The Sugar Regulatory Administration (SRA) has endorsed to President Arroyo the request of the Confederation of Sugar Producers Association (Confed) to classify at least 10 percent of the sugar production for cropyear (CY) 2004-2005 as "C" or reserve sugar, the release will entirely be at the discretion of the SRA.
The critical feature of the bailout plan is the request to authorize the National Food Authority (NFA) to allocate a budget of P1 billion which it will use to buy the reserve sugar and mop up excess supply from the sugar planters and millers.
In the previous CY of 2003-2004, the NFA rescued the sugar producers and spent P1 billion to buy the surplus production when millgate prices plunged to an average P740 per 50-kilo bag. The sugar cropping season starts in September and ends in August of the following year.
SRA Administrator James Ledesma said that local sugar harvest for CY 2003-2004 hit a record high of 2.4 million metric tons (MT), breaching the target of 2.3 million MT. On the other hand national sugar consumption is only 2.05 million MT.
Currently, the sugar inventory at the start of CY 2004-2005 is already at the level of 450,000 MT while the industry’s targeted production was set at 2.28 million MT, fueling apprehensions by local sugar producers and millers of another price fallout if the country fails to dispose surplus production.
"The industry is just trying to preempt what happened last year, they are moving early in anticipation of another good crop where surplus production would be at the level of about 100,000 metric tons," said Ledesma.
Domestic sugar prices currently average P790, per 50-kilo bag, 6.7 percent higher from last year’s level of P740 per kilo. Ledesma said P790 is a good price, but it is still below the peak price of about P840 per kilo in 2002.
At the same time, production costs have gone up along with the escalating oil prices. Ledesma said the cost of producing a 50 per kilo bag of refine sugar now cost P720, up from P700 a yearago.
"Current millgate prices are expected to go down further as the volume of production increases when all the mills are already operating. Also, millgate prices are approaching the benchmark on the cost of production and is expected to go lower than production cost," said Confed in a statement.
Confed said it needs government’s help to mop up excess production and allow them to continue being viable.
The industry is exploring other options such as selling to the world market, but prices are not as attractive as the US market where the Philippines has an annual sugar export allocation. For 2005, the US granted the Philippines a sugar export quota of 142,000 MT. The export volume given to the Philippines for 2005 is slightly higher from this year’s allocation of 137,352 MT and is the third highest allocation by Washington as part of its commitment to support developing sugar-countries.
Sugar industry officials said producers and traders will have to work harder to find new markets for the excess production because another bailout by the government will be difficult as the latter is struggling to rein in its bloated budget deficit.