INTRODUCTION

It is believed that early Arab traders had introduced sugarcane into the Philippines even before the Spanish era, and indeed the plant is found throughout the country in various wild species making the Philippines a source of noble cane or genetic material for breeding purposes.

The culture of sugar cane as a commercial crop started in the Philippines in the 18th century, and by the 19th century the crop had adapted itself so well to our soils and climate that sugar became a major commodity for export. By the 20th century, the growing needs of America for sugar fuelled a major expansion of the crop. This, together with new technology in sugar milling and the provision of adequate financing, created what is now known as the Philippine sugar industry.

The crop is currently grown in 17 provinces which are widely distributed in 8 regions from the northernmost island of Luzon to the southernmost island of Mindanao. The island of Negros in the central islands of the country , with its 17 operational mills, remains the primary cane-growing region accounting for about 55 percent of the total land area planted to sugar cane. Rapid industrialization in Central and Southern Luzon, where Metro Manila is located has resulted in a significant reduction in hectarage in the island. On the other hand, the opening of new farms in the island of Mindanao signifies the growth potential of the island for sugar production.

The Independence Era after World War II saw further growth for the industry, as it retained access to the lucrative U.S. market and enjoyed the post war boom. Sugar established itself as one of the young country’s major products in trade and commerce, created wealth, spawned development, gave employment, and often enriched its major players. In so doing, it created both political friends and social enemies; and its complexities, often misunderstood, in later years destroyed its reputation and maligned its modus operandi.

About 40,000 farmers and another 500,000 farm workers are currently involved in cane growing, making the sector one of the largest employer in the country. The close to 520,00 individuals directly and indirectly dependent on the industry represent close to 7% of the country’s population.

While the U.S. limited importation from the Philippines in the 50’s with a quota, the lucrative prices that prevailed at the time allowed for sustainability and growth. This then resulted in another export boom after the imposition of the Cuban embargo by the U.S. in the 60’s. The sugar industry prospered, old mills expanded capacity and in the 70s alone, 11 new ones were built as new land areas were put under cultivation. Prices and markets were so good that, supported by adequate government financing, production reached a total of 2.7 m tons in 1977, of which 2.42 million metric tons were exported to the U.S. and World Markets. Domestic demand was about 0.82 million metric tons at the time.

When the Marcos dictatorship saw the lucrative sugar industry as a potential source of financial gain, especially in the midst of rising world market prices in the early 70’s which reached the 56 ¢ a lb. level in November 1974, a monopoly was established to handle all sales of sugar and promote further development of the industry. The monopoly’s gain was shortlived, however, as world market prices tumbled to below the cost of production and as the Philippines lost much of its U.S. quota with the expiration of the Laurel-Langley Agreement which gave practically limitless preferential access to Philippine sugar in the U.S. market. The Philippines was exporting around 1.6 million metric tons to the U.S. when the said agreement expired in 1974. The volatility of world sugar prices is shown.

The collapse of export markets, both to the U.S. and the World, was compounded by a silent but pervasive policy of the Marcos regime, to keep urban consumers satisfied and hold at bay demonstrations by keeping food prices down in the cities through price controls and government monopolies. These market distortions through price interventions could not be sustained, however, and in time the sugar industry collapsed. Production dropped from a high of 2.7 m tons to a low of 1.3 m tons in 1987, when sugar came to be called the "sunset industry", and when insurgency prevailed in most sugar growing areas that were then called the "social volcanoes" of the country. While the industry was able to overcome the crisis of the 1980s, sugar production continues to follow a downward trend as shown.

After the peaceful Revolution of 1985, the sugar monopoly was dismantled, nationalized sugar mills and refineries acquired by government were privatized, and market forces were restored, albeit under the protective guidance of government which established the Sugar Regulatory Administration. The SRA’s major mandate was to rebuild the industry, spur its further development, and regulate inventory levels. It allocated sugar production, through quota classifications, to supply domestic markets, the U.S. quota, and all surplus or residual sugar was destined for the world market. It had a mandate to regulate supplies and keep markets supplied, but had no authority to buy, own, or much less even manage sugar marketing. This seeming contradictory policy has resulted in daunting problems as, except for the few times that prices were kept stable, most of the time it failed in its duty. While the retail prices of sugar were kept at high and stable levels, the SRA could not control the drastic fluctuations of millsite prices of raw sugar, to the detriment of the producers. To use a variance of a well known cliché - it baked the cake but could neither keep it nor eat it.

