Asean free trade looms as threat to sugar industry

The Association of Southeast Asian Nations (Asean) Free Trade Agreement that takes effect in 2015 looms as a threat to the Philippine sugar industry as the milling season for crop year 2014-2015 opens in Negros Occidental province, the heartland of the industry.

“Sacadas,” migrant laborers from Panay, have started the harvest of the bountiful crop in the cane fields to feed the eight mills now operating in the province, out of the 28 sugar centrals all over the country, as well as some of the smaller muscovado sugar mills.

Industry stakeholders, mainly the legendary planters of the once politically powerful sugar bloc, are nervous about the future of the industry, and are in a pessimistic mode. Their concerns were expressed at a gathering of sugar producers in Bais City, Negros Oriental province, last month.

In a speech at the occasion, Ma. Regina Bautista-Martin, administrator of the Sugar Regulatory Administration (SRA), crystallized concerns of the stakeholders when she warned that despite the continuing private sector investment in the industry, there were grounds for these sentiments.

Martin scored the inadequate government assistance in the face of the implementation of the tariff reduction of sugar imports beginning on Jan. 1, 2015, under the Asean Free Trade Agreement.

Industry will survive

She assured the stakeholders that they “will definitely survive” beyond 2015. “Everyone is concerned about 2015, which is at hand,” she said, but she added: “We are surviving, we are doing something right and good for our industry.”

These are brave words, but her bravura was less than reassuring to private investors in the industry.

“We are blessed,” Martin said, emphasizing the efforts of the private investors while pointing out the shortfall in public sector assistance and the lip service being paid by the administration to the importance of the industry.

In a comprehensive paper on the state of the industry, titled “Pump-priming for a Stronger, Globally Competitive Sugarcane Industry: Through the Sugarcane Industry Development Fund,” Martin deplored the inadequacy of government support for the industry.

The Sugarcane Industry Development Act of 2014, she wrote, consolidates the measures toward further development and competitiveness of the sugarcane industry in preparation for full tariff reduction beginning on Jan. 1, 2015, where import duty for sugar under the Asean Trade in Goods Agreement (Atiga) will be at 5 percent.

“Certainly, it is to the national interest to remain self-sufficient in sugar and keep domestic production viable for producers,” Martin wrote.

The proposed sugar act is now at the congressional bicameral conference committee for final processing, prior to submission to the President, for enactment into law. While the Senate and the House are now working for a unified version, only one issue remains in dispute—the proposed earmarking of funds for the Sugarcane Fund.

The main opposition is based on the one-fund policy adopted by the executive branch. On the contrary, the legislative branch argues that this policy is already set aside in the case of the sin tax law and a few other laws.

Industry’s stand

Industry stakeholders, on the other hand, favor an expanded multiproduct sugarcane industry. Their strong stand for the earmarking of funds is for:

Expanding the sugarcane areas and increasing cane production are imperatives to achieve diversification targets of the industry’s road map.

A 10-year assistance will enhance the competitiveness of the sugar industry under the Asean integration scheme, where sugar is considered a vulnerable commodity for the Philippines.

The funds are directed to primarily assist small sugarcane planters, especially the beneficiaries of the Comprehensive Agrarian Reform Program (CARP).

The industry, including the SRA, has practically been self-reliant over the last decade.

All investments in sugar mills, ethanol distilleries, power cogeneration plants and other economic enterprises are from the private sector.

P88-billion industry

The sugar industry provides employment to no less than 700,000 Filipinos spread across 23 sugar-producing provinces in the country. For crop year 2013-2014, its contribution to the national economy, in terms of total revenues from the sale of raw sugar, refined sugar, bioethanol and molasses, tolling fees of refined sugar, value-added tax (VAT) on tolling and VAT from the sale of refined sugar amounted to P88 billion.

According to Martin’s paper, export of sugar to the United States and the world market accounted for $111.76 million of the country’s last crop year. And the estimated total value of investments in 28 sugar mills, 14 refineries, and six molasses-based and two sugarcane-based bioethanol distilleries reached P86 billion, while investments in repair and maintenance of these facilities were estimated at P17.20 billion annually.

Few irrigated farms

Notwithstanding its economic contribution, the sugar industry does not receive priate any funds from the Department of Agriculture, either for the construction of farm-to-mill roads, sugar warehouses, irrigation or water-impounding facilities, research and development and extension services.

Consider Negros Occidental, the sugar bowl of the Philippines, which accounts for 57 percent of national sugar production but where less than 6 percent of the sugarcane farms in the province are irrigated.

Even the SRA does not receive any budgetary allocation from the General Appropriations Act.

Despite being entirely funded by the private sector, the sugarcane industry attained sugar self-sufficiency for the Philippines. The country has not imported sugar for the domestic market for four consecutive years. Without counting 2010, the period when the country has not imported sugar for the domestic market extends to 10 years.

Martin emphasized in her paper that with the Asean economic integration on its doorstep, the industry faced new challenges.

“For the sugar industry to remain relevant, viable and competitive in this new milieu,” she said, “the government must intervene through funding support.”

Unlike in the previous years, tariff under the Atiga will go down to 5 percent in 2015, its lowest level since 1998 when the country joined the Asean Free Trade Agreement.

Unfair competition

According to Martin, the “reduction in tariff inevitably exposes the industry—its producers and workers—to unfair competition from Thailand, the world’s second-largest sugar exporter (behind Brazil) and largest producer and exporter in Asia.”

“Thailand provides direct and indirect support for its sugar industry, such as supplemental payment to farmers, low interest loans at 2 percent per annum, fixed domestic prices, free irrigation services, and a well-developed and maintained transport infrastructure such as road networks and transloading ports,” she wrote.

Martin took pains to point out that almost all sugarcane farms in the Philippines are small, about 5 hectares. The large sugarcane lands have been redistributed under the CARP.

Since sugar is a plantation crop that requires large areas for more efficient farming, small farms are not as productive and efficient as larger farms in bringing down the volume of production while increasing its cost.

Diversification needed

According to the SRA, the Philippine sugarcane industry has to be diversified to be competitive. Private sector data show that other countries produce cheaper sugar, the cost of which is equivalent to even one-half the cost of Philippine-produced sugar.

The question has been raised: Why would consumers buy Philippine sugar at double the cost of foreign sugar?

The Philippine sugar industry has to do a lot more work to bring down the cost of its product and counter the competition from foreign sugar unleashed by an Asean free trade regime—and even prevent its collapse.

RELATED STORIES

The power of the sugar barons

PH ready for AEC?