Skyrocketing sugar prices stoke industry liberalization stakes

CORON, Palawan and Manila—Many call it “dirty.” And they still eat it.

Just ask these fifty-something entrepreneurs: Zosimo and Nelson who know the dirty ice cream business like the back of their palms. But an essential ingredient—refined sugar—has brought bittersweet success to their business.

Zosimo and Nelson shared that the price of refined sugar rose just as fast it melted their profits. The brothers said times have changed, indeed, since their father, Maximo Catapang, considered as the pioneering magso-sorbetes in the municipality of Coron, Palawan, gave birth to the enterprise a decade ago.

The stainless steel-bodied carts of Catapang Dirty Ice Cream has been a staple across the streets of the town proper of this island municipality that is home to 65,000 people and an annual haven to over 200,000 tourists. They, however, may see fewer carts of this 1960s-built ice cream venture as the Catapangs said they are taking “drastic measures” to cope with Covid-19 and rising sugar prices and ensure the business survives.

Nelson said they used to have seven carts. They trimmed this to two since the Duterte administration imposed mobility restrictions against Covid-19 in 2020.

Malaki na ang binawas.”

He added they had to increase the boundary price collected from vendors from P2,500 to P2,600. Nelson said they have “measly” earnings because of the rising costs of everyday ingredients like sugar, ice and salt.

The Catapang family business earns from a fixed boundary price that their street vendors remit to them. Zosimo said their daily income has now been slashed to P200 from P500. Their two operating dirty ice cream carts holding four gallons consume about four kilograms of refined sugar each.

That is where it hits the most: Zosimo said a kilo of sugar that before cost P60—a dollar and a dime—now hits their pockets with P95, or nearly $2.

This is being experienced not only by the Catapang family business.

Glazed, no caramel

THERE’S Medelyn Collorado, a street seller of “banana-Q,” short for two to three pieces of Musa saba bananas queued on a stick. Collorado said she had to cut the amount of sugar she uses: before the bananas were caramelized; these days they’re just glazed.

She said before, daily sales hit 250 sticks at P10 each and they pocketed P870 ($15.61 at current exchange rates) cleanly. These days, the 60-year-old vendor told the BusinessMirror, she’s only able to sell a hundred sticks at P15 each and takes home only P390 ($7) each day.

Collorado said the price of brown sugar she uses in her banana cues have risen by half to P80 ($1.44) per kilogram from P40 kilogram ($0.72). This forced her to cut the brown sugar she uses to just 2 kilograms from 5 kilograms.

The country’s sugar (raw, washed and refined) prices have increased unabated since September last year.

In Metro Manila alone, the price of refined sugar has now averaged P90.85 ($1.63) per kilogram at supermarkets and P93 ($1.67) per kilogram at wet markets. Refined sugar prices in Metro Manila is now fetching as high as P115 ($2.06) per kilogram.

Odette’s impact

TO understand how sugar prices zoomed past the P100-per-kilogram level—the first in the Philippine history—we must go back to December 16, 2021, when Super Typhoon Odette (international name: Rai) hit the country.

The sugarcane industry was estimated to have suffered P1.5-billion losses due to destroyed sugarcane and damaged sugar milling and refining facilities. The destruction and disruption came as the sugar milling season was peaking and refineries were just barely starting to operate.

The aftermath of Odette was evident: prices of raw and refined sugar started to increase nationwide, especially in Metro Manila. Odette’s impact prompted officials to slash the total sugar production estimate for crop year (CY) 2021-2022 to 2.072 million metric tons (MMT) from 2.099 MMT pre-milling crop estimate. The sugar refineries association, meanwhile, revised its total refined sugar output to 837,400 MT from 878,600 MT

The Department of Agriculture (DA) instructed the Sugar Regulatory Administration (SRA) to consult industry stakeholders on the probability of a sugar importation program.

In a meeting last January, sugar producers to industrial users unanimously supported the proposed importation tack. However, the players debated the conditions and terms of the program, particularly on the eligible importers and arrival of shipments.

Local sugar producers wanted importation to be limited to the estimated shortfall in supply and shipments arriving in tranches after the milling season.

In February, the SRA issued Sugar Order (SO) 3 that authorized the importation of 200,000-MT refined sugar for industrial users, with half of the volume being bottlers’ grade (for use by beverage makers). No one expected that the worse was about to happen after the issuance of SO 3.

Delayed implementation

HOWEVER, sugar producers sought to stop SO 3 through the powers of the court, which issued two temporary restraining orders (TROs) and a writ of preliminary of injunction.

After the SO 3 was stopped in its tracks, sugar prices began breaking all-time highs every week. Raw and refined sugar supply were outpaced by rising demand and total sugar production was not high as expected.