To make matters worse, the Philippine government, while the monopoly was in place and subsequently when the SRA was established, still assumed that the country had the competitive advantage to remain an exporter. Internationally, it supported the liberalization of the sugar trade and the lowering of tariffs hoping to penetrate more markets. Domestically, it made no provisions to shield its market from either efficient exporters or the volatility of the world market. It offered a Margin of Preference of 35% to refined sugar from ASEAN countries in the Preferential Tariff Agreement of 1977, when government built three new refineries. In 1990, it offered a tariff reduction program at the Uruguay Round of GATT greater than most sugar producing countries. Little did it expect at those times that Thailand would embark on a major investment and development program for sugar and that Australia would take such bold steps to stimulate further its already efficient industry.

The result has been that the tariff concessions (initially at 100% and a final bound rate of 50%) have worked against it and have facilitated entry into the Philippines of world market sugar while its own industry struggles to reform itself and adjust to a changing economic environment internationally as well as domestically.

The passage of time, the experience of the Marcos created monopoly, the Aquino land reform program, the new urban based shift to industrialization, and the winds of change in trade policy all tell us that the Philippine sugar industry must metamorphose and change its shape, character, and destiny.

Farm productivity and farm size

To be competitive in the global economic environment, a sugarcane farm requires a minimum economic unit or size. It also requires equity investment, good management, and the practice of the findings of the latest productivity enhancement research.

A sugar farmer in Okinawa can consider 7 hectares as an economic unit, he sells his product at three times the high U.S. price and receives a green payment or subsidy from the 200% tariffs on all sugar imports into highly industrialized Japan. This farmer is assured a middle class life or he will abandon his farm for the city.

His counterpart farmer in the Bicol or Cagayan provinces has hardly any financing, poor infrastructure, sells his product at a third of the price of his Japanese counterpart, and ekes out a living that assures him a peso based "D" market income for the rest of his life. The declining farm yield is an indication of the sorry state of productivity of the farmers in the Philippines.

To earn a middle class income, therefore, he needs at least 5 times the size of 7 or 5 hectares of land. Anything else is not an economic. For him to compete with an Australian farmer, he must have at least half the size of an Australian farm. However, about 71% of the sugarcane growers operate farms not larger than 10 hectares and the number of such farmers is growing owing to the effect of the Comprehensive Agrarian Reform Program of the government.

Land tenure and ownership

The Comprehensive Agrarian Reform Program (CARP), a law passed in 1987 to cure social unrest in the Countryside, distributes large plantations in excess of 25 hectares to its workers and beneficiaries. As a result of the program, the average sugar cane farm size has shrunk from 14 in the early 70s to only 9 hectares in 1993. The distribution of farms in parcels of 3 to 5 hectares, patterned after rice to pacify the landless, and the natural redistribution through inheritance of farms over 100 years, have rendered most Philippine sugar farms uneconomical in terms of size and harvesting systems, and have made extension extremely difficult. The system of redistribution under the law, where government purchases the land from the landowner at nominal value without regard to improvements and equipment, has halted investments in irrigation, soil amelioration, and new equipment. Moreover, since banks cannot foreclose mortgaged lands and sell them on the open market, government being the only buyer by law, financing by banks has ceased. Where, on the other hand, the land has been awarded to beneficiaries, they in turn start business with a 30 year debt on the land and no capital or equity to invest and scarce financing from government banks. This has all resulted in lowered productivity, insufficient technology, and a new bondage to the soil by small farmers who in time have discovered few options but to abandon, lease, or sell their rights. The meager size of their holdings, whether individually or collectively owned, has contributed to this problem.

While the CARP has a few success stories in rice and vegetables, and indeed served the purpose of appeasing social unrest in the countryside, it is now, on its tenth year, undergoing scrutiny. The law is poised for amendments that would encourage reconsolidation through cooperatives and even perhaps the forming of corporations and joint ventures with entrepreneurs, not the least of which are the sugar mills themselves in the case of sugar. Plantation crops such as bananas for export, pineapple, and rubber have already formed a modus operandi with the CARP, and it is only now that sugar has entered this stage. It may perhaps take another five to ten years more before sugar fully adjusts to these new structures in land tenure and can gain the impetus required to rebuild itself fully.

