Rethinking the sugar industry direction

Two sectors in the country’s agricultural landscape rice and sugar had presented almost similarly compelling cases for liberalization, and yet received totally opposite responses from the country’s lawmakers. What gives?

In 2018, with higher prices of rice pushing inflation to stay at elevated levels for the most parts of the year, Duterte’s economic team urged Congress to open up rice importation subject to a table of tariffs. Early this year, the Rice Tariffication Act was passed.

To protect farmers who would be affected by the unimpeded importation of rice, the law set aside an initial P5 billion that would be used during the first year, and P10 billion yearly for six years under a newly established Rice Competitiveness Enhancement Fund.

The objective of the law was to use collected rice import tariffs to help Filipino rice farmers become more competitive and profitable, mainly through the introduction of modern farm implements and improved seed varieties, alongside assistance in forming cooperatives, more available credit facilities, and training.

Because imported rice is currently cheaper than locally farmed rice, government economists argue that this will bring down local rice prices and ultimately benefit the consumer while helping keep inflation down.

Same compelling reasons

Even before the rice law’s implementing rules and regulations could be drafted, the administration’s economic team presented the same compelling reasons as stated in justifying the need to liberalize the rice industry – but this time, for the sugar industry.

Like in the rice sector, sugar shares some peculiarly familiar characteristics. The sugar production cost in competing countries is far lower than ours, and for years now, has been edging out our exports in the world market. Local retail sugar prices are similarly higher than if we were to import.

The sugar industry has often complained of huge subsidies given by the governments in countries like Thailand, Vietnam, Indonesia and Australia. In response, lawmakers passed the Sugar Industry Development Act (SIDA) in 2015 that created a P2-billion Sugar Development Fund.

The money was supposed to have been spent on improving sugar producers’ efficiencies, but bureaucratic hurdles contributed to its low utilization to this day, especially in developing the scheme to consolidate management of small farms and providing for shared service facilities.

The country’s sugar production has also been decreasing as more sugar farmers are being forced to leave their farm lots after suffering successive cropping season losses. Uneconomically sized far lots have often been cited as enough reason for the inability to raise land productivity values.

Both rice and sugar have suffered at the hands of the Comprehensive Agricultural Reform Program’s land expropriation initiative, where parceling had become an obstacle to the introduction of farming technologies aimed at improving productivity.

Rice and sugar have likewise been many times a victim to trade and price manipulation by unscrupulous middlemen or groups that manage to form cartels to corner domestic supply and distribution.

Dissimilarities

There are however dissimilarities between the rice and sugar sectors, which could likely explain lawmakers’ almost unanimous rejection of the economic team’s call to deregulate the local sugar industry.

A resolution passed by the Senate recently argued that the very existence of the Sugar Regulatory Administration (SRA) already allows open importation of sugar. Senators also pointed out the passage of SIDA in 2015 that would need more time to realize any of its intended benefits.

The sugar – unlike rice – industry continues to contribute to the country’s gross domestic product through exportation. Last year, this was reported at P96 billion, largely paid for by the US, which continues to be the Philippines’ largest sugar export market because of a tariff quota system.

Unlike rice, sugar is vulnerable to wild fluctuations of world prices. In recent years, the growing preference of food manufacturers for sugar derivatives, like high fructose corn syrup, as a substitute to raw sugar had an immediate impact on supply and prices.

Perhaps, one of the biggest differences of the sugar industry is its strong, well organized, and influential lobby, which are closely linked to several members of the House of Representatives and Senate.

The Philippine Sugar Millers Association, the Confederation of Sugar Producers Association Inc. and the Sugar Regulatory Administration already make a most persuasive trio that is able to eloquently convince a host of partisan senators and representatives that liberalizing the sugar industry is going to kill it.

This is quite different story with the rice industry where the combined forces of activist groups that represent the interest of Filipino rice farmers have not been graced with positive responses by lawmakers.

Timing

Timing could have played a big role. High rice prices in 2018 were a burning public issue fueling inflation, which in turn was directly dragging down economic growth.

The snafu resulting from the delayed passage of the 2019 national budget had a direct effect on the late release of funds for rice farmers. As farm gate prices collapsed, the onus of defending the rice tariffication law was on lawmakers with news about thousands of rice farmers suffering from huge losses during the last harvest season.

Definitely, seeing the same thing happening to the sugar industry was something that was to be avoided, especially with the local sugar industry suffering from low prices. As inutile as the sugar industry development law seems, it was a useful reason to silence any talks about imposing a new tariff regime on sugar.

This time, the sugar industry emerges a winner again. Consumers will just have to wait another time to taste the sweetness of lower priced sugar.

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