Hoarders

Law enforcement agents raided two warehouses in Pampanga and Bulacan this week. They found large stores of sugar in these places.

Fine. This is what our law enforcement agencies should be doing when supply of a commodity is tight and profiteering rampant.

It is always satisfying to see hoarders exposed and their stocks flushed out to the market. After sugar nearly disappeared from grocery shelves last week, it is reassuring to see pictures of sacks of sugar piled high. But the satisfaction will likely be short-lived.

We have to understand that hoarding and profiteering are symptoms of a more basic problem. Apprehending the hoarders could bring up supply and bring down prices for a few days. But soon, the opportunities for hoarding and price speculation reemerges if supply remains uncertain.

This was the same situation regarding rice until we finally lifted quantitative restrictions on the commodity’s importation. Each time there appeared to be a rice shortage, the warehouses were raided. Available supply was flushed out. Price speculators were sternly warned.

However, no rice trader has been jailed for the vague crime of “economic sabotage.” Price speculation is inherent in market behavior. Traders at the stock exchange do it everyday. Oil traders do it all the time. The high oil price regime prevailing today is the outcome of speculation that, since supply of the commodity is short, prices will likely go up.

In the case of rice, we solved the problem by subjecting the commodity to tariffs instead of limiting importation to those gifted with permits to do so. We know import permits have always been a source of corruption. They create unnecessary market uncertainties. The power to issue permits has always been part of the political spoils.

In addition, revenue from the tariffs was earmarked to fund modernization of the rice sector. Supply has been stable since. With stable supply, price speculators have become extinct.

The same condition achieved by liberalizing rice trade might be achieved in assuring the market predictable sugar supplies. Merchants, more responsive to market signals than bureaucrats, can import whenever they wish. The risk shifts from shortage to oversupply. This is more favorable to the consumer.

Those who import sugar must read the market very carefully. Oversupply will bring down prices and punish overeager importers.

The disparity between the price of sugar in our market and the price of sugar elsewhere, coupled with the uncertainties created by a system of import permits, makes smuggling quite rewarding. For some traders, the risks of intercepted cargo pales in comparison to the huge profits smuggling brings.

Gatekeeper

The Sugar Regulatory Administration (SRA) was created by executive order during the presidency of Corazon Aquino. It was intended to ensure the stable supply of sugar and drive the modernization of the sugar sector. It failed in the former mission and did nothing about the latter.

At the SRA board, planters and millers enjoy representation. No one represents the consumers.

The SRA, like the NFA used to in the case of rice, enjoys monopoly over the importation of sugar. When it does not issue an order to import, no one can bring in the commodity. This monopoly power benefits the planters and the millers even as it raises intolerable uncertainties for industrial users of sugar.

Many years ago, the US gave us a sugar quota. This quota enables our products to sell sugar to the US market without paying tariffs. This is a reward for our alliance with the US and for our sugar industry’s role in keeping the American market supplied after the US embargoed Cuban sugar after Fidel Castro’s revolution. As a friendly concession, it may be withdrawn anytime.

Part of the role of the SRA is to “classify” domestically produced sugar. This is to make sure that we fulfill our US quota ahead of meeting local consumer demand. The system does our consumers no favor.

Like the rest of our agriculture, our sugar cultivation is probably the most antiquated in the world. In the bad old days, the planters relied on the exploitation of cheap seasonal labor. Sugar cultivation here never mechanized when the rest of the world did.

To compound things, land reform broke up the large sugar estates and transferred cultivation to thousands of small plot holders. This defied the economies of scale. It pushed the cost of producing domestic sugar even higher.

In the bad old days, millers negotiated with a few landowning families. Today, they negotiate with thousands of small sugar producers but without any means to help them make their farms more efficient.

Milling is a seasonal business. Outside the harvest period, there is nothing to mill. A really bad storm can ruin a year’s crop and force everyone to poverty. This is the reason why the last recorded instance of famine in the country happened in the sugar lands of Negros.

There has never been any real incentive for millers to invest in more efficient technologies. The risks for any large investment in a seasonal business dealing with the uncertainties of each of thousands of small producers are simply too high.

President Marcos has committed to “reorganize” the SRA. That sounded like a commitment to get rid of the syndicates that take advantage of the agency’s monopoly over sugar imports.

At some point, we will have to recognize that the SRA itself is the “syndicate.” It is a collaboration of planters and millers against the best interests of Filipino consumers.