In sum, sugar production is estimated to hit for Crop Year 2003-04 2.23 million metric tons of raw sugar. Meaning this year’s production is going to hike another 70,000 million Mts.
That’s a total of 14 percent production increase over the preceding year production. For the first time, last year, the country did not import sugar.
But the unprecedented hike was not matched by a corresponding hike in demand. Although the Christmas season reportedly should have stimulated sugar consumption, it seems the right money situation has not affected increased demand for sugar-based products.
Thus, the industry’s success spawned the problem of low domestic millgate prices. Worse, the prices dipped at the time when the mills have been churning out a record volume of sugar.
Romy Cortes, president of the Sagay Central in northern Negros Occidental, chortled that "even when it has been raining hard, the sugar content of sugarcanes remain very high."
That, to a certain extent, is a tribute to the Philippine Sugar Research Institute Foundation (Philsurin), the Sugar Regulatory Administration, and the mill district development councils (MDDC) which helped come and distribute higher-yielding sugarcane varieties.
The mills, on the other hand, also invested billions in upgrading their mill facilities and equipment, increasing their milling efficiency.
Last year, even SRA Administrator James C. Ledesma was surprised by the phenomenal hike of sugar production by 11 percent. This year the increase continued, triggering the crisis.
Demand, on the other hand, slackened by eight percent.
Negros Occidental Governor Joseph Maranon raised the alarm. He has reason to. At the start of the milling season, sugar prices were between P830 per 50 kilogram bag (LKG). This slipped down to only about P707 LKG by last week.
Since sugar account for 85 percent of the provincial gross domestic production, the loss amounts to a staggering sum for the province and hits the pocketbooks not only of farmers but also sugar workers.
He cited the following factors that contribute to the continuing drop in sugar prices:
Aside from surplus production against a dip in consumption, there is also the forward-buying pattern adopted by industrial users. In short, industrial buyers purchased sugar volumes way ahead to supply them for at least six months.
Smuggling, on the other hand, has also been blamed because of the low world sugar prices. This makes it attractive to bring in foreign sugar. But, so far, the Anti-Smuggling Task Force has not come up with substantive evidence of sugar smuggling. The only apprehension reported by the task force was the 168 bags of sugar seized from a kumpit in Zamboanga.
Sugar traders explained that the replenishment of A sugar from B quedans will be bought at a lower price, pointing out that the freight cost to the US has gone up from $37/Mt to $60/Mt.
Aside from less consumption because of the economic doldrums and a change in buying patterns, there is also the entry of sugar-containing products.
Another is the health issue which hammers on the myth that sugar causes diabetes. Thus, there has even a shift to artificial sweeteners despite medical evidence blaming aspartames for the rapid increase in some diseases.
Because of the continued slide of the peso versus the dollar, traders shifted investments in dollar speculations.
Another is the Bureau of Customs acknowledgment of leakage of imported sugar (tax free for food processors) to the domestic market from BOC bonded warehouses.
The more important factor are the new Bureau of Internal Revenue rules and regulations on the collection of taxes which prompted sugar traders to hedge in their buying.
In short, it is now a buyers’ market, a situation that tends to induce a slide in prices.
The Sugar Alliance recommended that SRA allocate a portion of the estimated production to "D" sugar, or world sugar. It was pointed out that shipping out to the world market part of the domestic production will perk up competition among the traders for the remaining supply available.
True, "D" sugar prices are low, Still, it was argued that the reduction in the domestic supply will impact on the "B" (domestic) sugar and prop up the composite prices of sugar at millgate.
Thus, SRA issued Sugar Order No. 1, to wit: A, 4.0 percent; B, 91.5 percent; B1, .5 percent and D, four percent.
"D" sugar amounts to 89,200 metric tons of the country’s estimated 2.230-million Mts.
The mathematical computation by the SRA shows that we shall also be shipping out 137,000 mts of "A" sugar. This is our share of the US Sugar quota.
Thus, as estimated by statisticians of the sugar body, according to Ledesma, by the end of the crop year, we shall have an estimated balance of 114,300 Mts. less than a month’s supply requirement.
The problem, however, is that it is perception that is the controlling factor in prices. The prevailing impression is that there is more than enough sugar and traders, processors and end-users could just get any volume they need anytime they need it.
Because of this prevailing perception, trading was slugging. The volume traded was just enough to cover a week’s supply requirements," pointed out Ledesma.
The problem has been compounded by the pressure on producers to sell their sugar. Correspondingly, the millers also need cash flow to fund the milling operations. The farmers need money to finance their harvesting, hauling and replanting operations.
If the "D" sugar were sold now, the current spot price of P4.70 cents per pound means we would only be selling our world sugar stocks at P80 per LKG.
But the industry decided to sell by March futures which could by then raise the price to about P270 per LKG, already considered a good price.