Research, development and extension

The sugar industry has relied for too long on research and development to be undertaken by government. The trend in many sugar producing countries has been to privatize this activity as no one will look after the benefits of R & D, search for new technologies, or innovate production processes as much as he who stands to benefit the most. The SRA is mandated by its charter to privatize R & D but the private sector thus far refuses to assume the full responsibility and enforce the collection of a lien paid by all producers to carry out this mandate. Oppositors bicker, independent growers sue, and leaders squabble, while year after year the industry foregoes the benefits of the latest technology because it refuses to pay for it collectively. An enabling law is being considered in order to remove all government intervention in R & D and place it squarely in the hands of the private sector.

Management and cultural practices

Agricultural practices - from proper plowing and cultivation to insect and disease control, and extending further beyond to partial or total mechanization - are mostly obsolete in Philippine farms. Technology is circa 1930s and at best late 50s. Cultural biases and a lack of education and extension prevent modern methods from being applied, especially in the smaller farms. These conditions have been identified in a number of studies as one of the primary culprits to the declining farm productivity and quality of cane delivered and crushed in the sugar mills as shown.

There is a need to carry out a well defined extension program to educate, train, and motivate farmers to intensify management and apply modern methods. The gains in productivity, considering climatic conditions and soils in the Philippines, can be astounding provided the economics can be proven to the farmer and he can secure the facilities and credit to match new technology.

Obsolete mills

In 1991, the sugar industry started to implement a Rehabilitation and Modernization Program to upgrade the mills which have been left in a state of disrepair and obsolescence during the crisis in the 70s and 80s. While it is true that some of the mills have invested and completely re-built and changed their equipment, making them the equivalent of new mills, and others have made major investments in upgrading or adding equipment- it is undeniable that many mills are also maintained in their dilapidated state and used as milking cows by their proprietors. These mills not only produce inferior sugar which oftentimes fetches lower prices, but also prevent farmers from optimizing the potential of their farms. They are prone to breakdown and cause harvest losses and have very poor extraction, significantly contributing to the decline in sugar recovery per ton of cane.

Since a sugar price shakedown will also hurt those not guilty of complacency, such as investors in new or rehabilitated mills, the only answer would seem to be for the SRA, given proper authority, to impose mandatory recovery rates and capacity parameters as conditionalities in granting milling licenses. Other options would be the imposition of market-based incentives, fines and stricter regulations, either through the SRA or self-regulating mechanisms.

While ruinous competition by overlapping and interloping mill districts is a malaise, the other extreme where a solitary mill takes advantage of its position to maximize profits at the expense of the farmer is just as serious a malaise. The industry will have to come to terms with this problem sooner or later and a re-study of the situation is called for. In Queensland, redistricting has been carried out with the help of state authorities who enforce rights-of-way and build the necessary infrastructure. Perhaps a similar approach should be undertaken by the Philippine government.

Forward integration/diversification

It has been determined worldwide that forward integration is not a part of the sugar business, and that manufacturing candies or bottling beverages is not a necessary direction for sugar mills and refineries, only an investment option. Sugar cane milling however, produces large volumes of by-products particularly molasses, bagasse and filter cake/press.

That having been said, it is also noteworthy to mention that by-product diversification (e.g., alcohol from molasses, paper and particle board from bagasse, vegetable dehydration with steam) is a very viable corollary business to sugar manufacturing and that waste product utilization (e.g., organic fertilizer from filter mud, co-generation of electricity from bagasse) are very profitable undertakings. In many countries and numerous mills throughout the world, this has occurred, spurring the development of industrial estates beside mills, but the Philippines has been unable to do so because of an obsolete law passed in the early 50s which mandates the sharing of by-products between the mills and the planters. This law has prevented the development of downstream industries by mill companies. Meanwhile, undetermined volumes of surplus bagasse, and filter press lay in waste in mill yards and in fact contributing to the environmental problems of many mill companies.

Backward integration/extension

The introduction of new technology can best be done by the mills as they are in a position to hire professionals for the purpose and to access technology internationally. Having more cane supply and better quality cane increases mill profits, thus the incentive is there if the need is identified and the environment for it is in place.

