Looks like President Junior flubbed his first crisis, a really minor one if he only handled it properly. He exposed his lack of experience and know-how. Looks like his learning curve will be steep.
He made a political decision. He should have taken time to understand the empirical data on sugar supply and quirks in the way the industry is regulated.
In the end, Junior realized his technocrat was right and there is a need to import to alleviate a shortage already happening. To save face, the volume was reduced by half and Junior said the decision to import would be made by October after we consume stored volumes, which a politician said was around 127,000 metric tons.
Problem is, Junior cannot just go online and order 150,000 metric tons of sugar from Lazada and it will be delivered the following day. Importing takes time from order to delivery.
Then again, there is something quicker than Lazada. An order can be issued to release sugar stock reserved for export that no longer make business sense anyway.
The truth is, we don’t have a good handle on what is the actual inventory despite the tight government control of sugar stocks. For one thing, they are not counting sugar in the country reserved supposedly for export even if there is a domestic shortage.
In all the confusion, there were clumsy efforts for damage control. Consumers like me are not interested in the complexities of our sugar industry and how it is regulated. We just want to be able to buy the sugar we need at the right price.
I checked with my neighborhood supermarket last week and yes, a kilo of white refined sugar is priced at P102. The almost 50 percent higher price than normal is proof that there is a shortage of supply, that’s the basic law of supply and demand at work.
That the shortage is due to hoarding, is probably true to some extent. But it cannot be the whole story.
Raiding bodegas where sacks of sugar are stored is a knee jerk damage control measure of every president to deflect blame.
Government officials conveniently blame market price problems to hoarding. They raid bodegas and media loves that because it produces action footage. But does it help?
Probably some stocks will flow to the market, but not enough to get prices back to normal. The big traders whose business involves manipulating the market are often well connected and will remain untouched.
Questions arise: what happens after a raid? Are the supposedly hoarded stocks confiscated? After confiscation, how are those stocks distributed to the market? Are charges of hoarding filed and seriously prosecuted? We haven’t heard of anyone going to jail for hoarding.
Lawyers tell me it is not an easy charge to stick because defining hoarding is very difficult. What constitutes hoarding is more an economic question.
So, all those headline stories of Customs agents raiding bodegas are more political theater than anything else. It is part of damage control.
It is good to know the big retailers will each sell one to two million kilos of their sugar stocks at P70/kilo until supply lasts. Another good press release until the retailers say they have no more stocks to sell.
On the other hand, I wonder why the SRA, under then Secretary Dar, rejected the request of two sugar mills to reclassify their class A sugar to class B. That would have provided sugar for sale to the domestic market to ease the shortage.
Since class A sugar is not counted as domestic supply, are regulators simulating a domestic shortage to justify importation? Why even allocate for class A sugar at all? This only deceives the public as if we are still in the glory days of exporting. Conversion of Class A sugar should take priority over importation.
SRA knew as early as January this year that there would be a shortage. Why aggravate that by allocating sugar for export?
Logic tells us that if we must allocate sugar production, priority should be domestic, then export only if there is a surplus. The attachment to the US sugar quota is a source for corruption. Some use it to buy cheap sugar from elsewhere after exporting local sugar to the US, making a killing in the process.
With the resignations at the Sugar Regulatory Board, reconstituting it is a good opportunity for Junior to make sure steps are taken to reform its policies and end protectionism. But can the appointees break away from the past and reform the sugar industry?
Junior needs a respected economist who will do the balancing act, the way Arsi Balisacan handled the competition commission. Better that the regulating body does not include the regulated. But that’s not the tradition in sugar regulation.
As it is, Junior’s own economic team has expressed concern that this sugar mess will have negative repercussions spilling over to the informal economy and hurt the poor. Secretary Balisacan told economic journalists lowly vendors selling street food like banana and camote cue rely on affordable sugar prices.
“There is a lot of employment that will be affected by soaring prices… you need to have a kind of balancing act. While we protect our farmers from headwinds, we also have to ensure that the tools we employ to protect our farmers do not harm the rest of the economy, specially that we are trying to get poverty reduced, the economy moving at a high growth trajectory,” Balisacan said.
The supply of sugar must grow with the economy to stabilize prices, Balisacan said.
Maybe it was a mistake for Junior to take on the agriculture portfolio, specially at this time of food crisis. The PR mileage from it is limited. The reality is, he doesn’t have the time, the experience, nor the sectoral knowledge to do a good job of it.
The price of white onions has also gone through the roof if you can even buy any. Burger King published a meme on social media apologizing to their customers for the absence of onions in their burgers.
Rice and sugar are two big problems. It will be difficult to balance politics and good economics in both. Junior needs someone other than himself in the line of fire so he can make his Solomonic decision later.
Boo Chanco’s email address is bchanco@gmail.com Follow him on Twitter @boochanco