The final sugar production forecast of the SRA was further trimmed to just 1.928 MMT, the lowest level in more than a decade. Sugarcane yield also dropped due to the ill effects of a persistent La Niña phenomenon that affected plantations.

By April, the SRA attempted to get a new sugar import program going with a higher volume of 350,000 MT, comprised of 250,00 MT refined sugar and 100,000 MT raw sugar to address the worsening supply shortfall.

However, the new sugar import program did not fly as the SRA resumed the implementation of SO 3 in May after it received a legal opinion from the Office of the Government Corporate Counsel that SO 3 could still be implemented in other regions except Region VI, where the writ of injunction was issued.

“So, SRA went ahead and implemented SO3, but the damage caused by the delay in its implementation was already done and is being felt now,” SRA Administrator Hermenegildo R. Serafica said in a 3-page statement last June.

That month, the prices of refined sugar reached P90 per kilogram after breaking past  the P70-per-kilogram mark in May. By July, refined sugar prices were as high as P115 per kilogram. The calculations and estimates of both the DA and SRA pointed to one scenario: the Philippines will run out of both raw and refined sugar this month.

Side by side neighbors’

TO see a “better” and “real” picture of the country’s sweetener industry situation, Monetary Board member V. Bruce J. Tolentino said local sugar prices must always be compared to the sugar prices of the Philippines’s neighbors like Vietnam and Thailand.

If such is the benchmark, Tolentino pointed out, Philippine sugar prices have “undoubtedly” been more expensive than any other country for a long time now.

The reason is simple, Tolentino says: the sugar industry has been “administratively” controlled to “protect” local growers even to the “detriment” of anybody who consumes sugar, both ordinary Filipino consumers and food manufacturers.

“There are many food products in Thailand and Vietnam that contained sugar and yet they are cheap. Sugar is an input and therefore, the more expensive it is, the more expensive the product is,” Tolentino, a former agriculture undersecretary, told the BusinessMirror.

And if it is up to Tolentino, the protected days of the sugar industry must now come to an end, just like the rice industry four years ago.

“It should be opened like we how opened rice. Let us use the lessons from rice [trade liberalization] to deal with sugar [industry],” he said.

“If we are consistent with the idea of having people with competitively priced food and we are committed to the growth of the manufacturing sector, then we should liberalize the sugar industry,” he added.

Profit margins

SUCH insights from Tolentino fail to assuage people like Danilo V. Fausto, president of the Philippine Chamber of Agriculture and Food Inc. (PCAFI).

According to Fausto, their member-companies, which are food processors and exporters, are already “hurting” from the high sugar prices. The affected export products include banana chips, biscuits, confectionary,

Fausto warned that the expensive sugar would further erode the country’s competitive advantage in certain food exports, which is already threatened by stringent competition from neighboring Southeast Asian countries with cheaper raw ingredients and materials.

“The price of imported sugar is 50-percent less than our local production. If you want to compete in the export market, you need to provide them with imported sugar–at least for processing of their products,” Fausto told the BusinessMirror.

Roehlano M. Briones, senior research fellow at the Philippine Institute for Development Studies, said he was surprised when he found out that the country’s refined sugar is now the second most-expensive sweetener in the world next to Oman. Briones said Oman is a country that imports virtually all its sugar supply.

He further said that the “unusually high” sugar prices would slash the profit margins of Filipino food exporters.

“These are low-margin products. Even if you say sugar is only about 10 percent to 15 percent of production costs, if its price doubled, then it would eat into their margin,” Briones told the BusinessMirror.

Eye on SRA

TOLENTINO said liberalizing the sugar industry would mean removal of the quedan system that classifies and segmentizes the country’s sugar production according to a specific market.

He argued that this classification makes sugar one of the most protected commodities in the country, with only a “favored” few benefitting from such system.

In 2019, the National Economic and Development Authority (Neda) commissioned Brain Trust Inc. to conduct an assessment on the country’s sugar industry. At that time, talks and plans of sugar liberalization were at their height.

The commissioned study showed that the SRA’s “tight control” over the sugar industry impeded its growth.

The study outlined various regulations enforced by the SRA that included restrictions on interisland shipping of sugar, mandatory production-sharing arrangement between planters and millers, and mandatory quedan system that segmentizes the use of raw sugar.

A key finding of the study was that liberalizaing sugar trade “appeared weak” back then, as it would only yield a modest net gain of about P2 billion.

The study estimated that liberalizing the industry would slash the profits of sugarcane farmers and millers by 57 percent while “consumers gain in welfare” would increase by 65 percent.

Elite benefits

THE liberalization of the industry would result in a “society gain” of about P7 billion to P9 billion every year, according to the study.

However, one concern rose: who would benefit the most? The study was clear: the rich more than the poor.

The study estimated that the lowest income group in the country would gain P262 million while the richest income decile would benefit as much as P1.6 billion.