Proliferation of small farms and perhaps even the abandonment of uneconomic-sized farms will also encourage mills to lease larger and larger tracts of land to farm themselves. This has occurred worldwide and is starting to happen in the Philippines, as smaller and smaller farms become less profitable when compared to the efficiencies that can be attained with modern methods and machinery.

The backward integration of mills through the operation of large tracts of land is expected to give the mills better control of the harvesting program and improve the synchronization of cane harvesting - milling operations which at present, is a major problem and contributory factor to huge sugar losses due to delayed milling of harvested cane.

Extension, credit support, and education is also a vital component in ensuring cane quantity and cane quality for sugar mills. Sugar factories for the past 30 years have limited themselves to the confines of the mill yard and forgotten the farms in contrast to the 1920s and 1930s when most mills were established and cane supply was a major concern. They now have to look again at sugar cane productivity enhancement, and the supply of related vital services, as a major mill activity.

Pricing policy and tariffs

The law that created the Philippine SRA calls for a pricing policy set to make sugar farming and milling profitable, while keeping prices to consumers reasonable. In most major sugar producing countries, this is done by regulating domestic supply within volume parameters that allow market forces to operate within a certain price band. The mechanisms for this regulation, however, are subjective and not spelled out in clear terms in the law or its implementing rules. This has led to wild swings in prices as SRA Administrators or Agriculture Ministers are changed and their interpretation of policies change. Price stability is now known more for its absence, in the case of sugar, than for its promised implementation.

Tariffs for commodities are usually held at levels that insure against imports from subsidized or dumped markets, and are usually in consonance with pricing policy. As the world sugar market is known for its volatility and unpredictability, cyclical nature, and uncertainty in the medium and long term, the Philippine tariff concessions offered at both the GATT Uruguay Round and the ASEAN Free Trade Area Agreement (AFTA) may prove insufficient to keep farmers profitable when sugar prices fall below the Philippine average cost of production. The question is not whether the Philippines can export sugar at 10¢ a lb. or less, but more one of whether the Philippine sugar industry can survive when sugar is allowed to be imported in unlimited quantities at those levels. Without a pricing formula firmly in place to maintain domestic prices at remunerative levels, it is estimated that half of Philippine sugar farmers would abandon their crops when world markets collapse. Sugar mills, lacking cane supply, would be forced to close, and the country would be unable to attain or regain even self-sufficiency.

Recent moves by government, which organized this year a Presidential Task Force on Sugar to address this problem among others, indicate that corrective measures are necessary with regard to tariffs and inventory management, coupled with major policy changes to make the industry more efficient.

Monitoring and regulations

A government agency, such as the SRA, must estimate domestic needs and provide a stable supply from production or controlled imports to meet these needs.

The quedan system of Warehouse Receipts as it now operates was established by the American Colonial government in the 1920s. The system offers an ideal framework to carry out this task. All sugar is classified as to market destination and market benefits are fairly distributed to all producers. The sugar quedan likewise offers itself to collateralization through the Warehouse Receipts Law, and, therefore, secures financing for sugar and enhances its trade and marketing.

A review of the system of classification as to market share or destination is, however, necessary as mills located near urban centers or located in the interior are no longer interested in export markets, while mills with their own ports in distant provinces can efficiently export sugar to viable markets such as the U.S., or even the world market when prices justify.

Legislation

As legislators tend to favor certain constituencies with their own perceived needs, they are prone to be pressed for special legislation favoring one party versus another. It is now felt by many that government’s role should be to create the environment for the industry to grow and prosper, and not to draft bills and pass laws which create artificial costs ( such as the Social Amelioration Act, Profit Sharing for large estates under CARP, VAT on Refined Sugar, Republic Act 809 mandating sharing levels between mills and planters, etc.) that tend to favor certain sectors or create imbalances within the industry that do not exist in neighboring countries.

The industry’s needs would best be served if constrictive laws are repealed and replaced with none. Incentives to agriculture must be made universal and not Board of Investments-regulated, and certain incentives, such as loss carry-over and tax free importations of specialized machinery and equipment must be promoted for agriculture and agro-industry in general. Sugar and agricultural products, all bulky commodities transported over great distances, are forced to pay high tariffs for trucks to protect local assemblers. Agriculture pays high tariffs for plastic products to protect local manufacturers, pays value added tax and high tariffs on chemicals and equipment imports but is unable to recover this from its selling price.

