US increases sugar quota of RP

The United States wants to import more raw sugar from the Philippines this year due to a drastic drop in US sugarcane crops caused by three hurricanes.

The US Trade Representative’s Office informed the Philippine government that it is increasing the Philippines’ 35,000-metric ton raw sugar share in the US tariff rate quota (TRQ) given in October last year by an additional 37,037 tons. The US pays a premium for the sugar it imports under the TRQ.

A volume of 272,155 metric tons was added to the US TRQ, bringing the US‚ 2006 raw sugar importations to 1.5 million metric tons. The US has also increased the refined sugar TRQ by 150,000 short tons, bringing the total refined TRQ to 232, 815 ST.

Industry experts noted that huricane damage assessment has not been completed and there is still a chance that the US raw and refined tariff rate quotas may still increase.

For many years now, the Philippines has enjoyed the third biggest share of US raw sugar imports under the latter’s TRQ system. Of the additional, 272,155 MT raw sugar imports by the US, the Philippines has a 37,306 MT allocation, next only to the Dominican Republic and Brazil which have allocations of 48,286 and 37,781 metric tons, respectively. Australia has the fourth largest share with 22,771 MT.

According to US Trade Representative Rob Portman, these allocations are based on historical shipments to the US. After the hurricanes, the NAFTA (North American Free Trade Agreement) countries particularly Mexico and those of the CAFTA (covering Central America) were also given additional access to the US sugar market.

The initial allocation of 35,000 metric tons raw sugar importation from the Philippines was placed by the US ahead of hurricanes Katrina and Rita. However, it turned out that the two hurricanes, plus Wilma which came later, had damaged US sugar crops more heavily than expected.

The Philippines’ Sugar Regulatory Administration (SRA) has already increased to 10 percent the share of domestic sugar production that will be allocated for sale to the US market.

"We are prepared to service a major traditional trading sugar partner," SRA Administrator James Ledesma said, as he emphasized that the US market is a premium market and fetches a higher price.

According to latest reports from the US Department of Agriculture, the estimated US domestic sugar production for 2005-2006 has been reduced by 75,000 short tons to 7.593 million ST, with most of the reduction coming from a 137,000 ST drop in the Florida cane crop. The revised US production estimate is significantly lower than its 2004-2005 output of 7.877 million ST and that of 2003-2004 of 8.65 million ST.

The unpredictability in world sugar output has sent world market prices soaring. Thailand, the world’s third largest sugar exporter, also projects lower production this year as a result of the 2005 drought that hit the country that has weakened Thailand’s sugar crop and reduced supply.

Thai Prime Minister Thaksin Shinawatra has said that "we are facing an inadequate supply of sugarcane for the mills, resulting in a shortage of sugar for domestic production." However, the Thai government has yet to lift price controls on domestic sugar prices, resulting in its sugarcane planters threatening to stop delivering cane to mills unless government floats the price. Thailand exported two million tons of sugar to the world in 2005, behind Brazil and Australia.

The controlled price in Thailand has also led to smuggling to neighboring countries where the commodity sells for up to 50 percent more.

Meanwhile, in the Philippines, sugar millgate prices continue to rise, partly due to speculation on the tightness of supply and to reports about increased US demand. Despite the release of part of the "C"or reserve sugar, prices remained high, a development that is benefiting local sugar farmers, according to Rey Bantug, national president of the Confederation of Sugar Producers Associations (Confed), the country’s biggest aggrupation of sugar farmers.

Unfortunately, production cost remained high due to high cost of inputs is preventing farmers from completely recovering fro past losses and from profiting from the high prices. Local farmers are still optimistic that Congress will finally approve the proposed National Bioethanol Program bill that will give sugar farmers an additional use for their output.

Sugar production in the Philippines is classified as "A" or US sugar, "B" or domestic sugar, "C" or reserve sugar, and "D" or world market sugar although one classification may not exist in a particular cropyear depending on supply and demand. Right now, domestic production is allocated into 10 percent "A", 70 percent "B", and 20 percent "C". The segregation of a certain portion of the raw sugar produced during the peak months as reserve is necessary to ensure stable prices at levels reasonably profitable to producers and fair to the consumers, Ledesma explained.

In some mills, "B" sugar was being sold at P1,097 per 50-kilo bag (Lkg) and "A" at P1,098.92 per Lkg.

The SRA estimates sugar production for the current cropyear 2005-2006 to reach two million metric tons, or lower than the earlier estimate of 2.01 million MT. Importation however is being ruled out because of the current high cost of imported sugar.