SRA replies – 5

The great service of the long October 14 letter of SRA Administrator Regina Martin is that she opened a lot of avenues for discussion and in fact I consider it an opportunity to opine on the industry as it has been regulated for 80 years. The present system is throwback to the day the United States imposed the quota system to protect American sugar interest against those of the Filipino producers. The quota system requires the classification of sugar to insure that we do not sell enough of our cheap sugar to the US and force the decline in prices there.

Today the US issues a quota system as a political tool. However, we continued this colonial practice to also protect the sugar producers to insure that they remain profitable. In this system is the strength of the sugar producers because no other agricultural industry is similarly protected and blessed. We can go deeper into this subject, but not for now.

In her letter, she tries to downplay the controversy surrounding the classification and reclassification of sugar. She said this SRA regulatory power “is not an example of abuse but a prompt response from SRA to augment the supply in response to a spike in demand. This move stabilized the prices in the mill site and retail markets.”

Indeed this usual response of SRA to the supply and demand situation is a fundamental reason for the creation of the system. But like all regulatory and control systems, they are open to abuse in the hands of the unscrupulous. This does not mean that the incumbent SRA administration is abusive. However when a sugar producer is compelled to take out advertisements that cost him several thousand pesos to publicly complain indicate that something is amiss, that something is wrong and that the implementation of the system is flawed.

But let this particular sugar producer fight his own battle; maybe public welfare is involved. Nevertheless he exposes a defect in the system as implemented and that eventually will redound to the common good of producers though not necessarily of the consumers.  

She also writes that “outside the system of allocation, there is no other mechanism that can address the sudden and unanticipated fluctuations in sugar prices.”

I think economics students can write a thesis to debunk that concept. For indeed, why not then adopt a national system of allocation for all basic commodities, like rice, cooking oil, and even fuel because their prices fluctuate quite often and unanticipated? How many household budgets had been affected but the government has not imposed an allocation to insure a “balance” that is a dear word in the sugar industry?

Perhaps we should do away with that ineffective Suggested Retail Price and its effete implementation and adopt the SRA system of classification and allocation if this is indeed the only mechanism to protect the producers and the consumers. 

Allocation works well in times of scarcity (they call it by a notorious name of rationing) but in times of plenty, are not the consumers also entitled to cheaper sugar that the free market provides?

Sure, the producers will be adversely affected, but only temporarily because the immutable law of supply and demand will correct the market imbalance even without government intervention.  Producers should be left to decide whether to produce sugar or corn or flowers depending upon their assessment of the supply/price situation and profitability. Is this not what free enterprise is all about?

In fact the idea of classification and allocation is anchored on the principle that SRA will be able to help both producer and consumer. If so, why enforce this only on sugar?

Consider the inability of the producers to maximize their returns under this system. SRA determines how much of the planters’ sugar should go to this or that market. The prices of the allocated sugar are uneven so that the planters are left with the so-called composite price – the average of the varying market prices.

Should not the producers be free to determine the volume and price to sell? As the present system goes, the planter is bound or forced to sell X percent of his sugar to the US even if the price is low. Is this fair?  Let the sugar traders determine how much to buy and to sell to the domestic or the US or the open market where he can best recoup his capital and earn.

This is the true spirit of free enterprise as in other commodities. Let’s continue tomorrow.*

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