Rising input costs driven by the conflict in the Middle East may impact the United States’ (US) dominance in shipments of major agricultural products to the Philippines, according to the US Department of Agriculture (USDA).

In a report, the USDA identified surging input costs, on the back of elevated fuel prices, as one of the “challenges” facing US exporters to the Philippines.

The foreign agency noted that increased costs “are prompting some Philippine manufacturers to diversify suppliers and substitute processing ingredients.”

The US is the largest single-country exporter to the Philippines, with agricultural exports reaching $3.44 billion last year, based on figures from Trade Data Monitor.

The US is the top supplier of soybean meal, soybeans, wheat, poultry, processed vegetables, dairy products, and beef, among other products.

“Raw materials and intermediate goods imports, including food and beverage ingredients, continue to form the largest share of the Philippines’ total imports,” the report read.

Supply disruptions caused by the conflict in the Middle East are making shipments of these products more costly, prompting local importers to reconsider supplier options.

The USDA said this places US exporters at a “competitive disadvantage” due to higher transportation costs and longer logistics lead times compared to neighboring exporters within Asia.

This is on top of generally higher tariffs imposed on American products compared to Asian alternatives due to the absence of a preferential free trade agreement.

Despite these hurdles, the USDA said American products remain attractive to Philippine importers due to their quality and consistency, as well as the trade servicing and technical training that US exporters provide.

Some local manufacturers are also eager to “develop products that mirror popular US trends by using US ingredients that emphasize health benefits and distinct product features,” the USDA said.

Based on estimates, the foreign agency said the country’s food and beverage manufacturing sales may increase by six percent this year. It did not provide comparative figures.

This growth would be driven by strong performance from the country’s leading manufacturers, supported by government measures to ease logistics and fuel costs.

“However, rising production costs, weaker remittances, and faster food ingredient price inflation will strain household budgets and limit consumer spending,” the USDA said.