SRA replies – 6

Yesterday I posited the idea that the classification, allocation and reclassification of sugar is a restraint or restriction to free trade to the disadvantage of producers and yet without much relief for the consumers. Through this system, the SRA directly influences the price the producers will receive and the price the consumers will pay. 

The SRA insists that this system is the only effective one. Indeed but it was good at the time of its adoption. However the situation today is a far cry from the time the government imposed it. At the time idea of free trade was practically an anathema to most countries. Economic protectionism then was a matter of national survival but that term is abhorrent today. The ASEAN Free Trade Agreement and other regional agreements under the World Trade Organization are complete antithesis of protectionism, a now discarded policy.

A few columns ago I wrote about the US quota as a relic and a throwback of the American imposition to insure that cheap Philippine sugar did not enter the US. Ironically, we find ourselves in the same situation today with the expected importation of cheap sugar paying a nominal tariff when the ASEAN Free Trade Agreement comes into full implementation on January 1, 2015.

The US, from the onset of their colonization of the Philippines in 1898, feared that the entry of duty-free sugar from the Philippines would adversely affect their own agricultural economy, primarily sugar. When they colonized us we became an American territory and therefore our product would enter the US free of tariff. US cost of production could not compete with ours.

Does the situation sound familiar?

The Philippine Independence movement got a boost from the US sugar industry. Their support was selfish interest. If the Philippines were independent then we would be paying the usual customs duties and the US government could control the quantity of our sugar that could enter the US. Others in the US, however, particularly the commodity markets and Wall Street financiers wanted cheap Philippine sugar. US investors salivated to have sugar plantations in the Philippines. That is another interesting story for the future.

The movements of the sugar producers in the US was similar to ours today – Philippine sugar interests want to restrict entry of tariff-free sugar to protect them from cheap ASEAN sugar although this will mean lower prices for consumers, industrial users and small businesses.  

To cut the story short, the Tydings-McDuffie Law that authorized the grant of Philippine Independence put a rider into the law. The US sugar lobby latched a provision that until we are fully independent, the volume of sugar that could enter the US tariff-free should be limited to not more than 800,000 tons of raw and 50,000 of refined. Over that tonnage our sugar would pay full tariff. 

When the Philippines accepted the condition, the Philippine National Assembly passed the Sugar Limitation Law on December 4, 1934 setting the quota system.

At the time we produced (1934) 1, 565,405 tons but our national consumption was only 125,000 tons, including reserves. Compounding the problem was that 63% of our national foreign income came from our sugar export.

Now, what are we to do with over half a million tons of excess sugar, representing one third of our total crop and the main source of the country’s foreign currency? At this time the US was our only export market.

The quota system of classification and allocation was not only important. It was imperative. The country had to destroy all excess sugar. Canes in the fields were burned or left to rot.

This digression is necessary to underscore the reality that the circumstances of the time made classification for the US and domestic markets and for reserve correct and necessary. Today the circumstances are different and therefore this system is not just anachronistic but unfair.

There is no more excess sugar and in fact if the SRA estimate released for this year is our basis, then the 2.2 million tons is insufficient for the 2.1 million tons national consumption. This leaves only 100,000 for the US market and for reserve. In fact in this crop year, SRA did not allocate a single grain for reserve which is dangerous. The data suggest importation is likely and traders happy.

Moreover, the US export market is no longer profitable for the producers as in previous years. It is cheaper than the domestic sugar, so why are producers forced to sell to this low-priced market?

Let’s continue next week.*   

(Note: This column was supposed to be published yesterday.)

back to top