Liberalizing sugar trading

THE plan of the government to deregulate the trading of sugar has stirred the usual hornet’s nest in Negros. Several groups, from politicians to the usual vocal sectors, are shouting the same refrain – liberalization will be the death of the industry. They should have learned from Aesop’s fables about the boy who cried wolf.

Their reasons are similar. In truth, nothing new has been said. The protestations appear recycled. We need to get the facts right and emotions under control if we indeed want to save this industry. What is certain, however, is that the industry will not be the same again.

The industry had been raising this same end game scenario for decades, indeed since 1934, but as we can see the industry did not die although it contracted. The industry tapered off in spite of protectionism that has been the usual response of the government to the changing economic world. Political considerations were the fall back positions instead of changing and adapting to the new global and national realities.

Add the fact that the negative, albeit untrue, image of the industry in the general public mind has not changed and thus generating public support is cold and in some quarters even hostile. The attitude of top public officials indicates how they view the industry.

The regulation of the industry since 1935 has now reached the point when it is no longer relevant and in fact has become a bane to the industry as we shall present later. This is not a new idea but the earlier proposals were set aside as ridiculous when it could have triggered a reevaluation and change in the sugar trading system.

The government move will lift controls over importation of sugar in order to bring down retail prices not just table sugar but for all products with sugar ingredients, like bread, cakes, confectionaries, beverages, candies – you can name dozens more. Sugar is a vital food.

The problem with importation, according to the sugar producers, is that it is cheaper. Philippine sugar prices (Sugar Regulatory Administration data as of January 25, 2019) is P50 per kilo for retail; for whole sale, the price is P1,766,67 for raw and P2,100 for refined per bag of 50 kilos. The cost of a kilo raw then is P35.34, while that of refined is P42. The price difference between raw and refined goes to other costs such as handling, transport, financing, refining, management, repacking, system losses, taxes, etc.

You can deduce from these data the reality behind the charge against “unscrupulous traders”.

Our national production is declining. In crop year 2014-2015, total output was 2.323 million tons; the following year, it rose to 2.5 million tons then last year’s crop declined drastically to only 2.083 million tons.

Our population in 2016 was 103.24 million; last year it was 107.02 million. Compute the per capita consumption in 2016 and compare them with the per person consumption last year. The inevitable conclusion is that while production is stagnating or steadily declining, consumption is progressively rising.

There is another aspect that should be considered. The regulation of sugar trading now is mainly to allocate the product into two categories: “A” for export to the United States and “B” for the domestic market. Every grain of sugar that comes out of the mill is already marked. The planter has no choice but to sell to these two markets. The SRA determines how much of the planter’s sugar should be sold to the US market and how much to the local market.

The average per bag price of sugar as of last year’s data show that the planter was paid P1,273.68 for “A” and P1,484.3 for “B”. The composite price was P1,473.83. Clearly the planters lost money by compulsion. The producers subsidize the American market.

Understandably the volume of smuggled sugar is not included here but it must be considerable because our consumption is high and our production is not only low but declining. If not for the smuggled sugar there would be a sugar scarcity crisis and the people would be demanding for importation.

Smuggling, possible through corruption, ironically balances supply and demand for sugar. Because of import controls smuggling has practically become a necessity.

Given these data alone, will the liberalization of sugar trading be good for the industry and the consumers?

Let’s continue next week.