“Should government wish to pursue sugar trade liberalization (even as the findings suggest that the case for it is weak at this time), it must be through a gradual easing of controls over sugar trade, to ensure that gains therefrom are equitable, and not unduly penalize the groups directly dependent on the sugar industry,” the study read.

Nonetheless, the study gavee recommendations to improve the sugar industry. These include the phasing out of the segmentation of the sugar market allowing for a unified quedan or warehouse system. Other recommendations were for the establishment of a tripartite price management system to curb monopsony and incentivizing investments in state-of-the-art milling technologies.

Briones said they “were a bit more cautious in that study.”

“I think the solution for the sugar industry right now is to accept the tariffication formula,” he told the BusinessMirror.

Doing to learn

ATENEO Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. called the high price of sugar a “plague” to the country—even before the Covid-19 pandemic.

Lanzona argued that the need to “open up” the country’s sugar market is to encourage competition and have a “more efficient” sugar industry.

“The sugar industry should have liberalized a long time ago. The industry is one of the most inefficient as it continues to be protected,” Lanzona told the BusinessMirror. “There is a great potential in this industry for scale economies, but it needs to learn by doing if it is to take advantage of the existing technology.”

He said both Filipino consumers and manufacturers will suffer the consequences of high sugar prices if the industry remains protected from foreign competition.

Lanzona noted that the liberalization of the sugar industry shouldn’t be patterned, however, after the rice trade liberalization (RTL) law since the two commodities have different value chain structures. For example, there are a lot of small-scale farmers in the rice sector while players in the sugar industry are “large firms” that have “invested a lot of capital” for production, he explained.

“The goal here is to allow more foreign investment to come, even including those who wish to stay here and start their own operation. Farmers who plant sugar can now sell them to these new firms,” he said.

“It is not the same as rice where an inefficient NFA made it clear that importation is necessary. In this case, importation may not be the solution. The situation only needs a more efficient industry,” he added.

Joey’s views

Albay Rep. Joey Sarte Salceda, an economist, said that as a “pro-growth” and “pro-consumer” policymaker, he is inclined toward the liberalization of the sugar industry.

But not anytime soon.

Salceda argued that given current global market conditions, the current difference between the local price and the landed cost of imported sugar is not “dramatic enough” for him to push for liberalization of the industry.

Based Salceda’s estimates, the price gap between the prices of local and imported sugar is just about 6 percent or P3.85 per kilogram; this, compared to rice, which had a price differential of 16 percent in 2019 when the latter was liberalized.

“If you import raw sugar, my estimates are that they would be just 6 percent cheaper because of tariffs and handling costs,” he said.

“But at least, companies that have stopped producing certain sugar-dependent goods would be able to resume producing such goods; if buying sugar in bulk has become difficult. Then again, that request must come from sectors affected,” he added.

Abandoned by government

SALCEDA admitted the sugar industry must be liberalized in the future for the benefit of most of the Filipino people. But this admission came with a price: accepting that the government abandoned the sugar farmers, too.

The lawmaker points to the ill implementation of earmarked funds for developing the sugar industry, like those under Republic Act (RA) 10659, or the Sugar Industry Development Act (SIDA), and the TRAIN law (RA 10963).

“We also have sins against the local sugar industry, mind you. The TRAIN Act, for example, provides for sugar industry development, but the SRA has not been able to utilize the funds well, so the DBM [Department of Budget and Management] has not allocated a significant amount of funds for local sugar development,” Salceda said.

“In this particular case, there is government nonfeasance. So, we should try to solve that first before doing something that would hurt local industry,” he added.

A portion of the collections from the TRAIN Law, which includes excise taxes on sugar sweetened beverages, should be allocated for various government measures including the P2-billion programs under the SIDA Act of 2015, which aimed at developing the sugarcane industry and improving the lives of sugarcane farmers.

Step in right direction

FOR lawyer Roland B. Beltran, an incumbent Sugar Board member (representing the sugar millers), the productivity woes of the sugar industry could all be traced back to administrative “mismanagement.”

Beltran was referring to the “bad” implementation of sugar industry development programs, especially those under the SIDA law.

“The industry would not be in this situation if the projects prioritizing the improvement of the sugar industry were implemented properly. The sugarcane farmers need all the assistance today,” he told the BusinessMirror.

Beltran thinks that President Ferdinand R. Marcos Jr.’s plan of revamping agricultural value chains to address their inequalities—from farmers to consumers—is a step in a right direction, particularly for sugarcane industry.

Beltran emphasized, however, that any liberalization effort doesn’t bode well for the President’s vision of boosting domestic food production and fixing erratic value chains.

“Sugar is not a sunset industry. I still have faith in the sugar industry given its resiliency. It will bounce back to its glory years as it had proven in the past and help perk up our economy,” he said.

