Government’s move to import duty-free 150,000 metric tons (MT) of sugar to supposedly mitigate soaring local prices may cause more harm than good for end-consumers as it encourages further speculation in supply and prices in the domestic market.

The importation implies a situation of tight domestic supply and reliance on the world market where prices are skyrocketing. This provides more fertile ground for traders to exploit and further jack up local prices. However, what government does not mention is that while it is scrambling to import expensive sugar, it is also committed to export about 158,906 MT of sugar to the US this year under a quota system.

Thus the simple question is: Why will we need to import to stabilize local supply and prices and yet export sugar to the US instead of ensuring our own needs?

Historical sugar supply and demand in the Philippines clearly indicate that we do not face an actual deficit that could justify the price hikes. The only plausible explanation behind the sudden and steep hike in sugar prices is speculation and hoarding by traders who benefit most from high sugar prices.

Price increases

As of January 30, 2010, the prevailing retail price of refined sugar in Metro Manila is P54 per kilogram (kg) and brown (raw) sugar, P44, according to a price bulletin issued by the Bureau of Agricultural Statistics (BAS). For the whole January, the BAS has monitored five rounds of increase in sugar retail prices that hiked prices by a total of P8 per kg for refined and brown sugar.

The frequent and unusual price increases in sugar retail prices was observed to have started in the last week of November 2009. It has soared since then by P14 per kg for refined sugar and by P12 for brown sugar. Prior to that, the last monitored increase was in mid-October by P2 per kg. Before that, prices have remained steady for almost nine months (February to October). (See Table 1)

Table 1. Retail* price of sugar in Metro Manila, for the dates indicated (in P per kg)
Week monitored	Refined sugar	Brown (raw) sugar
February 7, 2009	36	30
October 15, 2009	38	30
November 21, 2009	40	32
November 24, 2009	42	34
December 8, 2009	44	34
December 22, 2009	45	34
January 5, 2010	46	36
January 9, 2010	48	38
January 12, 2010	50	40
January 19, 2010	52	44
January 30, 2010	54	44
* Monitored retail prices in Obrero Market, Guadalupe Market, Malabon Central Market, New Muntilupa Public Market, Susano Market, Pasay Public Market, Mutya ng Pasig Public Market, Quinta Public Market, Sangandaan Market and Trading Center, and Marikina Market Zone As monitored and compiled by the Bureau of Agricultural Statistics (BAS)

Sugar Regulatory Administration (SRA) head Raphael Coscolluela said that retail prices are increasing due to increasing mill gate buying price, which in turn is supposedly based on world prices. Global prices are increasing, on the other hand, because of a shortage of 9-13 million tons in the world market. For the last two years, Coscolluela explained that sugar production worldwide, including in the Philippines, had gone down due to bad weather, low prices, and high cost of inputs.[1]

Data from the Food and Agriculture Organization (FAO) show that the annual sugar price index in 2009 rose to 257.3 from 181.6 in 2008 and 143 in 2007. It rose sharply in the latter part of last year, reaching 334 in December from a monthly price index of only 177.5 in January and 233.1 in June.

No justifiable reason

There is no justifiable reason for local sugar prices to increase due to increasing global prices. The Philippines is not highly dependent on imported sugar and in fact, is a net sugar exporter.

Available production and consumption (or withdrawals, which also include those for export) data on raw and refined sugar covering crop years 1987-88 to 2008-09, as compiled by the Philippine Sugar Millers Association (PSMA), show that in 22 of these years, deficit in supply and demand/withdrawals occurred seven times – in 1994-1995, and from crop years 1996-97 to 2001-02. But of these seven instances of “shortage”, five can be considered artificial.

Note that the country also continued to fulfill its export commitments to the US and other countries during these years of deficit. If exports to the US were deducted from the deficits, actual shortfall will only be in two crop years – 1998-99 and 1999-2000 – following a major and prolonged El Niño episode in 1997-98. (See Table 2)

Table 2. Summary of Philippine sugar (raw and refined) supply and demand balance, Crop years 1992-93 to 2009-10 (in MT)
Crop years	Balance	Exports		Balance without US exports
		Total	US
1992-93	402,521	296,172	170,017	572,538
1993-94	53,010	303,525	143,186	196,196
1994-95	(137,519)	167,144	167,140	29,621
1995-96	17,523	256,101	256,102	273,625
1996-97	(126,840)	277,736	294,497	167,657
1997-98	(112,406)	222,304	222,304	109,898
1998-99	(191,669)	157,943	157,943	(33,726)
1999-00	(344,882)	101,999	101,999	(242,883)
2000-01	(86,856)	99,839	99,839	12,983
2001-02	(37,181)	84,283	84,283	47,102
2002-03	125,194	153,533	153,533	278,727
2003-04	315,385	213,053	213,053	528,438
2004-05	148,041	283,076	283,076	431,117
2005-06	209,617	238,446	238,446	448,063
2006-07	339,352	218,977	218,977	558,329
2007-08	474,846	172,672	172,672	647,518
2008-09	165,187	57,885	57,885	223,072
Source of basic data: Philippine Sugar Millers Association (PMSA)

Philippine sugar exports go to the US market under its Tariff Rate Quota (TRQ) system. This system sets the specified volume of raw cane sugar that the US will allow to enter its market at a relatively low tariff as part of its commitment under the World Trade Organization (WTO) Uruguay Round agreements.

