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Press Release No. 99-5
10 April 1999

Philippine Sugar:
Caught in the GATT?

The government projects a sugar shortage of about 500,000 metric tons for 1999, hence the need to import again as soon as possible. Through Executive Order (EO) No. 87, the President already facilitated the importation of sugar through the private sector.

In signing the EO last April 1, the government claims that "there is a pressing need to enhance the productivity and efficiency of the sugar industry, and of the whole agricultural sector to enable them to compete in the increasingly competitive global market."

The government, through the Sugar Regulatory Administration (SRA), has time and again argued that the problem is not a crisis since the impending shortage is just temporary and only brought about by natural calamities.

However, IBON studies show that the decision to import is not just a knee-jerk reaction to periodic shortage problems, but also a convenient solution to fulfill commitments to the General Agreement on Tariffs and Trade (GATT).

EO No. 87 also reflects the structural problems brought about by government’s adherence to liberalization policies in agriculture even prior to the GATT’s ratification in 1994.

Indeed, the critical sugar production and supply has not been abated but has become real for the crop year 1998-1999. The El Ni�o phenomenon and land use conversions have resulted not only in smaller cultivated area but also in delayed harvests and low sugar yield.

According to the SRA, mill prices of sugar shot up dramatically from an average composite price of P858.47/Lkg (50 kilo bag) in July and P942.30 in August 1998 to P1,284.20 in October at the start of the delayed milling season, and rising to P1,709.83 by January 1999.

The planters, millers and traders assumed that in the face of low production, high mill prices will allow them to recover their capital. Furthermore, they hoped to continue to enjoy the benefits of protection while taking advantage of cheaper imports under the GATT.

Beyond the issue of speculative price surges and government intervention, the Philippine sugar industry is threatened by the entry of cheaper imported sugar and eventual removal of US quotas.

Local sugar, after all, cannot compete in the world market due to low productivity and high production costs.

As of crop year 1997-98, Philippine sugar farms have an average productivity of 55.64 ton-canes per hectare (tc/ha). (The highest is Don Pedro mill district in Batangas with 114.41 tc/ha while the lowest is Paniqui mill district in Tarlac with 21.44 tc/ha) Average productivity in developed countries range from 66 tc/ha upwards.

Inspite of government and industry efforts at research and development (R & D), Philippine farms suffer from low sugar yield due to an overall lack of capitalization and weak government support.

Even old varieties of sugar are fertilizer-intensive in cultivation which is difficult for many capital-deficient small planters who try to lower production costs by reducing the amount of inputs, especially fertilizers, resulting in low productivity.

Another important factor for low productivity is the lack of mechanization and irrigation. No less than the SRA disclosed that only 1% of sugar farms is irrigated.

The low productivity in the industry is mainly structural in character since the majority of farms are small, many of them run by tenants or small independent farmers. Comprador-landlords control the sugar industry mainly through the mills and some large plantations around the mills.

Small sugar farmlands measuring five hectares and below comprise 49% of the total number while big farms that are 50 hectares and above comprise only 10% of total farms. Meanwhile, data from the Philippine Sugar Millers Association (PSMA) shows 68% of farms are five hectares and below.

However, the 50-hectare and above farmlands account for 52% of total land area while the small farms account for only 7% of total land area based on an incomplete sample released by the SRA. This simply means that while the number of big plantations are few, they comprise more than half of the total land area devoted to sugar.

Productivity tends to increase with farm size, as shown by a study of the SRA.

In order to achieve the economic level for sugar production, 75 hectares or more is necessary to be suitable for mechanization, provided that the topography would not be a limiting factor.

This hectarage accounts for less than 10% of current number of farms and less than 50% of total land area.

It is not surprising, therefore, that SRA production studies show that sugar farms on the average are labor dependent, have low mechanization and land development, and even with low wages, incur high costs but with low productivity.

Average production costs per hectare show that for all sizes of plantations, labor takes up 31% of total cost of production as compared to materials (21%), fertilizers (12%) and equipment (3%).

Sugar mills are also threatened by the GATT. On the average, the country's mills run below rated capacity, partly because of shortfalls in production and also because of low milling efficiency.

The sorry state of the sugar industry is indeed a case against liberalization. After all, the government’s supposed solution perpetuates and intensifies the age-old problems of high production cost, low productivity and the lack of mechanization.

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