Keeping
sugar sweet
The
Philippine Star
08/15/2003
A couple of
years back, low sugar output, the downtrend in world market prices,
and the influx of cheap, smuggled sugar, along with scarce bank
financing, took its toll on local sugar industry, and sugar millers,
in particular, were even considering selling out or closing shop.
These days however,
world sugar prices are going up anew, and domestic sugar producers
and millers are enjoying a resurgence of sorts.
The country’s
sugar production for crop year (CY) 2002-2003 ending this August
is expected to hit a 10-year production high of 2.13 million metric
tons (MT), making the Philippines self-sufficient for the first
time in more than a decade. This CY’s sugar output is 12.7
percent higher than CY 2001-2002’s 1.89 million MT– more
than enough to meet domestic requirements and its export commitments
under the US sugar program.
And if the trend
continues, the country will regain its status as a net sugar exporter,
and it should start scouting for other export markets aside from
the United States. The Philippines has been exporting sugar to the
US for many years under a tariff rate quota system and has been
receiving a premium price for its produce compared to the world
market price.
With
Sweet Good Life, Investments Pour
Indeed, it looks
like happy days are back. And it looks like the industry –
largely based in Negros – has learned from its mistakes and
has found a way to break that feast-and-famine cycle that had the
industry dependent for a long time.
Unlike before
when wealthy sugar families maintained high-living lifestyles while
neglecting to modernize their operations, the new generation of
millers are conscious that the sweet good life from sugar could
turn sour.
Some of the
country’s major sugar mills in Negros have started to undertake
rehabilitation and modernization projects. And new investments have
been noted in other areas such as in Bukidnon and Leyte.
Even Lucio Tan
has gotten into the fray with the recent takeover of Victorias Milling
Co., the biggest sugar milling company in Negros Occidental. The
company is undertaking a P500-million rehabilitation plan.
Sweetening
The Pot
Bolstering these
private sector initiatives is the implementation this year of a
Philippine sugar industry five-year action plan worth P34.4 billion.
The sugar plan
will be bankrolled mainly by the private sector with about five
percent of total program cost coming from direct government financing
of programs such as sugar roads, research and development, and training
and education
A major investment
program would be the upgrading and rehabilitation of the sugar mill
sector involving 28 mills that will require P24 billion. Once these
mills are set on stream, milling recovery rate – currently
averaging 80.68 percent in the Philippines – will approximate
the world average of 85 percent.
Investments
in production would total P15 billion, raising yield from the present
59 tons cane per hectare to 75 tons per hectare, while investments
in mills and other facilities and infrastructure will increase recovery
from 1.6 to 2.2 bags per ton cane.
Playing
Well The Us Sugar Quota Game
These grand
plans however should be closely attuned to external developments
to ensure such efforts won’t go down the drain. For instance,
the US Congress last year approved the Agriculture, Conservation,
and Rural Enhancement Act of 2001, or the Farm Aid bill, that strengthens
safety nets for US agricultural producers.
A provision
in the bill calls for the US government to reallocate any original
allocation for a particular year unfilled by any of the sugar supplier
countries in the quota system. This guarantees that US sugar refiners
get their raw sugar requirements.
The Philippine
sugar industry should be working overtime so that its major market
– in fact, its only market – is assured. It cannot afford
to lose the premium price it is enjoying for their shipments of
about 18 to 20 cents per pound, compared to the eight to 11 cents
prevailing in the world market.
Likewise
The WTO Game
The domestic
sugar industry should also shape up faster if it intends to become
competitive in the global market. While it has gotten a 10-year
reprieve from the ASEAN Free Trade Agreement to bring down tariff
walls, such is not the case with the World Trade Organization (WTO).
In the WTO’s
Uruguay Round, the Philippines committed to reduce tariffs of imported
sugar by 50 percent next year. In contrast, other sugar-producing
countries, committed to reduce sugar tariffs by next year by a maximum
of only 13.6 percent.
Clearly, there
is an advantage for foreign producers who can export their sugar
to the Philippines. Local producers, on the other hand, are discriminated
against because higher tariffs will be levied against their sugar
when imported by these countries.
Staying
Sweet And Competitive
Despite pronouncements
advocating free trade, countries like the USA continue imposing
measures to protect its own industry. Thus, distorted trading rules
will still abound. In the end, what will really matter is if the
Philippine sugar industry can remain sweet and competitive in the
rough seas of international trade.
This is attainable
only if government addresses basic logistic infrastructure needs
and sets in place responsive and stable policy environment. And,
more important, if those in the sugar sector – in response
to better policy environment – continue to plow back earnings
for more productive investments instead of reverting to the old
habits of high-living lifestyles.
TOP
| 
