Broiler, Vitarich Titan, and Dairy Feeds. Under Hog, they offer Premium Plus and Supreme

Plus. Under Aqua, they offer Premium Floater, Premium Sinker, and Special Floater. Under Broiler, there

are Broiler Finisher Pellet, Broiler Grower Pellet, Broiler Starter, Chick Booster Crumble, Layer Feeds, and

Premium Broiler Feeds. Under Vitarich Titan, there are Stag Developer Crumble, Stabilizer Pellet, Breeder

Pellet, Chick Booster Crumble, and Conditioning Pellet. And lastly, Under Dairy Feeds, they offer Goat

Kid Starter, Goat Grower, Goat Dairy, Cattle Starter, Cattle Grower, Cattle Dairy, Buffalo Starter, Buffalo

Grower, and Buffalo Dairy.

Financial Highlights
In 2014, Vitarich Corporation brings an end to its seven (7) year receivership with Php 800 million

debt remaining. From there, through the efforts of their executives, their enormous losses became profits
which grew exponentially. They invested in derivatives and engaged in debt-to-equity swaps in order to

further stabilize their ground in the market. By the year 2015, Vitarich Corporation begins to receive profit

having a profitability ratio of 14.72% from 7.70% in 2014, further efforts later led to exponential growth in

terms of profit in the year 2016, but their maximization of investing lowered their ratio into a gross profit

margin of 12.41%. In 2017, Vitarich Corporation plans to expand production through a new automated

production facility in Davao City. Their solvency ratio for the year 2016 is 3%, which is relatively low, but

considering they are fresh from corporate rehabilitation and had a negative ratio before it shows that they

are doing the right plan of actions.

Major consumer groups served


Vitarich focuses on serving the local market, mainly farmers and growers, hog, poultry,

aqua, and other livestock. They also have a sub-operation focusing on providing food products for the

Filipino families, which are antibiotic-free and direct from the farm (Golden Dory by Cook’s) .

CHAPTER II: VISION/MISSION/OBJECTIVES


Current Vision
“Vitarich will continue being the pioneer, agribusiness partner, and innovator in the feeds industry

and will be the backbone of every Filipino farmer's success by providing the best solutions through its

products and services.”

Evaluation
Vitarich’s current vision entails all three of the characteristics of a vision statement - massively

inspiring, overarching, and long-term. It is massively inspiring and overarching due to its message which

includes the Philippine’s main source of income - agriculture. Given its vision to support the Filipino

farmers, Vitarich offers better improved products and enhanced its support services to aid Filipino Farmers
nationwide. Given its promise of continuity and innovation, we can truly see that Vitarich remains focused

on continuing its operations for the long-term.

Proposed Vision
Vitarich continues to be an agribusiness partner and innovator in the feeds industry that aims to be

the market leader in agribusiness industry and will be the backbone of every Filipino farmer's success by

providing the best solutions through its products and services.

Current Mission
To continuously adopt new business development programs and technological advancement that

will enhance quality of products and services.

To empower employees and customers by imparting knowledge and innovations in the

agribusiness.

To provide comprehensive solutions through products and services in raising the standard of the

Philippine agribusiness industry.

To build partnership with our suppliers and customers to achieve long term profitability and

sustainability and increase shareholder's value.

Evaluation
Under David’s framework, we can determine that Vitarich Corporation contains all of the components

which render it well made though it has composition issues because of the word “to” that make it look like

a strategic objective. It provides for all of the stakeholders involved in the company, including their

employees. The company focuses on how to provide a gateway to the success of Filipino farmers, and to

raise the standard of the Philippine agribusiness industry. Vitarich’s mission is to continuously adapt new

business development programs and technological advancements to achieve long term profitability and

competitive advantage, as well as an increase shareholder’s value.

1. Customers: “empower customers”

Vitarich empowers its customers by spreading knowledge and innovation in agribusiness industry.
2. Product and Services: “enhance the products and services”, “raising the standard of the Philippine

agribusiness through their products and services”

Vitarich includes in their mission statement their products and services and is consistent with their

promise of innovation.

3. Market: “Philippine agribusiness industry”

Target market of Vitarich is the agribusiness industry in the Philippines.

4. Technology: “continuously adopt to new business development programs and technological

advancement”

With their promise of continuous innovation, Vitarich adopts to new business development and

technological advancement to provide best solutions to help the Filipino farmers.

