SRA replies - 8

During lunch last Saturday, I met a prominent businessman who asked me a series of questions, further clarifications actually, on this series of columns on the reply of the Sugar Regulatory Administration on my earlier pieces. He said that in the past the discussions had been sort of perfunctory, but do not go deeper into the ramifications of the development of the sugar industry.

He asked whether indeed, as SRA Administration Regina Martin was reported to have said in Bais, that the Philippine is ready for the entry of cheap imported sugar. He said that he had attended one of the conferences of SRA on this preparation and he was more confused than assured.

I suggested to him to just follow this series because I will deal with that subject later on. In the meantime, we are dealing with the significance of the planned quedaning of molasses. He and several others during the last week have asked questions that require more digressions. Indeed, there are too many unasked and unanswered questions because nobody opened the Pandora’s Box before, particularly on the ramifications of the sugar allocation.

To continue on yesterday’s issue where I stated: The danger to producers and even to other non-ethanol buyers is that if SRA allocates X percent for ethanol then prices will be controlled in favor of fuel producers.

Since SRA is mandated to develop the bio-ethanol industry and not the other users, it will perforce insure that ethanol plants are provided with adequate and lower-priced molasses. This can be done through allocation that forces the planters to sell to ethanol industries even if that market proffers low price.

This is simply because this X percent of molasses has nowhere else to go but to bio-fuel industry that will determine the price at which they can be profitable. This is akin to forcing the planters to sell to the US market despite its low price.

The opening of more bio-fuel plants will necessarily bring about competition for feedstock which is mainly molasses. The natural law of supply and demand ought to bring good prices for the molasses owners. However if X percent of their molasses is mandated for bio-fuel then this natural law ceases to operate fully and certain priority users will be protected and made profitable to the detriment of the owners.

This is the reason that it is imperative for SRA to also allocate molasses partly to bio-fuel, otherwise this new industry will fail. A cheaper molasses is its own means of survival and prosperity.

If molasses is left to be freely traded, the bio-fuel industry would find it difficult to compete with the other users. The experience of the ethanol plant in San Carlos is a case in point. It could not compete for its feedstock in the free market.

The allocation of molasses to bio-fuel will be justified in similar fashion as that of sugar. But what happened because the SRA allocated for the cheap US market and forced a precipitous supply for the domestic market? For the first time since the allocation system was adopted in 1935, there is no reserve or “C” sugar.

This in effect raises domestic sugar prices. The consumer will have to pay to protect the sugar producers who are disadvantaged by the cheap US sugar allocation. SRA calls this balancing the interest of the consumers and the producers.

What SRA is not telling us is that the system benefits the US consumers. The producers are paid P1,400 per bag while the Americans pay around P600 for the same volume. Who do you think covers the difference?

While I was writing I received a message which speaks volumes. It says “the “A” market price is below cost of production making it a crazy if not stupid choice.” A follow up message states “the irony is that is those who suffer do not have say in it.”

Indeed the planters and millers allowed this mechanism that surrendered their rights in 1934 for the greater good, and when circumstances of the time called for such allocation. Our independence was at stake. But that time is past. We have no more excess sugar and while our consumption is increasing our production is declining from poor farm and mill performance and shrinking land area. There are new competitive players in the international market waiting to sell cheap sugar to the US.

But why should the planters allow this confiscatory system to continue?   

Let’s resume next week. There are more interesting changes that will transform the industry.*

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