It now appears that state policy and legislation is skewed in favor of industrial expansion to the detriment of agriculture. This is the one area which needs further correction as the industry enjoys no subsidies but sometimes feels that it suffers from indirect subsidies to other industries.

Industrial users

In fairness to producers of sugar-containing food products, producers should not only supply the domestic market with adequate supply and carry sufficient inventory stock, but should also consider a sugar price that is defensible in the greater context of the global environment. An internal sugar price that is the average of say Indonesia, Thailand, and Mexico (all Pacific-Rim developing countries producing sugar) is a fair target to maintain and a fair price level to both producers and industrial users.

For industrial users to lower prices to unreasonable levels due to a bumper crop or for producers to sell at exorbitant prices in times of crop failure is an unreasonable situation that can only create a backlash. Price bands should be agreed to, as they are in many countries mentioned, when the product in question is a basic commodity and a major crop grown by a major segment of the rural population.

Imports should be resorted to as a last resort, and only when government declares that a shortage indeed does exist. GATT commitments and agreements should be respected, but are difficult for producers to accept as fair when sugar prices and stocks in most producing countries are "managed". Except for perhaps Australia, sugar is still subjected to high tariffs that are used as farmer subsidies in some countries, is limited in trade by rules on pooling in other countries, or is controlled through state trading agencies in yet others. The recent entry of refined sugar from the E.U. into Philippine Export Processing Zones and Free Ports at zero tariff, and the entry of sugar containing manufactured goods such as candies and chocolates from tariff free city states has rendered the ideal of entering an era of global liberalization in trade in question. The industrialized countries must lower their tariffs to levels that reflect competitive advantage, and at a faster rate, otherwise the dilemma that faces producers of sugar and sugar containing products in the Philippines will continue to be a subject of political debate all over the world. It would be a pity indeed if the economic gains that liberalized global trade offers for the future cannot be applied to agricultural products until the next generation.

Marketing and trade

Sugar trading and marketing in the Philippines has been returned to the private sector, but with a vengeance as a backlash to the Marcos monopoly, and is proving to be too fragmented. Sugar mills and planters’ associations and cooperatives do not market and sell sugar collectively, as individual planters, mostly small, sell their sugar to a ladder of traders. Too many hands all add to the price as sugar volumes undergo consolidations prior to refining and then again have to go through another ladder of traders, distributors and dealers prior to reaching the retail markets. The present cost of intervention in trading is exceptionally high and must be brought into line for the greater benefit of all producers and consumers. The role of traders should be more as market distributors rather than that of quedan consolidators, while lately sugar trading has even become more of a speculative business on its own due to the high fluctuations in price that occur in the domestic market.

LABOUR AND SOCIAL CONDITIONS

While labor in the mills is highly unionized and, therefore, amply protected by Collectible Bargaining Agreements and existing legislation, the opposite is true in sugar farms, both big and small.

Sugar is a seasonal crop where, even if high wages would become mandatory and enforceable, the conditions of feast and famine would continue to exist among plantation workers. This, again like in other sugar growing areas around the world, is not unique to the Philippines. The answer might seem to be to subsidize wages in the off-season, a practically unaffordable alternative, or to create a seasonal parallel industry that can operate during the sugar off-season, perhaps an unrealistic alternative as well. If we look at what other countries have done, we see the replacement of man by machines, in part because fewer men have to be subsidized during the off-season. To do this, the Philippines would need tremendous investments in mechanization and a massive re-education and re-deployment of labor including a relocation strategy that would move labor to potential employment centers. This relocation is occurring now. Unfortunately, the result of urban migration and squatter colonies in the big cities.

A well-designed plan with a rural industrialization component is now being undertaken by government and would probably be achieved over a twenty-year period. This may sound like an unattainable objective but it has actually become a necessity if the country is to squarely face its options for the future. A well-planned strategy is called for, with clear objectives and the will, by both the government and private sector, to carry it out.

COMPARATIVE ADVANTAGE

The middle islands of the Visayas and the northernmost island of Luzon lie in the typhoon belt of the Pacific Ocean, and its eastern seaboard, often visited by as many as twenty hurricanes a year two or three of which are often considered as destructive, is not suitable for maize, many tree crops, and year round agriculture. Sugarcane, however, grows luxuriantly and well, and suffers little from typhoon damage. It is, therefore, a crop of preference not only because its product, sugar, has a long shelf life and is easily transported, but because the farmer is never really in danger of losing his entire harvest because of its resiliency.

