Sugar isn’t sweet

The sugar debacle is an early example of why the President should put an agriculture secretary in place with some urgency. He just doesn’t have time to think through and address all the details handling agriculture requires, as this sugar episode shows.

I’m by no means an expert on the intricacies of the problems in sugar. Given its decades-old problems, I wonder if anyone is. But let me give you my thoughts on it. Let me try and reduce what are obviously complex issues to what I see as its fundamentals.

On sugar, the problems that have arisen and the situation there have been argued from innumerable sides. Do we have a shortage or not? Should we pay way higher prices than others do to protect our farmers? Are unscrupulous people hoarding and/or smuggling sugar, should we import sugar, should the Sugar Regulatory Administration (SRA) continue in its role, do we need anyone in charge? Should the government subsidize sugar producers? Is political pressure due to self-interest a factor?

Look at a few facts. Sugar demand is around 2.4 million metric tons (MT) annually. Local production is some 1.8 million MT. Coca-Cola has closed several plants due to lack of sugar. That, it seems to me, pretty clearly answers the first question: we have a serious shortage. Current sugar prices in the supermarket are P115/kg. In Thailand, consumers pay the equivalent of P34/kg. Farm-gate price that the farmer gets is P13/kg. Mills get P59.4/kg, the rest, some P42/kg goes to middlemen. That tells us where in the second question the problems lie, it’s after the farm gate. It’s not the small farmers we are protecting. It’s the millers, traders, distributors, retailers who would get hurt by cheaper imports. As to the third question, in recent raids, some 20,050 MT of suspected (not proven yet) hoarded or smuggled sugar was found. That’s a minuscule 3.7 percent of the shortage. Even if doubled or tripled, it’s a concern, but hardly a solution to the problem of a 600,000 MT shortage. It’s a problem that would be resolved by the ultimate solution I suggest later.

As to imports, in my simple mind, I’d apply an import duty sufficient to protect local producers—if they were producing efficiently. And allow anyone to import any volume they’d think can make them profit. Why do we need to approve only certain people to import, a sure avenue to corruption? Why can’t anyone who has the capability to do it just do it? The SRA can go, let a tariff provide the protection. Having regulators control a market has been shown innumerable times to be a failure. I acknowledge that there can be occasions when control is desirable, but it should be a last resort. It’s almost always best to let the market decide how a product or service is provided. Opening up the market has been proven to lead to success: Water, power, oil, have thrived from removal of control. The tariffication of rice shows the benefit of less control. There can be a maximum annual amount allowed (600,000 MT it would seem) whilst the problems of the industry are resolved. But without import competition, there’s little incentive for local farmers, millers, and traders to improve, as decades of unproductive production have shown.

Use the duty to answer the sixth question, provide it, or a large portion of it to producers to help make them more efficient, so as to be able to compete against imports. Priority should go to the consumer. In a country where the majority are poor, they should not be subsidizing the inefficiency of others. As to the last query, I think we all know the answer. It’s yes. A significant factor in sugar’s failure.

Wouldn’t the simplest thing to do is to just copy Thailand in everything it does to grow, harvest, mill, distribute sugar as efficiently as it apparently does?

The sugar experience in Australia highlights one thing that works: large, managed plantations. Sugar is grown in volume, not on negligible plots. Harvesting is done by huge machines traversing land at speed. Not by a hundred humans with bolos. Yes, a hundred lose a menial, low-paying job. But consumers get cheaper sugar locally grown, not imported.

You might want to, but you can’t stop the march of progress. We need to become self-secured in the production of food, all food. Not through protection, but through efficient, cost-competitive production and distribution.

Now I could be wrong, but I do know that something that has failed for decades doesn’t need tweaking around the edges, it needs a monstrous shake-up. A serious rethink. Open import, by anyone, protected only by a tariff could be one of the solutions.

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