Sugar crunch complicates pandemic recovery for Philippine confectioners

MANILA, Philippines — The pandemic’s onslaught is not yet over but the country’s confectioners and sweetened beverage makers are already bracing for the sour aftertaste of an ongoing sugar crisis.

When the government imposed harsh lockdowns at the height of the pandemic, demand for candies, chocolates, biscuits and other goodies sagged after schools were shuttered while families tightened their spending.

But over 2 years later, demand has yet to return to pre-crisis level while a sugar shortage is dashing confectioners’ remaining hopes for a quick recovery.

“If nobody would help us, we would be at the mercy of suppliers,” Kissinger Sy, president of the Philippine Confectionery, Biscuit, Snacks Association (PCBSA), an industry group, told Philstar.com.

Sy said demand recovered during the election period since their offerings were a frequent sight in campaign sorties. But consumer appetite for local confections immediately dissipated after the polls as multi-year high inflation squeezed household budgets.

As it is, the threat posed by rising sugar prices on key food industries is adding to the headaches of the nascent Marcos Jr. administration, which came to office at a time rallying energy prices and supply chain disruptions are stoking inflation.

Sugary drinks take a hit

In the past years, the Philippines was able to satisfy local sugar requirements. In fact, yearly supply of the sweetener was enough that the country was able to export a portion of domestic production. However, a Duterte-era tax law that imposed excises taxes on drinks containing high fructose corn syrup (HFCS) triggered a surge in demand for domestic sugar, as large sweetened beverage companies avoid the higher taxes.

The spike in demand caused by the tax changes has shaken the domestic sugar sector since then, but the shock became more pronounced in the past few months when sugar prices soared beyond P100 per kilogram in wet markets and grocery stores. 

This was after the local sugar industry missed its production target due to strong typhoons and high input costs, while the implementation of an importation order meant to bridge the supply gap was delayed.

In a joint statement, Coca-Cola, Pepsi and RC Cola said that they, too, are experiencing production woes amid the sugar shortage.

"We confirm our industry is facing a shortage of Premium Refined Sugar – a key ingredient in many of our products," the companies said. "We are working closely with other stakeholders of the industry and the government to address the situation."

In a report released last April, the US Department of Agriculture (USDA) said it forecasts Philippine sugar production to fall to 2 million metric tons (MT) for marketing year 2023 (September 2022 to August 2023) due to expensive fertilizer and fuel, which is used in sugar mechanization activities.

To bridge the shortfall, the Philippines is forecast to import 275,000 MT of sugar in the same marketing year, up 175,000 MT from the previous year, the USDA said.

The importation problem

The Philippines is not a regular sugar importer and only allows inbound shipments of the commodity when the government declares a shortage. Government data showed sugar production in the first quarter of 2022 slid down 10.1% year-on-year to 10.46 million metric tons.

Over the weekend, President Ferdinand “Bongbong” Marcos Jr., who heads the agriculture department for now, said the country might import 150,000 metric tons of sugar in October should supplies dwindle. 

The volume that Marcos mentioned was lower compared to the “illegal” Sugar Order No. 4 that would have allowed the purchase of 300,000 metric tons of sugar from abroad. That document was uploaded on the website of Sugar Regulatory Administration but Marcos denied signing the order.

READ: Marcos rejects proposal to import more sugar | Sugar administrator resigns following import mess

“Although we agree with Marcos' focus on agricultural productivity, we recognize that results will take time and sometimes government needs to resort to short-term solutions to address these challenges, especially if it affects a greater number of Filipinos,” Domini Velasquez, chief economist at China Banking Corp., said.

For Sy, the president of PCBSA, the 150,000 MT of sugar that Marcos plans to import might come too little, too late.

He explained that the plan to allow inbound shipments of sugar in October would coincide with the harvest season, and a large drop in local sugar prices could trigger angry responses from Filipino sugar farmers.

At the same time, domestic confectionary products are 50% to 80% sugar, so there might be a need for bigger import volume to help the industry. PCBSA’s ranks are mostly composed of small players, with less than a third of membership hailing from bigger firms like Gokongwei-led snack maker Universal Robina Corp.

“The best time to import would have been in June, July and August when the sugar mills are closed… We’re hoping for 300,000 MT. Even 200,000 MT would be okay,” Sy said. “From our perspective, the government needs to maintain a careful balancing act.”

“Many members cut back on production volumes…The challenge is we can’t afford to stop. Maybe we can reduce volume. The big industry players stayed afloat since they have diverse business interests,” he added.