US raises RP sugar quota by 21.7% to 173,000 tons

The United States Department of Agriculture (USDA) has raised the sugar export allocation of the Philippines by 21.71 percent to 173,025 metric tons (MT) of raw sugarcane for quota year (QY) 2006-2007.

"We have received official communications from the USDA about the increase in our raw sugarcane allocation. The increase shows the Philippines has remained a reliable sugar trading partner of the US," said James Ledesma, administrator of the Sugar Regulatory Administration (SRA).

Last year, the country’s raw sugarcane allocation was 142,160 MT. It could be recalled that from the initial allocation of 142,160.36 MT for QY 2005-2006, the US, on separate announcements, had increased the Philippine sugar allocation to a total of 224,012 MT.

The Philippines exports part of its sugar production to the US at premium prices under normal conditions. For many years now, the country has been enjoying the third biggest share of US raw sugar imports, next only to Dominican Republic and Brazil, under its tariff rate quota (TRQ) system.

USDA agricultural attaché Jude Akhidenor, in his letter to the SRA, said the QY 2006-2007 country-specific raw sugar quota is allocated based on historic trade shares.

He said that the early entry of the QY 2006-2007 raw sugar TRQ will be permitted beginning Aug. 7, 2006 and that there will be no shipping pattern restrictions on any country.

The SRA is still studying the overall situation before deciding on the allocation of "A" sugar (for US market) and the issuance of Sugar Order 1 for crop year (CY) 2006-2007 beginning Sept. 1, 2006.

At the same time, the SRA is also projecting a five percent increase in production for CY 2006-2007 or a total production of 2.24 million MT.

Ledesma said favorable weather, increases in area planted and adequate farm inputs all point to higher production.

He said this would allow the Philippines to possibly ship out to markets, other than the US, about 70,000 MT of surplus sugar next year.

Earlier, Philippine Sugar Millers Association (PSMA) executive director Jose Maria Zabaleta said sugar producers are gearing up for the export market next year on expectations of surplus production and favorable sugar prices in the world market.

Ledesma said producers are being encouraged to increase their hectarage, including planting on fringes of sugar and corn farms because of high sugar prices which are expected to be sustained in the next year.

He added that farmers are also increasing their agricultural inputs such as fertilizers and are investing in better high-yielding sugar varieties to take advantage of the steady rise in prices of sugar in the world market.

Zabaleta added producers are bullish about exporting sugar, specially with forecasts of global supply tightness and rising demand for ethanol for fuel that is seen to prop up sugar prices at the 15 to 18 cents per pound range in the next six to 12 months, as the major world sugar producers are not likely to recover from the previous year’s bad crop.

"Sugar prices will be sustained at 15 to 18 cents per pound well into 2007 because of various factors that are expected to have a significant impact on sugar price movements," said International Sugar Organization (ISO) senior economist Lindsay Jolly.

Zabaleta also attributed the high sugar prices to the increasing use of sugarcane as feedstock for ethanol production.

"For the first time, sugar prices are tracking oil prices. The continued rise in oil prices is prompting many countries to develop biofuels such as ethanol for energy and fuel purposes. Many of the world’s biggest sugar producers are now increasing their use of ethanol for fuel and energy and their local sugar production is kept for domestic consumption. This provides other producers like the Philippines the opportunity to go into the world market and actually enjoy favorable prices, unlike before when the likes of Brazil and Thailand dump sugar at below market costs," noted Zabaleta.

The rise in sugar prices is being fueled by concerns about the production output of the world’s largest sugar producers such as India, Brazil and Thailand.

India was hit by poor weather making it a net importer for the first time. Brazil also experienced drought and kept 65 percent of its domestic produce for ethanol production, while Thailand is also keeping its stocks

Aside from the bad weather affecting the world’s key sugar producers and exporters, rising oil prices are also having a direct impact on sugar prices as energy consumers look at ethanol as fuel substitute. The elimination of sugar export subsidies by the European Union starting this May as part of its commitment to the Doha Round of the World Trade Organization, will also influence sugar price movements.

The imminent decline in EU sugar exports would continue to keep sugar prices steady. The EU has been a stable exporter of around five million metric tons, exporting at times from four to six million MT since 1980. The EU was geared to supporting domestic production with surpluses exported to the world market. The world market was not that important to the EU but the EU was very important to the world market, because it exported more than 40 percent of its production in the world market.

The EU has committed to reduce its export subsidies and restrict exports to 1.3 million MT under its WTO commitment.

On the other hand, the rise in oil prices in the past two years have been matched in large part by the rise in the world price of sugar.

Jolly said sugar prices will remain "fundamentally bullish" due to expectations of a global deficit of about 2.2 million MT in the next year and expectations for large volume of cane to be processed into ethanol by Brazil given high oil prices.

"Exactly how much of Brazil’s forthcoming cane crop will be made into ethanol and how much into sugar, will be decisive for future developments of world sugar prices this year," said Jolly.