Based on the Sugar Regulatory Administration’s (SRA) production growth targets, sugar production next year is expected to hit 2.26 million metric tons (MT) and 2.38 million MT in 2005.
This will mean a surplus of 30,000 to 90,000 MT in 2004, and 100,000 to 110,000 MT by 2005.
Sugar consumption, which this year is seen to reach 1.97 to 1.99 million MT, will increase to 2.06 million MT and 2.14 million MT in 2004 and 2005, respectively. These figures include the country’s yearly exports to the US of 140,00 MT.
For cropyear (CY) 2002-2003 which ended last month, local sugar production reached 2.158 million MT, making the country self-sufficient in sugar again. The last time this level of production was achieved was in 1983-1984 when production hit 2.34 million MT.
Agriculture Secretary Luis Lorenzo Jr. said surplus production will affect prices down the road.
"How far the prices will go down given the projected surplus is difficult to say at this point. The question is whether prices can be maintained to the extent that producers will still realize a profit margin," noted Lorenzo in last week’s annual convention of the Philippine Sugar Technologists Association (Philsutech).
Lorenzo said some of the more efficient producers can survive a surplus situation, but smaller farmers and inefficient producers will have difficulty coping with the situation.
"The mills will also be affected. There have been some substantial investments in the mills lately in terms of capital expenditure. While lower mill gate prices may challenge some mills to continue upgrading their mills, they may also discourage most of them to put in additional investment," said Lorenzo.
The DA head noted that while the country is close to achieving surplus production, sugar planters will find it difficult to sell these in the world market because current production costs and pricing are still not competitive.
"If for example, world market prices of sugar remain at 6.5 cents a pound, the landed price of sugar would be about P520 per bag. Our selling price to the world market will be less than P400 per bag. We cannot sustain production and productivity at this price."
Local marketing experts in the mid-year conference of the International Sugar Organization (ISO) were predicting a medium-price range within the seven-cent level.
"The most optimistic projection given our current cost of production, is that we can reduce our cost from the current 14 cents to about 10 cents a pound. And it will take years before we can do this," said Lorenzo.
The DA chief urged the sugar industry to explore options for managing the projected surplus production to minimize the decline in prices and allow producers to continue being profitable.
Lorenzo said the industry could look into implementing measures such as the export-import scheme which would entail shipping surplus inventory to the world market during peak production period and bring back the volume when the milling season ends.
"The idea is to make the supply stable so that prices will remain stable. But the mechanics will have to be worked out, including Malacañang’s approval of tariff exemption for the import portion of the scheme."
Another alternative would be to establish barter or countertrade agreements with other countries.
"In a swapping scheme, we can arrange with sugar-importing countries like Indonesia which imports about one million tons of sugar yearly to trade their fertilizer to us," said Lorenzo.