5. Concern for survival, growth, and profit: “to achieve long term profitability and sustainability and

increase shareholder’s value”

Vitarich values its relationship with its suppliers and customers in order to achieve sustainability

and increase shareholder’s value in the long run.

6. Philosophy: “provide comprehensive solutions through products and services in raising the

standard of the Philippine agribusiness industry.”

Being the pioneer agribusiness partner and innovator in the feeds industry, Vitarich aims to raise

the standard of Philippine agribusiness industry by continuously providing best possible solutions to aid the

success of Filipino farmers.

7. Self-concept: “empower employees and customers by imparting knowledge and innovations in the

agribusiness”

As a company that values innovation, Vitarich includes stakeholders and impart them with

knowledge and innovation in the agribusiness industry.

8. Concern for public image: “build partnership with our suppliers and customers”

It is important for Vitarich to build partnership with stakeholders for the sustainability of the

company.
9. Concern for employees: “empower employees”

Vitarich empowers their employees and give them knowledge about agribusiness and innovations

in the industry.

Proposed Mission
Vitarich Corporation seeks to continuously adopt new business development programs and

technological advancements to enhance the quality of our products and services as well as to create sustain

competitive advantage. Along with the organization, we seek to empower our customers as well as each

other by imparting knowledge and innovations for the betterment of the Philippine agribusiness industry.

We aim to raise the standard by providing comprehensive solutions through our products and services, and

to build partnership with our suppliers and customers to achieve long term profitability and sustainability

and increase shareholder's value.

Strategic Objectives
Vitarich Corporation has no strategic objectives explicitly stated in their company website;

therefore, we have assumed the absence of such. Vitarich, being an agribusiness, may consider the

following strategic objectives to incorporate into their company:

To increase stock price by 20% annually starting 2018 until 2023.

Companies can increase market share through innovation, strengthening customer relationships,

smart hiring practices and acquiring competitors.

The most viable plan of action is innovation, smart hiring practices and strengthening customer

relationships because, Vitarich, being fresh from receivership they lack the capital to acquire competitors.

Basis: According to bloomberg.com the stock price of Vitarich Corporation within 52 weeks ending

March 2018 averages to Php 2.03. Their all-time peak is Php 2.89. With this information, Vitarich highest

growth rate as of date is 14%. Within 5 years, if Vitarich maintains their investments on innovation and

sustainability, a 20% growth is possible.


To improve risk management in terms of managing derivatives in order to minimize liability risk

by the year 2023.

Vitarich has just began investing in proper risk management activities. As of 2014, their publicly

announced derivatives is a debt-to-equity swap in order to stabilize their debt-to-equity ratio. As of now,

Vitarich’s current risks mostly involve liability risks due to their financial performance in the past years,

property risks due to their loss of major plants in the past years, and speculative risks. All risks currently

put Vitarich in a volatile state wherein they have just exited from the turn around. Therefore, we highly

suggest Vitarich Corporation to invest more on risk management in order to stabilize their financial

performance as well as their financial position.

To improve market share for poultry products to 8% by 2023.

Poultry supply in the Philippines is considered insufficient, therefore being forced to import poultry

to satisfy the needs of Filipinos. According to BusinessMirror Journalist Jasper Y. Arcalas, Vitarich

Corporation has abandoned exporting internationally in order to focus on supplying the local market with

its products. The company has formally announced their intention to increase market share by 3% for the

year 2018. Considering Vitarich’s current efforts, it is believed that market share growth to 8% by 2023 is

highly probable.

Conclusion
Vitarich’s existing vision and mission are sufficient but needs further modifications in the long

term. In considering their strategic objectives, the absence of such has led us to propose a new set of

strategic objectives fit for the utilization of the management.

CHAPTER III: EXTERNAL ENVIRONMENTAL ANALYSIS


General Environment
Demographic
Food is a commodity. Philippines has a big population means of increasing the demand for food,

also it increases the opportunity for the Feed Mill Industry. Vitarich sells its feed products to dealers,

distributors, and end-users nationwide. Formulation, Production, Storage, and Marketing of various animal

and aqua feeds are some concepts of Vitarich Corporation.

Vitarich’s customer base consists of dealers, distributors, and end-users nationwide. These clients

are given credit terms from 30 days to 90 days, and some are cash basis customers. In Luzon, Vitarich has

a branch in Marilao, Bulacan and it is accounted for 49% of the total animal and aqua feeds sales volume.