The southernmost island of Mindanao is typhoon free and therefore sugar competes with other tropical crops in a balanced manner reflective of market conditions and investment priorities.

The Philippines also does not have large tracts of land as most islands, due to their geological origins, have a large percentage of mountainous areas. Most islands, moreover, not having a major land mass to serve as a catchment area, are also mostly dependent on the rains of the monsoon season to feed their rivers.

All told, this would indicate that, allowing for other crops, not more than 100,000 additional hectares of land could be made available for sugarcane cultivation in the future, about 50,000 in Luzon and another 50,000 in Mindanao. The Visayan islands of Negros, Panay, and Leyte have probably reached their full potential. The present 370,000 hectares under cultivation may soon be reduced by as much as 10% to provide for urban sprawl in the midst of an economic boom and to retire lands that are too unproductive or distant from sugar mills to pursue cultivation.

Increases in production would, therefore, have to come from increased productivity on 370,000 hectares and from new areas not to exceed 100,000 hectares. Given the right government policy and assuming a pricing policy remunerative to investors, both in mills and farms, the Philippines can, therefore, attain and continue to sustain self-sufficiency.

The Philippines has the financial capability and human resources to develop the industry to competitive global levels. Much will depend on the time when changes in the investment environment mentioned are carried out. If done in the next year or two, then we will be on our way earlier, if not, then we shall see a decimation of at least 50% of the present players after which there will surely be a backlash that will cause policy changes to be put in place. The question, therefore, is not whether the Philippines will become an exporter of sugar again in the future, but whether it will be able to supply its own growing appetite and demand for sugar and perhaps keep its share of the U.S. market while it is still there.

Research and Development

The industry’s performance has been marked by fluctuations in production, from 1.7 million tons in 1990/91 to a high of 2.1 million metric tons in 1992/93 and down again to 1.65 in 1994/95. While climatic factors do play an important role, it is felt that the major cause has been due to fragmentation of farms to smaller production units which are highly dependent on yearly price fluctuations and do not have the financial resources. Moreover, the lack of capability to restore full production in many areas and the inability to improve productivity have been attributed to a lack of research, development, and extension.

Concerned with the declining yield and productivity of sugarcane farms, the National Council of Sugar Producers commissioned an audit of the sugar industry in early 1995. The study team was composed of Dr. Rosario of Madecor, Dr. Heinz formerly with HSPA, Dr. Ryan of BSES, and Dr. Paningbatan of UPLB.

The main recommendation of the study team was to strengthen the existing research and development support. Thus the Philippine Sugar Research Institute Foundation, a privately funded and administered foundation was organized in late 1995.

Initial Activities of PHILSURIN

To have a focused direction in solving the problems of the industry, PHILSURIN conducted the following studies:

1. Internal assessment of the sugarcane breeding program. This study resulted in the rehabilitation of the photoperiod chamber in La Granja, rehabilitation of the quarantine facilities of BPI in Los Baños, training of two sugarcane breeders in Colombia and Florida, and more importantly an integrated sugarcane breeding program for the country. The study also highlighted the inadequate manpower pool of highly trained scientists involved in sugarcane R & D. To this end, PHILSURIN will provide scholarship grants to UPLB to train five PhDs in the next three years.
2. Evaluation of the fertilization recommendation of SRA. The study has just been completed and the recommendations will be implemented in the coming months.
3. Cane handling and transport system. This was conducted by a team from Sugar Knowledge International Limited of UK. This study has just been completed. The objective of this study is to come up with solutions in reducing the delay from cutting to milling.
4. Integrated management of sugarcane ratoon stunting disease. This study has just been started.

To strengthen extension, PHILSURIN has conducted a three day seminar for more than 200 extension workers in the industry. It has also hired several Mill District Development Committee Coordinators to ensure speedy delivery of new technologies to the planters.

More are needed to be done. PHILSURIN is committed to raise the level of productivity of the sugarcane planters to be in a competitive position with other sugar producing countries of the world.

SUGAR DEMAND PROFILE

In 1993, the industry commissioned a study by the Center for Research and Development of the University of Asia and the Pacific to determine the short and long-term prospects for sugar. The study included a Market Research component done by the Asian Research Organization (a member of Gallup Poll International).