For 2010, the US Trade Representative (USTR) is allocating 142,160 metric tons raw value (MTRV) or about 158,906 MT of raw cane sugar to the Philippines. It is the third biggest allocation out of 40 countries (accounting for 12.7 percent of the total) granted with quota, behind only the Dominican Republic and Brazil, under the US’s TRQ system.[2]

El Niño, biofuels

Official data, however, also show that in the last crop year (2008-09), raw and refined sugar production declined by 3.56 million MT or about 13 percent. Another year of lower production this year due to the expected El Niño could put the country in a similar situation in the 1998-2000-period, government officials and industry players said.

While production in 2008-09 did fall, the country still managed to post a surplus of about 165,187 MT of raw and refined sugar in that crop year. This surplus had already taken into account the country’s quota exports to the US of 57,885 MT in 2008-09. If we did not export to the US, the surplus would reach 223,072 MT. (See Table 2)

There is no official estimate yet on how big the impact of this year’s El Niño on the sugar industry will be. Large sugar players though are reporting production decline and anticipate further plunge. Victorias Milling, for instance, said that its production already fell by 18 percent last year and may again decline this year due to extreme weather events.[3]

Aside from El Niño, another source of pressure on local sugar production and supply is the competition from biofuels. The diversion of cane from sugar millers for the production of ethanol means less available sugar for the country’s food requirements. Republic Act (RA) 9367 or The Biofuels Act of 2006 mandated a 5-10 percent ethanol blend for gasoline products sold in the country.

Best safeguard

But at this point, everything is still speculative. And the best safeguard that we have against threat of lower production is not the importation of expensive sugar but an immediate halt to exportation, in particular to the US. This is justified by our food security interests. During the height of the global rice crisis in 2008, major rice exporters such as Thailand and India suspended exports. The SRA simply needs to fulfill its mandate of regulating sugar export to ensure domestic supply.

For the surging prices, government must impose a price ceiling and not simply a suggested retail price (SRP). Sugar, as a basic necessity, is among the products covered by RA 7581 or the Price Act of 1992. At present, the government’s SRP of P54 per kilo reflects the massive speculation in sugar prices and thus unreasonable. The sugar imports, at best, could only bring down prices to a still inflated P48 per kilo.[4]

A more rational retail price should be about only P42 or the prevailing price in Metro Manila in the last week of November, based on the assumption that the steep increases in prices since December are speculative and not justified by the supply-demand balance and changes in production costs. This must be accompanied by a serious crackdown not on small retail outlets but on the largest private sugar traders that hoard supply.

Another policy move in relation to supply should be the review of the biofuels program. RA 9367 itself provides for a review by the National Biofuel Board (NBB) of the supply of locally-sourced biofuel feedstock such as sugar cane and make necessary adjustments in the biofuel blend. Even before the recent surge in sugar prices, the local sugar industry could supply only about 79 percent of RA 9367’s minimum requirements (i.e. 5 percent ethanol blend).[5] Surging food prices, on top of land reform and environmental issues, must pressure policymakers to reconsider the country’s biofuels program and correct a policy that further undermines local food production.

Private traders, of course, want to take advantage of high global sugar prices and would rather export their commodity for larger profits. Or some commercial planters may want to sell their produce to ethanol plants that offer a bigger margin. Neoliberal thinking dictates that this must be allowed so that market forces can determine the best value of a commodity. But at the receiving end would be the ordinary people who will be forced to contend with high and increasing prices and at the same time the direct producers of sugar – the poor farm and factory workers – who continue to receive depressed wages amid soaring market prices.

Sources

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[1] GMA News website, “Sugar prices may go up P54/kilo in February”, January 26, 2010, http://www.gmanews.tv/story/182452/sugar-prices-may-go-up-to-p54kilo-in-february

[2] US Trade Representative website, “USTR announces FY 2010 Tariff-Rate Quota allocations for raw cane sugar, refined and specialty sugar, and sugar-containing products”, http://www.ustr.gov/about-us/press-office/press-releases/2009/september/ustr-announces-fy-2010-tariff-rate-quota-allocat

[3] Manila Times website, “Domestic sugar output to plunge further”, January 28, 2010, http://www.manilatimes.net/index.php/top-stories/10471-domestic-sugar-output-to-plunge-further

[4] GMA News website, “Agri dept expects imports to bring down sugar prices to P48/kilo”, January 29, 2010, http://www.gmanews.tv/story/182730/agri-dept-expects-imports-to-bring-down-sugar-prices-to-p48kilo

[5] Arnold Padilla, “Pro-Arroyo landlords in Congress to reap profits from Biofuels Act”, IBON Features, published by Bulatlat.com, Vol. VII No. 3, February 18-24, 2007, http://www.bulatlat.com/news/7-3/7-3-biofuels.htm