While in Visayas, there are branches in Bacolod and Iloilo. In Mindanao, Vitarich can be found in Cagayan

De Oro and Davao, which Visayas and Mindanao is accounted for the remaining 51% of the total animal

and aqua feeds sales volume. Having a large population, there is a bigger threat to food security in the

country. Food securities can affect Vitarich Corporation due to its feeds that can make the animals’ growth.

Political-Legal
Republic Act No. 8435, or the Agriculture and Fisheries Modernization Act of 1997 deems to

enhance the current disposition of agriculture in the Philippines by expanding productivity through the

maximization of production capacity. Moreover, there exists environmental laws that intends to strengthen

the relationship of the industry and the community, along with the increase of security regarding the health

and safety of all involved in the process.

Through this act, the government emphasizes on empowering small farmers and fisherfolk through

cooperatives. The government provides data and equipment for the cooperatives to enhance production as

well as competitive rivalry within the industry. This act is also backed up and enhanced by PA2020, or the

Philippine Agriculture 2020 in which an updated development plan is created spanning fifteen (15) years,

from 2005 to 2020. PA2020 lays out the goal to have an annual production growth of 7% every year. This

act addresses their intention on making the Philippine Agriculture Industry compete globally, which should

benefit the Philippine economy greatly.


Republic Act No. 9296, or the Meat Inspection Code of the Philippines, and Republic Act No.

1156, or the Livestock and Poultry Feeds Act requires agribusinesses to gain approval from the Bureau of

Animal Industry (BAI) and the National Meat Inspection Commission (NMIC) for the registration and

accreditation of an feeds manufacturer’s feed mill, chemical laboratory, meat plant, and storage. This helps

ensure the safety of both the animals and the consumers. Aside from registration and accreditation approval,

the act also informs the entities that there will be inspections by government representatives occurring

without prior notice. The inspection will serve as proof of whether or not the entity has complied with the

law.

The acts explained in the preceding paragraph establishes barriers against new entrants due to the

higher capital requirement and increased requirement of quality and safety assurance.

Economic Development
According to adb.org, Driven by broad-based expansion in domestic demand, the Philippine

economy continued to perform strongly in the first half of 2017. Philippines’ Gross Domestic Product grew

by 6.4% year on year in the first half of 2017, moderating from a 7.0% pace in the same period last year

but in line with the average 6.3% annual expansion since 2010. But if we are to specifically discuss about

the GDP from Agriculture in the Philippines, according to tradingeconomics.com, it increased to

P179,806.91 million in the fourth quarter of 2017 from P133,922.43 million in the third quarter of 2017.

GDP From Agriculture in Philippines averaged P140,650.76 million from 2008 until 2017, reaching an all

time high of P179,806.91 million in the fourth quarter of 2017 and a record low of P114,778.44 million in

the second quarter of 2009. Philippines’ Gross National Product on the other hand is also performing very

well. According to ieconomics.com, GNP’s all-time average stands at P1591624.29 million and it's

projection for the first quarter of 2018 is P2692748.41 million.

The Philippines remains among the fastest growing Southeast Asian economies this year, and the

economy of feed mill industry is positively an opportunity. According to the GNP and GDP of the

Philippines, the overall rate of our GNP and GDP has increased in the past 3 years. This is a good sign for
all the companies in our country especially those in agriculture. When the growth rate of the country is

increasing, opportunity rises.

Other economic factors such as Inflation rates and General growth of economy are also performing

very well. Inflation rates increased from 1.4% in 2015 to 3.2% this 2017. Increasing of inflation rates is

good because businesses are then forced to raise their prices. But the disadvantages are that banks are forced

to also raise their interest rates and higher inflation rates also results in higher rates of unemployment that

is why the share of agriculture in total employment was declining according to countrystat.psa.gov.ph. In

2016, the share went down to 27%. Luckily, the general growth of the economy was not too affected

because of this. In 2016, the country's earnings from agricultural exports were higher by 2.89% from the

previous year's record. Agricultural import expenditures increased by 14.16%.

Socio-Cultural Trends
Changing consumer preferences and issues on the effects of intensive agriculture on environmental

sustainability and on human health shifted from quantity-driven to quality-driven agricultural production.

