No reserve?

The Sugar Regulatory Administration has released its classification of Philippine sugar production. There are three classifications: “A” for the US quota (5 percent), “B” for the domestic market (90 percent) and “D” for the world market (5 percent).

This is a departure from the traditional system where a portion is always allocated as reserve (“C”) which can be used to cover any shortage in the US or the domestic market.

The SRA is taking a big risk in the event of a sudden drop in production, or as it happened in the past, when due to an apparent error in the allocation, the country had to import sugar.

Why we have no reserve but we have for the world market which is an uncertain destination. It is indeed a puzzle but an explanation lies somewhere. Is it in the hidden recesses of the SRA? We can speculate, lacking a plausible explanation from the sugar agency.

The news report last Monday provided a possible albeit unsavory reason for the “D” or world market sugar. This is disquieting to say the least and marks an opening for strengthening the suspicion that certain sectors of the sugar industry are profiting at the expense of the producers and with the apparent acquiescence of the SRA.

In a meeting, a group of planters claim that SRA would later “turn around and allow favored traders to sell their “D” sugar as “B” and make a big profit.”

Of the three sugar allocations, the “D” sugar is the cheapest while the domestic sugar is the most expensive. The US quota sugar has a more or less fixed price depending upon the US market but to date it costs lesser than the domestic.

The SRA says production for 2014-2015 crop year is estimated to reach 2.5 million metric tons, similar to the last year's crop yield. Our annual consumption is expected to be about 2.25 million, leaving therefore 250,000 metric tons for the US and the world markets, each sharing 125,000 MT. There are claims that the Philippines will be shipping out 140,000 to the US so that if this is true then the supply situation in the country could be worse.

The allocations are very tight. In the event natural or man-made disaster strikes we have no reserve to cover the deficiency. This is granting that the domestic consumption is exactly what the SRA says it will be. But every second a new sugar consumer is born and by next year at least one million new consumers will be in need of at least 45 million kilos of sugar.

On the other hand the group cited in the news claim that last year's consumption was 2.6 million while production for the crop year just ended was only 2.45 million tons. This is more terrible and without reserve the only recourse is importation.

Is SRA thus laying the ground for a supply scarcity that will be highly profitable for the holders of “D” and the importers?

It would be less risky, if the consumers' benefit is the prime consideration to allocate our tight sugar supply to the US to which we have made a commitment and the reserve to cushion any supply shortage or miscalculation.

SRA Administrator Gina Martin said “we need to regulate and manage our domestic demand first”. This is good news but by not providing for a reserve is not the best way to insure local supply sufficiency.

Although she declared that she had allocated a volume enough for consumption to hold prices down, not providing for a back up is a sure way of disrupting prices to the detriment both of the consumers and the producers. The only winners are the traders.

While she said that we need to “improve on productivity and efficiency” the sad fact is that this is a pipe dream that had been the battle cry of every SRA administrator but productivity and efficiency had eluded the industry for years. We have no new mill, the existing mills are already inefficient and land devoted to sugarcane has been steadily declining since the passage of the Comprehensive Agrarian Reform law and the expanding demand for living and business space.

In 1977 we produced three million tons but today we produced half a million tons less. In that year Negros had 15 sugar mills with 260,925 hectares of land planted with sugarcane.

How many mills are still operating now and how many hectares are planted? We need not cite statistics to see the continuing decline of sugar lands and production.*

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