Honeyman: Economic aspects of current issues

Monday, November 21, 2011

SUGAR

Last week’s prices were low, only P1,155 per bag. This is approximately the same as the world market price (US$0.24 per lb = P1,135 approx per bag). The market is predictably soft due to the large overhang from the 2010-2011 crop year. We should monitor the amount of sugar that is in storage. The upside is that at these prices there is no incentive to smuggle sugar. The peak season for smuggling sugar will be from February 2012. That is when the Bureau of Customs duumvirate (Biazon/Lim) will, with the support of the National Federation of Sugarcane Planters (NFSP) and assorted whistleblowers, be vigilant.

Have something to report? Tell us in text, photos or videos.

When there is no smuggling, we can gain a clearer picture of domestic
requirements. And when we have realistic domestic demand data, we can identify when and how much sugar is being smuggled.

We salute SRA’s Gina Martin for emphasizing the importance of fair sugar prices to both producers and consumers. Last week’s sugar retail price at SM was P49.75/kg. Since the producer only gets P23.10/kg, we consider that neither the producer nor the consumer is being treated fairly.

The middlemen’s margins are too high.

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Renewable energy

At the current soft prices, the renewable energy (RE) sector (San Carlos
Bioenergy Inc and Roxol) may be in the market for sugar cane and/or molasses for conversion to ethanol. Hopefully, this demand will cause sugar prices to harden.

From a ton of molasses, currently costing around P3,100, the RE companies can manufacture 235 liters of ethanol. This represents a material cost of P13.20 per liter.

Hence, the ethanol could be sold to the oil companies at a reasonable margin, thereby ensuring income to the fledgling and fragile bioenergy sector and enabling the oil companies to meet the mandated requirement of 10% ethanol in vehicle fuel.

Similarly, the RE companies may use the sugar cane biomass for electricity generation. The 2008 Renewable Energy Act introduced the concept of ‘feed-in tariffs’ which, when implemented, would give a boost to the RE sector. The National Renewable Energy Board (NREB) has recommended a feed-in tariff of P7 per KWH for electricity generated from biomass. The Energy Regulatory Commission (ERC) has yet to approve this proposal but, if it did, it would generate much employment in rural areas.

For example, Governor Marañon recently hosted a German/Swiss group from Thomas Lloyd which may install three 18 MW plants which would generate the electricity from biomass.

But without the feed-in tariff incentive, it is not clear that Thomas Lloyd will do so.

The Department of Energy needs to develop a clear renewable energy strategy soon.

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Tertiary education fees

Last week, Senator Angara mentioned the problem of excessive miscellaneous fees charged by colleges, which cause many students to fail to complete their courses. An additional aspect is that a shortage of funds can cause students to only take a few units each semester so that a four year (eight semester) course will take much longer, perhaps six or seven years. This makes courses much more expensive, since the miscellaneous fees are payable in full even if the student can only afford to pay for a few units. The cost, including miscellaneous fees, per course unit taken becomes enormous.

We believe it would be more equitable if the miscellaneous fees were bundled into the cost of a unit. Then students who cannot afford to pay the full number of units per semester are not penalized.

Hopefully, the Commission on Higher Education (CHED) will look into this with a view to ensuring that those who are willing and able to undertake tertiary education can do so without excessive expenses.