Hence, concepts like sustainable development, sustainable agriculture, food safety, and good agricultural

practices as well as international agreements, protocols, guidelines, and standards to promote favorable

effects on the public good increasingly become the focus of government and nongovernmental efforts,

shaping what Food and Agriculture Organization (FAO) calls "globalization with a human face." As the

demand of chickens increased, outbreaks like Avian flu concerned consumers but efforts have been made

to assure stakeholders that Vitarich use highly advanced and meticulous biosecurity measures which are

most hygienic and absolutely safe from contaminants and diseases.

Technological Trends
In technological aspects, high tech materials and equipment are released, much improved and

upgraded, that will help a production capability for a company. Product Quality and Animal Nutrition is

the focus of the industry. The industry poses for more improved materials and equipment that they can use

in order to meet the high demand. Also, in raw materials of the industry, promotion of growing and usage
of alternative products for the supply will solve the difficulties of the industry. Because Vitarich is always

on the look for the best and latest technology, Vitarich became the pioneer in many things. “They were the

first to introduce the floating fish pellets into the Philippine aquaculture industry, and had been considered

a leader in the field to this very day”. Their constant effort to provide the best technology led them to

pioneer a new industry that will focus on the potential of the Philippines to produce Pangasius fishes.

Vitarich is now also capable of expansions because it is now free from corporate rehabilitation, their newly

opened state-of-the art feed mill in Davao can produce 10 tons per hour which is equal to 100,000 bags of

50 kilos per bag. Not only does this mill cater the needs of the consumers, but it also ensures them that what

they are getting are quality products, thus increasing their efficiency as well as their sales at the same time.

Because of their top of the line products they achieve customer intimacy.

Environmental Trends
Because of the growing consciousness towards the destruction of our environment, an enterprise

should commit itself in the reversal of it. Vitarich, a company of means involves itself by partnering up

with communities and conducting clean-ups, an example of this is their participation in “adopt an estero” a

clean-up program of Marilao creek last July 26, 2014. By cleaning the downstream of Marilao creek from

the dressing plant, the program aimed to reduce chemicals or other waste material that might cause damage

to the dwellers of Marilao. Another show of concern is through their Geenovation Campaign this is a

campaign to help supply safe foods and are not harmful to the environment. This is also sustainable and at

the same time the produce are of quality because it complies with the International Certification Standards

such as ISO 9001: 2008 and HACCP as proof of its commitment to quality.

Global Trends
The world’s population is expected to increase to 10 billion by 2050. A portion of the population

said will be attributed to the Philippines, which is basically the major market of Vitarich. Having the

technological and plant expansion investments, Vitarich can capitalize while implementing a sustainable

plan of action because of their investments in technology and expansion. Critical parts of food systems are
becoming more capital-intensive, vertically integrated and concentrated in fewer hands. This means that

small-scale producers are the first to lose out and seek employment outside of agriculture. This can be

prevented by Vitarich by continuing their investments in technology and by using business models that are

timely.

Opportunities and Threats


Market demand
If more buyers enter the market, market demand at each price will also rise due to the market’s

ability to pay for items. Vitarich is the first commercial feed company in the country. It has been producing

feeds in a world quality standards for almost 68 years. The corporation has the opportunity in market

demand because of the rising population in the Philippines. Having high demand, gains revenue. It has a

lot of opportunities, not only in the Philippines but globally.

Therefore, rising population means the consumption also rises, and the demandes rises. Having a

large population, competition is also considered. Expanding the competition, many wants to cater the

demand as much as possible.

Products or services offered


Vitarich Corporation is engaged in the formulation, production, storage and marketing of various

animal and aqua feeds. The product line of feeds consists of broiler feeds, layer feeds, hog feeds and aqua

feeds. The expansion of providing feeds for ducks and meat products can be one of the opportunities to

Vitarich. According to Dr. John Strak, the meat production of pork in the Philippines proves to be constantly

growing as an attempt to fill in for the demand of the Filipinos. Vitarich start investing in meat products,

especially in pork to join the competition in demand of the Philippines.

Some are searching for substitutes and Vitarich has no non-processed substitutes that are available.

Feeds can be just any food, but the nutrients can only be processed for animals to have, and there is no

substitute for the feeds business.