The Philippine archipelago was sampled as to per capita variations in different locations and under varying economic conditions. It concluded that on a per capita basis, Ilocos region, Metro Manila, and Central Luzon had the highest usage in 1993 at 18.3 kg., 18.0 kg, and 16.6 kg., respectively. All the other regions, including two in Luzon and seven in Visayas and Mindanao recorded a per cap consumption below the national average. Per capita consumption for all regions ranges from 11 kg. to 13 kg.

The study likewise investigated market distribution channels. On the demand by different user groups it concluded that for the same period, the country’s total consumption grew by 3.5% annually. By main groups, i) household sugar consumption rose by 3.5%; ii) industrial use by 4.6%; and iii) by contrast, institutional use declined by 1.8% yearly.

Finally, sugar demand for the future, considering price elasticity, comparative trends in other developing economies, and population growth indicated that the country’s consumption of sugar, in raw sugar terms would grow by 3.3% to 4.3% or from 2.06 to 2.19 million metric tons by the year 2000. Furthermore, looking beyond to the year 2010, it was possible that local consumption would reach a high 2.95 million metric tons.

SUGAR PRODUCTION PROFILE

General Information

Sugarcane is grown in 17 provinces located in 8 regions on 6 islands. It is grown on a wide variety of soil types, from sandy loams to clay loams and from acidic volcanic soils to calcareous sedimentary deposits.

The island of Negros accounts for half of the country’s total production, and is ideally suited for cane cultivation, as climatic factors such as regular monsoon rains and low typhoon incidence complement its good soils.

The harvest season commences from October to December depending on whether the area is on the eastern or western seaboard, and ends more or less in May. Rarely does the grinding season exceed 180 days except in the Victorias Milling District, due to even rainfall distribution, but this has been put in question lately as the Philippine window for cane ripening appears to be limited by a dry period of 120 to 150 days.

The agricultural sector

Planted area has declined from a peak of 540 thousand hectares in 1975/76 to a trough of 345 thousand hectares in the 90’s. Sugarcane production has closely followed trends in hectarage, with a peak of 29 million metric tons in 1975/76 to a low of 14 million metric tons in 1986/87. The 90’s have been marked by periods of declining productivity, mostly attributed to poor farm cultivation and poor harvesting schedules in addition to insufficient development and extension capability. However, the scientific community attributes these figures to years of neglect in research and development.

The number of sugarcane farms has reached about 41,000 where 80% of planters cultivate holdings of 10 hectares and below, although they collectively own only 29% of the country’s total cane area. About 55% of the land is owned by planters with more than 25 hectares. These lands, however, could no longer be mortgaged or sold since 1987 as they await coverage of land reform and purchase by government to comply with CARP. Whether these farms will be fragmented further, consolidated thru joint ventures of corporations with beneficiaries or cooperatives, or leased by mills is an unknown factor at the moment as the CARP is scheduled for review and possible amendments in 1998.

Except for about 10,000 hectares of land with varying degrees of mechanization, and some following fully Australian mechanized planting and cultivation systems of the early 80’s, most farms use manual labor extensively and use a mix of tractors and buffalo for plowing and land preparation.

A few unsuccessful attempts have been made to harvest with chopper harvesters, but the industry seems to be moving to a manual cutting/ grab-loader combination in most areas. The number of farm workers nationwide is about 500,000 with total direct or indirect dependents of some 5 million people.

Productivity, in terms of TC/Ha as well as sugar content or TS/Ha, has been on the downtrend. Sugarcane yields now average nationwide about 50 TC/Ha while sugar yield is at about 4.5 TS/Ha., although highs of 100 TC/Ha and 9 TS/Ha have been proven to be achievable in most areas where irrigation is practiced, cultivation is well-managed, and harvesting is timely. The higher yields have been attained with exciting varieties despite productivity constraints in disease resistance, ratooning capability, and sugar content.

The milling sector

There are 41 installed sugar mills in the country where 37 are operational, and with varying capacities. Most are located in the main sugar growing island of Negros along the fertile coastal areas. Rated capacity indicates that most mills are of an economically viable size subject to sufficient cane supply. Grinding capacity averages about 5,000 TC per day using conventional milling equipment. Half of the mills have been upgraded in the past five years at a total cost of about P10 B while about half are short of cane supply, lacks capital, or would need to be closed down. Each mill employs around 500 workers on either a permanent or seasonal basis. Most sugar output is in the form of raw sugar (97.5 pol, 1,400, affined color ICUMSA), except for some washed sugar (800 - 1000 ICUMSA color) and some sulphated white sugar.

