Whether done on an emergency basis or not, an importation is undertaken on either one of two bases. One is supply-side basis, and the other is a demand-side basis.
The importation of 200,000 MT (metric tons) of sugar—100,000 MT for bottler’s grade refined sugar, 50,000 MT of standard-grade refined sugar and 50,000 MT of raw sugar for direct consumption—under Sugar Order No. 10 of the Sugar Regulatory Administration is being justified, incredibly, on both a supply-side and demand-side basis. The supply-side explanation is being offered by the SRA and its mother institution, the Department of Agriculture; the demand-side explanation is being offered by the sugar-consuming industries, especially PCBSA (Philippine Confectionery Biscuits and Snacks Association).
SRA and DA are insisting that there is no shortage of domestic sugar. “There is enough supply,” they say. If prices have continued to rise, it is because of “unreasonable speculation,” they insist. In support of their contention, they point to the fact that as of May 6, 2018 the Philippine sugar industry had already produced 1.92 million MT of sugar, which is just 340,594 MT short of the national production target for crop year 2017-2018, which will end on Aug. 31. “The importation is [intended to] make sure that sugar supply is more than enough to discourage unreasonable explanation,” a member of the SRA Board has declared.
The industrial consumers—the demand side of the equation—do not agree with the position of the SRA/DA. While they accept the official production data, they maintain that adequacy of domestic sugar is not the issue. The issue, they say, is the price of that sugar.
The PCBSA folk point to the rise in the price of raw sugar, between September 2017 and June 2018, to P2,200 per 50-kilogram bag from P1,564 and in the price of refined sugar, during the same period, to P2,900 per 50-kg bag from P2,016-P2,040.
If, as it claims, there is no shortage of domestic sugar—he stock of raw sugar as of the date of the Sugar Order was 602,393 MT—why did the SRA/DA approve the importation of 200,000 MT? The answer is to be found in the data stated above.
Domestically produced sugar is far more expensive than foreign sugar, e.g. Thai sugar. As of today, the price of domestically produced sugar is close to 200 percent higher than the prices of foreign sugar, PCBSA laments.
Why does Philippine sugar cost so much more to produce than foreign—for example, Thai-sugar? There are a number of cost factors. Labor is one; Filipino workers are paid more than other Southeast Asian workers, thanks to this country’s agricultural minimum wage law and other laws providing non-wage benefits to agricultural workers. The higher cost of energy is another factor. The Philippines already had one of the highest energy costs in East Asia, and the additional tax on fuel imposed by TRAIN (the Tax Reform and Inclusion Law) has had a severe impact on the production costs of Philippine sugar-producing establishments, especially the centrals (mills). Stated simply, Philippine sugar production has become uncompetitive.
Faced with the need to keep their operations profitable, domestic industries that consume sugar—e.g. the beverage industry—have no choice but to explore possibilities of obtaining lower-priced supplies. That means imports. I cannot tell if it is an exaggerated figure, but the domestic confectionery industry claims that it will lose P8.5 billion worth of revenue if they will continue to source their sugar requirement domestically.
Back to Sugar Order No. 10. Was the Order issued because of domestic-supply inadequacy? The answer is no; the SRA and DA have presented statistical data indicating that there are production flows and stocks sufficient to keep the industrial consumers supplied with their sugar needs. Haven’t these two agencies stated that it is only “unreasonable speculation” that is continually driving prices upward?
The issuance of the Sugar Order was demand-driven, and price was the issue. SRA and DA were forced to allow the 200,000-MT importation because of the clamor of the PCBSA members and other industrial consumers for lower-priced sugar. If domestically produced sugar is uncompetitively priced and lower-cost foreign supplies are available, this country’s industrial consumers will seek imports. The authorities had no choice but to approve the importation if they wanted to avoid dislocation in the industrial sugar-consuming community.
In economic theory what is really at issue where the Philippine sugar industry is concerned is uncompetitiveness, and that is the result of inefficiency. Once a major player in the world sugar market, the Philippine sugar industry has become an inefficient producer. So sad, but so true.