Intensity of competition
Vitarich Corporation faces competition from sources by virtue of its consolidated operations. Some

competitors are Foremost Farms, Inc with Foremost and Rich (0.71872%), General Milling Corp. with

General Feeds (0.13743%), San Miguel Foods, Inc. with B-meg Feeds (1.38752%), Swift Foods, Inc. with

Blue Ribbon Feeds (0.00053%), and others (97.69238%). Vitarich enhances its competition by having

strategic plans and objectives. Competition does not just focuses on consumer products but also with the

production of resources. The competition happens on product feature, support service, delivery time and

brand image. Vitarich’s opportunity is to be the first follower in innovation - it is the first step toward

beginning a movement that might seem unusual or out-of-step with surrounding culture to general

population. Other competitors like Universal Robina Corp.’s Starfeed 555 have ducks and meats in their

products, Vitarich must aim to have same products that will make them first follower.

Suppliers, supply chain, distributors, and distribution channels


Raw materials of the feed business are corn, wheat, soya, and rice bran, which the corporation

purchases from local traders. For example, last 2017, Vitarich partnered with local farmers and the

Department of Agriculture (DA) to process corn supply at the company’s new feed mill in Davao city.

Department of Agriculture said that the farmers will not be compelled to sell their entire harvest to the

company if they can find higher prices from other buyers. They will be under contract to sell half of their

produce at a premium price to Vitarich, which in turn will be providing farm inputs. But Sometimes, the

Corporation imports materials from Australia, North and South America, India, and Pakistan. There are

research and development ongoing to substitute grains to be by-products. According to Ricardo Manuel

Sarmiento, also known as Rocco, the CEO of Vitarich Corporation, their suppliers are wonderful - they

have supported the corporation through it all. If not for the suppliers, Vitarich would not be where they are

now. The company owes the suppliers a lot. Vitarich claims that their suppliers were the secret to the

company’s survival over the years. “They were there with us during the hard times, and now that we

are better they are very happy because it means more business for them, and we give them

preferential treatment.” (Sarmiento, 2016). But Vitarich is willing to recruit and develop new dealers
and distributors. They are looking for additional suppliers of farm to help grow its net income by 17 times

for 2018.

The opportunities regarding the suppliers of Vitarich is that new alternative raw material suppliers

exist, they have the opportunity to choose the suppliers which are near the country and which sell prices of

the same material at a lower cost. The threats on the other hand is that their intention to innovate is costly,

and coming from receivership, is risky in terms of cash consumption. Another threat is that there are limited

number of suppliers.

Financial aspect
Sale of goods of feeds segment increased by P867 million or 42%, from P2,059 million registered

in 2015 to P2,926 million registered in 2016 due opening new hog and broiler farm customers.

The opportunities regarding the financial aspect of Vitarich is that their innovations can lead them

to increase profitability. Another is increased credit limit. The threats on the other hand is that they have

relatively low capital resources.

Other aspects deemed relevant


Vitarich Corporation for feed operations wants to provide the highest profitability and very reliable

services. They will provide superior technical assistance and after sales service. According to their 2017

financial statements, their current services include giving assistance to the farmers who are in use their

products and services. This is an opportunity for the farmers to produce, provide, and analyze how to

properly feed and take care of the livestock animals with the company’s feed. This will also be a threat to

other corporations due to ambitious profitability and services that Vitarich can offer.

Industry and Competitor Analysis


Porter’s Five Forces Framework

Threat of New Entrants Low

Competitive Rivalry High


Bargaining Power of Buyers High

Bargaining Power of Suppliers High

Threat of Substitutes Moderate

Threat of New Entrants


The threat of new entrants in agribusiness is low due to the requirement of compliance with strict

standards and laws, and the high fixed costs involved in operations. With that in mind, entry barriers are

high.

The laws explained in the external environment require continuous reporting and unscheduled

inspections by representatives of the government. This in itself presents the need of tedious sanitary

processes which, if improperly done, would inevitably ruins the face of the company.

Along with compliance and sanitary costs are laboratory costs in the manufacturing of feeds and

meat, which contain chemicals that need to be handled with utmost care due to its direct effect on the health

of consumers.

The industry’s top players consume a maximum of 2% of production due to the Philippines being

primarily reliant on agriculture to sustain GDP. According to the Department of Trade and Industry’s

Roadmap of Agribusiness, 85% of the raw materials involved in productions are imported from countries

due to the rarity of chemicals and the increased need to observe sanitation.