Mill performance has also been on a downward trend due to poor quality of cane and lack of cane supply. In some cases, this has been the result of obsolesce and disrepair of the mill itself. While mechanical time efficiency and over-all mill recovery have improved due to upgraded equipment, the problem of capacity utilization caused by low cane supply has taken its toll.

Sugar mill performance could be improved further with the continued inclusion of the industry in the Investment Priorities Plan (IPP) of the Board of Investments (BOI) which was introduced in 1992. This program provides incentives in the form of duty-free importation of equipment, and 23 mills have so far taken advantage of this program.

The Refining Sector

The refining sector is composed of 16 sugar refineries , 15 of which are annexed to raw sugar mills. Average refining capacity is about 8,000 50-kilo bags per day, with Victorias Milling as the biggest with a capacity of 25,000 50-kilo bags per day. Capacity utilization for the whole sector is about 78% using a variety of technologies including carbonation, ion exchange resin, phosphatation, and granular activated carbon. Recovery is about 0.92 metric ton of refined sugar per metric ton of raw sugar.

TARIFFS AND TRADE LIBERALIZATION

GATT - WTO

At the Uruguay Round of GATT which included agricultural products for the first time, the Philippines offered perhaps the biggest reduction in bound tariffs for out-quota imports for sugar over the life of the Agreement. While the local sugar industry supported government in its accession to the GATT-UR, it did so with the Philippine Senate’s support to modify tariffs due to the dangers of the world market where, for some years that came in cycles, sugar prices drop below the cost of production of most sugar producing countries. As this was not considered an immediate threat in 1995, this has presently become a very real threat to the continued existence of the industry as prices fell to the 10.5 ¢/lb level in 1997. It has called for a Modification of tariff commitments (Article 28 of the Agreement) and the government has now given the industry a favorable endorsement of its position. There are also moves to take recourse of Special Safeguards under the Agreement on Agriculture and Regular Safeguards under the Regular Provisions of the Agreement on Safeguards, due to both an import surge in 1996 and a need to trigger escape clause mechanisms in 1997. Hearings and negotiations are now taking place on this matter.

Margin of preference within the ASEAN Preferential Tariff Agreement and the Common Effective Preferential Tariff Agreement

The MOP or Tariff Discount offered by the Philippines on refined sugar, resulting in tariffs below the MFN of GATT, and distorting the price of raw sugar, has become a political issue in the Philippines. While both Thailand and Indonesia offer MOPs, they effectively do not allow this to distort their government set internal price bands for sugar as imports are under the control of the Thai Sugar Board in Thailand or BULOG in Indonesia. The Philippines, having dismantled its state trading arm, is now threatened by an influx of refined sugar from Thailand that may destroy its newly installed refineries and distorting the internal price of sugar. There is a clamor from the industry for the government to either restore state trading for imports or enjoyment of the MOP, or for price band mechanisms such as stock and inventory management, to be put in place by the SRA. This would then include in the equation the entry and control of imports. This proposal is also now under serious consideration by government.

POLICY ISSUES

A policy study conducted in 1994 by ACIAR, headed by Mr. Brent Borrell and funded by the Australian government, cited issues that tended to prevent the Philippine sugar industry from being globally competitive. It cited the higher prices of sugar exports to the U.S. under the quota in the past as one of the causes of complacency, although today it comprises 10 to 15% of the country’s local production. Further, it questioned the legally mandated sharing system between sugar mills and planters as a disincentive for mill investments and stressed the need to apply a CCS system of sharing similar to that of Australia and Thailand. By-product sharing was put in question as it prevented the downstream development of those products, to include power generation. The classification of sugar by market destination and its allocation to all individual planters and millers was also said to be an important issue to look into, although other countries apply a similar system through other means such as pooling, single desk selling, and market quotas.

While the views presented under the ACIAR study were not well received in the Philippines, its intention was primarily to spur further studies and discussions that would result to a reassessment of the local sugar industry. This it has achieved, as many of the issues in the study are now the subject of much debate within the country.