Gonzaga: The controversial sugar quota

Ecoviews and Issues

NEGROS economy is livening up again due to the start of the milling season. Yet, serious questions again rise pertaining to the highly questionable Sugar US Quota Allocation--for those in the know within the industry, a yearly source of systematic plundering of sugar income, especially of the small planters.

Let us put this issue in context. Philippine production of sugar contributes approximately P69.7 billion to the national gross domestic product (GDP), with value-added tax (VAT) on the sale of refined sugar reaching over P1.92 billion yearly--data shows sugar remains an important crop that is grown across the country.

Sugar is most abundant in the Visayas, particularly in Negros. The total sugar production was $700 million in 2019, making sugar the nation’s fifth-largest agricultural crop product by value after rice, bananas, corn and coconuts. In crop year (CY) 2018/19, the country produced 2.1 million metric tons (MT) of raw sugar, with nearly all of it consumed locally. According to the Sugar Regulatory Administration’s (SRA's) most recent data from 2018, the Visayas accounts for 73 percent of domestic sugar production, with Negros alone contributing 64 percent of total output, followed by Mindanao at 17 percent, and Luzon at 10 percent. Luzon’s share is down from 15 percent of the previous year due to land conversion and a shift in crops planted. Roughly 90 percent of total Philippine production comes from four sugar planter federations and three miller associations. There are 27 sugar mills and eight sugar refiners in the country--seven mills in Luzon, 12 in Negros, three in Panay, two in Eastern Visayas, and four in Mindanao.

The sugarcane industry is also an important player in the production of biofuels, as sugar molasses is the primary feedstock for Philippine bioethanol--currently 12 operating bioethanol distilleries and six power-generating plants. The Biofuels Act of 2006 (RA 9367) expanded the mandate of the Sugar Regulatory Administration (SRA) to develop and implement policies supporting the Philippine Biofuels Program and ensure increased productivity and sustainable supply of biofuels feedstock.

Historically, the Philippines was a major participant in the U.S. sugar tariff-rate quota--previously exporting half of its production to it, although its allocation has declined radically over the years. In 2019, the United States was the only export market for Philippine raw cane sugar, valued at approximately $36 million, and accounting for 3.5 percent of total U.S. sugar imports. This, notwithstanding the fact that Philippine raw sugar output in 2019-2020 declined from 2.1 million MT to 2.025 million MT, the lowest in a decade.

Several factors account for the decline in sugar production: the one is mostly due to erratic weather conditions in sugarcane-producing areas, the other, contraction in the sugarcane area in crop year 2019/20 as reported by the Sugar RegulatoryAdministration. Also, unfavorable weather conditions contributed to a heavier cane with lower sugar content cane. There is also the matter of continued harvest labor shortage problems in sugar cane areas. Sugar Milling Year 2019/20 shows sugarcane area dropped to 406,500 hectares from 410,000 hectares the previous year, with cane production that year declining to 21.8 million MT due to poor weather conditions and smaller planting area reported. Weather conditions strongly affect sugarcane output since about 80 percent of sugarcane fields are rain-fed and have no irrigation. As sugarcane areas continue to shrink due to the conversion of sugarcane lands, post forecasts raw sugar production to drop to 2.0 million MT.

As sugarcane areas continue shrinking from the conversion of sugarcane lands, particularly in Luzon, and as producers remain cautious about the impact of the liberalization of the sugar industry being considered by the Philippine government. Crop year 2020/21 sugar demand is expected to increase marginally to 2.35 million MT. Refined sugar imports will likely increase to 450,000 MT to meet this growing demand. Exports of sugar to the U.S. market are expected to reach 140,000 MT, following two years of only exporting 120,000 MT, as prices of "A" sugar improve. But, why so? Why do we keep the US Sugar Quota, when we have higher sugar demand in the country of 450,000 MT? What is behind this upholding of a Sugar Policy that has become irrational in an era of significant fall in the country's annual sugar production?

(To be continued)


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