Competitive Rivalry
The rivalry in the Philippine agribusiness industry is high due to the tremendous amount of players

involved. The top ten players in the feeds manufacturing sectors are in tight competition with each other

and has proved to produce new standards and practices in the production of feeds and meat. Many

competitors are also highly integrated and diversified. Vitarich has a reputation risk because of the

receivership they experienced and efforts should be done to gain the trust of it's buyers.
Bargaining Power of Buyers
The bargaining power of buyers in the agribusiness is high due to a high demand for the product.

Buyers tend to look for a product with a good brand reputation that delivers quality and cater to their needs.

Buyers are attracted to products that addresses environmental sustainability and food safety. Collaboration

between the buyer and selected suppliers provides an advantageous win-win situation.

Bargaining Power of Suppliers


The bargaining power of suppliers in agribusinesses are high because the products supplied is a

commodity. A “commodity” means something useful or valued which means these products are necessary

for the business’ normal operations. In other words, Vitarich needs its suppliers for them to run their

business.

Another reason is that good substitute inputs exist. Livestock growers are able to substitute feeds

with the appropriate food consumed by humans. Lastly, industry members account for a big fraction of

supplier’s total sales and continued high volume purchases are important to well-being of suppliers.

Threat of Substitutes
The threat of substitutes in Philippine agribusiness is moderate because good substitutes are not

readily available. But on the other hand, there are a lot of non-manufactured substitutes readily available.

“Good substitutes are not readily available” means despite having many competitors there are only

few feeds which can be a substitute, for example, only Vitarich sells feeds for Gamecock. “A lot of non-

manufactured substitutes are readily available” means customers may decide not to buy feeds because they

can feed their livestock with our leftover foods.

Affected Areas

Market size and growth rate


According to the Grain and Feed Annual Report (2017), the growth of the feed milling industry has

reached 2.1-2.3 million tons per year, with an expectation of growth as high as 3% as capacity increases.

However, this is proven difficult because of the high bargaining power of suppliers. To increase capacity
means locking in suppliers willing and able to provide for at a rate that is enough for operations. An attempt

to comply with a higher-than-usual price produces higher prices for feeds, which in turn will affect the

buyers due to their high bargaining power. Any attempt to expand operations, by any of the players, proves

to be a difficult feat to accomplish. Therefore, there will be growth to be expected, but only by small

increments.

Feeds manufacturing also affects livestock production, which is another product produced by

Vitarich. So far, with a 4.6% growth in the livestock sector, and imports still needed, it is expected that the

competition involved within the industry will intensify until the demand for livestock goes down.

Since there is a directly proportional relationship of feeds and livestock production, it is

easily deduced that the market size of both is approximately the same. Filipinos consume

approximately 14.5 kg, which is 2 kg more than the world’s average. The PSA states that an

increase of meat consumption is expected as the population increases. An increase of livestock

will require an increase of feeds. With this information, we can infer that the market size reaches

of livestock and feed mill industry spans the whole nation.

Current buyers and suppliers


In 2013, exporting products from Vietnam started and aimed for further expansion. As of 2017,

Vitarich Corporation has decided to focus on domestic markets. In 2014, after the company went to

rehabilitation, that has a reputation risk and could not aggressively compete, Vitarich went back on track

and continued agribusiness industry. Due to increasing economy, buyers have more power to buy.

Connecting to this, the consumption of Philippines increases, so as the demand on food, and the feeds also

increases.

Raw materials of the feed business are corn, wheat, soya, and rice bran, which the corporation

purchases from local traders and sometimes, the corporation imports materials from Australia, North and

South America, India, and Pakistan. According to the CEO of Vitarich, Business is business, but they

(suppliers) have played a vital role in the resurrection of Vitarich and a lot of them have become
good friends of my family and also of the organization. Suppliers became the one of the keys to

Vitarich’s success.

Technology developments
Vitarich Corporation continues to provide the best for its stakeholders following the turnaround.

Since the company’s turnaround in 2014, Vitarich Corporation has been investing its resources in the

creation of new plants, one of which is the new automated production plant in Panacan, Davao City which

opened last October 13, 2017. The capacity of the plant is 10 tons per hour of animal feeds. That is

approximately 10,000 (50 kg) bags per hour.

According to the company website, they have a handful of new systems available also for the

improvement of their operations. One of their new operations is Integrated Broiler Operation. When the

demand for chicken increased, Vitarich was one of the few companies that took the risk of providing

chicken products to the country's growing population through their integrated broiler production all the way

to further processing and value adding under the Cook's Chicken Brand. Another development was the

Extrusion Technology. Vitarich is always updated with what’s the best and latest equipment & technology.

