The Philippine sugar industry

According to IDEA’s Industry Trends, one of the many publications of the Institute for Development and Econometric Analysis, Inc. (IDEA), it reported that dwindling supply and rising demand have shaken the domestic and international sugar industry early this year.

As a result, world prices have skyrocketed to more than double their levels in the previous year. The reported tightness in supply has created much fuss due to its significance in the food industry.

The Philippine government, for one, has ordered tax expenditure subsidies to ease tightening domestic supply. The government has also released Sugar Orders (SO) that allow the conversion of “C” sugar (or reserves) into “B” (or for local consumption). Still, the government cannot just forego the attractive export market; the government has opted to import—Executive Order 857 allows the National Food Authority (NFA) and private sector to import sugar at zero tariffs—rather than cut the supply allocated for exports in order to exploit high sugar prices.

On the other hand, there are claims that the country has sufficient domestic supply suggesting the importation is uncalled for and is actually damaging to the local sugar industry. As defined in the 1994 Philippine Standard Industrial Classification code, the sugar industry covers 4 sectors: sugar milling; sugar refining; manufacture of muscovado sugar not carried on in the farm; and manufacture of sugar, not elsewhere classified. The industry also involves the production of cane or beet sugar, manufacturing raw cane sugar and syrups, as well as molasses production.

Since 2003, the country has been self-sufficient and a net exporter of sugar. Sugar output for crop year (CY) starting September 2009 is anticipated to amount to 2.16 million tons, although exports may drop to 143,000 tons. For the preceding crop year, the country exported 219,132 tons of raw sugar to international markets including the US. The country follows an import quota system in trading with US. In response to the tightening domestic supply, Executive Order (EO) 857 was approved by the end of January this year.

The EO authorizes the NFA and the private sector to import sugar at zero tariff and pay service fees to NFA. The tax expenditure subsidy (TES) is the government solution to satisfy the domestic demand. The EO 857 works through the TES, which is estimated to reach more than PhP2.10 billion.

Meanwhile, another method of boosting local supply is through converting reserve class sugar (C) into sugar for domestic consumption (B). Two Sugar Orders (SO) have already been released: SO 6 and SO 4 is said to have freed 15,000 tons and 11,622 tons, respectively, of reserve sugar to the local market.

For CY 2006—2007, the volume of imports amounted to only 909 metric tons. This year, however, imports are seen to increase to supplement domestic supply. For this year, the country is expected to import 150,000 metric tons of sugar, three times the earlier estimate of only 50,000 metric tons.

The sugar crisis is deemed as an international issue. India is expecting a shortage of 8 million tons; Pakistan, 1.2 million tons; and Indonesia, over 500,000 tons. It should be noted that the situation in the Philippines is still better than the other countries because there is no apparent shortage in production.

As of the start of February this year, the country has buffer stock of around 360,000 tons which is expected to be enough until the next planting season, according to IDEA’s published report.

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