Bacaoco: US sugar quota advantageous to producers

THE Sugar Regulatory Administration has issued Sugar Order No.1 allocating 93 percent of the estimated 1.87 million metric tons production for this crop year as "B" sugar intended for domestic consumption.

The remaining 7 percent of production will be allocated for "A" sugar which is intended for export to the US.

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Considering that favorable prices are expected at the start of the milling season, it might be argued that all of the sugar production should have been allocated for the domestic market.

Moreover, the production estimate is often not an exact science as cane tonnage and cane recovery are subject to vagaries of the weather. For instance, it has been very not humid lately. Somebody might have forgotten that it is supposed to be the rainy season already in this part of the world.

If the weather does not cooperate, then the actual production might fall short of expectations, thereby making it more imperative for the entire production to be allocated to domestic consumption.

This line of thinking has its merits in the short term but, in the long run, it is best to maintain the country's access to the premium US market which traditionally offers a higher price than the world market.

Defaulting on the country's US sugar quota might result to the permanent loss of the Philippine share in the US market and it might also have repercussions on bilateral relations with the US.

It can be recalled that, three or four years ago, sugar intended for export to the US fetched a higher price than sugar sold at the domestic market. While domestic millgate prices hovered between P800 to P900 per bag, the 6% allocation for the US market was priced at more than P1,000 per bag.

Maintaining smooth trade relations with the US by filling the country's quota has established the Philippines as a reliable partner of the US. It will be beneficial to the industry in the long run, especially when production rebounds, to have an established alternate market other than the world market where the commodity is sold at dump prices.

Producers should be grateful that there is no allocation for reserve or world market sugar. With very constricted supplies at the start of the milling season and a projected drop in national output compared to the previous season, it is inconceivable to allocate for reserve or "world market" sugar.

To augment tight domestic supplies, newly-installed SRA head Regina Bautista-Martin disclosed that the 100,000 mt additional sugar importation is set to arrive by mid-September. The importation will be just enough to tide over domestic supplies until domestic sugar production goes full blast by October or November.

The Philippines is not alone when it comes to constriction of sugar supplies. Only yesterday, China also ordered the release of 240,000 mt of sugar from government reserves.

According to the China Reserve Merchandise Management Center, the state will auction off the sugar on September 9 at a minimum bid of 4,000 yuan per ton (P1,300 per 50-kilo bag).

China has full support for its sugar industry. It sets a floor price for cane purchase, so the farmers are protected. When sugar prices are not favorable, the state lends money to the mills so that they can pay the farmers.

When there is a bumper crop, the state also buys the excess sugar from the mills so that the government can regulate retail prices by controlling the timely release of sugar stocks, as it did just yesterday.

That's not all. The producers don't pay P2 lien per bag for sugarcane research. China has five sugarcane research institutes scattered around the sugar-producing provinces in the southern part of the country. All of these centers are affiliated with academic research centers and they are all funded by government.

Chinese sugar farmers also do not pay the P1 lien per bag for sugar monitoring and anti-smuggling activities. No need for that.

After the state invested so much in the industry, the government cannot simply allow smugglers to wreak havoc on the industry stakeholders. When the state started clamping down on smuggling during the late 90s, the smugglers (well, what was left of them) immediately got the idea.

But that's in China and this is the Philippines. Stakeholders have to support the anti-smuggling campaign by contributing through the P1 lien. It's a very small price to pay compared to the billions of losses in potential income if there is no private sector-led group to run after sugar smugglers.

Administrator Martin will come out with the sugar order for the P1 lien very soon. She definitely needs all the support she can get to ensure that the industry's campaign against smuggling will bear fruit.

(For reactions and suggestions, email bbacaoco@yahoo.com.)