Vitarich was the first company to introduce floating fish feeds into the Philippine aquaculture industry, that

is why they’ve been considered the leader in this field from then till now.

Vitarich believes that as an integrated poultry producer, it is their job to oversee every aspect of the poultry

production process from hatching, breeding, processing, up until sales. According to Vitarich, “Given our

vision to serve our customers with effective technical and marketing support, it is not surprising that we

dedicate substantial resources to the research and development of production process improvements and

product value enhancement.” The establishment of Vitarich’s Research Center, which is the first of its kind

in the Philippines, is solid proof of their desire to enhance the quality of their products.
Industry prices
Promotion
They have a very active facebook page and twitter account. They are also quick to answer queries

of their customers, through either comment or personal message.

Vitarich also offers contract growing for small and medium scale entrepreneurs who want to start

a business. Vitarich provides the day-old-chicks, feed support, vaccines, technical services, and other

services, even logistics and marketing. Entrepreneurs need little initial capital, they just need to take care

of the housing, labor, power, light and water, equipment, medication, and other miscellaneous expenses.

Vitarich guarantee quality and performance, providing the best support possible, fluctuations in prices and

competitors would not be an issue.

Distribution
Their scope of distribution is nationwide, Vitarich’s customer base consists of dealers, distributors,

and end-users nationwide. These clients are given credit terms from 30 days to 90 days, and some are cash

basis customers. In Luzon, Vitarich has a branch in Marilao, Bulacan and it is accounted for 49% of the

total animal and aqua feeds sales volume. While in Visayas, there are branches in Bacolod and Iloilo. In

Mindanao, Vitarich can be found in Cagayan De Oro and Davao, which Visayas and Mindanao is accounted

for the remaining 51% of the total animal and aqua feeds sales volume.

Prices
We, the researchers, have been doing our best to find the prices but unfortunately the data is

unavailable at the moment. We are expecting to have it soon after the approval of the company.

Critical success factors in the industry


The fact that they are pioneers of feed production, granted them a great advantage in their starting

years. However, as the number of players increased in the industry they were unable to keep up. They were

unable to control their spending which therefore led to their downfall to the 5th position. They were unable

to cope up, mainly because of the huge amount of unpaid liabilities, this made them enter receivership.

After this corporate rehabilitation their first move was to expand and invest in state of the art facilities and

equipments. This was made to cater the growing needs of hogs and chicken breeders. One of their
competitive advantage is their research and development because they innovate products from time to time

and it helps them in their survival in the industry. Vitarich saw the potential of the Philippines as a major

producer of Pangasius fish and pioneered an industry that will not only be profitable to them but also to the

Filipino fish farmers by using integrated business models that maximizes the benefits and recognizes the

core competence of each member or the supply and value chain.

Summary
Make a summary of the industry analysis. What are the key external environmental issues, challenges and

problems in the industry and how would they affect the organization?

In 2007, Vitarich proposed a rehabilitation plan in restructuring the company debt amounting P3.2

billion originally to have longer payment terms and decreasing the amount of interest. Vitarich also

experienced liquidity problems due to over-supply of poultry in the market and tight competition that forced

the company to cut almost 600 employees. After almost 8 years, Vitarich filed to exit the rehabilitation

plan. The company made sure to capitalize from their exit by expanding and they made sure they remained

relevant by attending a lot of summits. The aforementioned are indirect promotions of the company and

part of their plan to bring back the trust of stakeholders.

Philippines, having a huge number of meat eaters, Vitarich’s expansion amplifies their profitability.

Their active social media is also an asset, this ensures the intimacy between them and the customers given

that their bargaining power is high. As to suppliers, they maintain a number of them (Foreign and local

suppliers). The stable growth rate of the industry will translate to higher profits as long they maintain their

competitive advantage which is their nationwide distribution.

Their investments in state of the art equipment and facilities does not only increase their output but

also the efficiency of production. Investments in technology, were ignored before and was one of the

reasons they could not keep up with big players in the industry. Their strength is in niche marketing, their
research and development team, should take into consideration the preferences of the Filipino people now

that they are planning to make them the sole market of livestock.

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2016

RP 1702 Grain and Feed Annual Report by Perfecto Corpuz

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