“It is like having a house. Why will you buy the furniture first if you haven’t constructed your house?” he added.

Since 2016, the SIDA has been marred by underspending and underutilization, earning the ire of lawmakers and policymakers. The SIDA Act mandated an annual P2-billion allocation for the implementation of four interventions: block farm programs; socialized credit; research and development; and, scholarship and infrastructure support.

But the underspending and underutilization by SRA resulted in the annual slashing of the SIDA fund. During the 2019 budget deliberations, it was unearthed that the SIDA fund for 2020 could be only a measly P67 million, nowhere near the P2 billion mandated allocation, due to fund management issues.

From 2017 to 2022, the budget of SIDA was never restored to P2 billion. Worse, the SIDA fund from 2019 to 2022 has been below P1 billion and averaged at P606.130 million, with certain components of the program suffering as they had zero budget allocation.

Probable volume

PUNDITS are unanimous in proposing that the short-term measure to temper skyrocketing sugar prices is to expand the current importation program.

Industry sources and experts told the BusinessMirror that the additional import figure could range from 150,000 MT to as much as 350,000 MT.

The DA and the SRA held its first of a series of stakeholders’ consultation last week to discuss the country’s current sugar supply situation.

Agriculture officials are mum on the probable volume of the second round of sugar importation by the country pending the conclusion of the consultation with stakeholders and the physical inventory inspection of sugar mills and refineries nationwide.

“I think what we are looking at is a seasonal shortage of market supply by as much as 43-percent lower than usual demand. I estimated by looking at the sales volumes of raw and refined sugar by sugar milling companies,” Salceda said.

“They are able to sell much less, not because people are buying less, but because they do not have the supply, or so it seems. That is why we need the SRA audit to verify farmer claims that supply shouldn’t have collapsed by that much,” the lawmaker added.

Entrepreneurs’ woes

JOHN Lloyd Esparaguerra, one of Catapang’s sorbetes vendors, shared that he used to take home P1,000 after a day’s work. Today, that amount could only be earned within two days to three days—rain or shine.

However, Esparaguerra has to shoulder the P200 for ice and salt to keep the ice cream from melting.

Iyon ngang P200 pandagdag na sana na kita namin kaso no choice ka rin dahil matutunaw naman iyong ice cream kapag hindi bumili ng asin at yelo.”

He explained to the BusinessMirror that he used to sell six scoops of dirty ice cream on a cone for P10 and eight scoops for P20. Today, he sells these for less a scoop at the same prices.

Yung dating 6 scoops ngayon 4 to 5 scoops na lang for P10, ‘yung dating 8 scoops ngayon 7 nalang for P20.”

The Catapang brothers said they don’t see further increasing their boundary price any time sooner as there’s lackluster demand. They just wish the government would intervene in the high sugar prices and make the situation easier for vendors like them.

Zosimo said there are rumors of hoarding, which should be looked into by government officials.

“May nababalitaan akong hoarding; eh iyan dapat pakinggan ng gobyerno. Dapat iminimize nila iyong hoarding.”

Collorado wishes that she, too, can just hold off price increases in the future. However, her hands would be forced to do so to make ends meet.

If we do not increase our prices, nothing will happen to us, Collorado said in Filipino. You cannot even recoup your minimum labor, she added.

Collorado said she’s now selling corn on the cob and drinks, aside from banana-Q.

She also hopes the government would have projects to help vendors like her to clamber from usurious debts.

Our capital is from 5-6; if we cannot pay daily, we must pay double in the following day, Collorado told the BusinessMirror.

Ganon talaga kakapit talaga kami sa patalim, ang hanap-buhay talaga namin ngayon ay puro utang.”

Reckoning with liberalization

FORMER Tariff Commissioner George N. Manzano said the government may have to weigh a lot of factors in liberalizing the sugar industry: first, the displacement of sugar producers, and second, the current market environment amid the on-going Covid-19 pandemic.

Manzano pointed out that “crafting” a policy on the sugar sector is “always complicated” since the price of sugar is “more distorted” compared to rice. The industry structure of sugar is different from rice since the former has been under a more stringent quantitative restriction regime, he added.

“There are social costs to liberalize the industry as this will displace sugar producers as well as the farmers,” he said. “With the pandemic still in the air, it may not be prudent to create shocks through liberalization at the moment, in my opinion.”

United Sugar Producers Federation (Unifed) President Manuel R. Lamata said liberalizing the sugar industry would easily “kill” it and would be a disaster for the Philippines in the long run amid global food security concerns.

“Every country is holding on to what they use to export to protect their people. If you no longer have an industry to go back to, then our people won’t be able to eat anymore,” he told the BusinessMirror. “The high sugar prices is temporary; the cause of this is the deliberate mismanagement [by] the government.”

Image credits: Nattaphol Phromdecha | Dreamstime.com