Philippines. Sugar Annual. Apr 2013 May 10, 2013
The Philippines is a major sugar producer and typically the third largest recipient of U.S. sugar quota, but a minor player in the international sugar market due to its high production costs. According to Philippine government statistics, Market Year 2011/12 raw sugar production declined 7 percent to 2.4 MMT, due to the prolonged wet season and shifts in the USDA Marketing Year. MY 2012/13 raw sugar production is expected to recover with a return to normal weather. Raw sugar production for MY 2013/14 may hit 2.5 MMT, as sugarcane production areas expand to supply the growing demand. Sugar demand in MY 2011/12 increased to 2.13 MMT from 1.82 MMT as industrial users reacted positively to attractive and stable prices. Consumption is expected to increase again in MY 2012/13 due to strong economic growth and the many festivities and other food events related to the upcoming national elections in mid-2013. Post forecasts total raw sugar exports for MY 2012/13 will be 250,000 MT, the majority of which will go to markets other than the United States. Abundant U.S supplies make it unlikely the Philippines will fill the FY 2012/13 U.S. tariff rate quota of 144,901 MT. While official imports for MY 2012/13 are expected to remain at zero, the industry widely cites “undocumented” annual imports of 150,000-200,000 MT primarily from Thailand. Exports of sugar from ASEAN partners are expected to increase significantly starting in 2015 when tariffs drop from 18 percent in 2012/13 to 5 percent.
According to data from the Philippine Sugar Regulatory Administration (SRA), MY 2011/12 (December/November) raw sugar production reached 2.4 MMT, down 7 percent from 2010/11 due mainly to the prolonged wet season which ended in April 2012. The change to the USDA Marketing Year from September/August to December/ November also contributed to the reduction. MY 2012/13 raw sugar production is expected to recover slightly to 2.45 MMT due to good weather and better cane recovery. Sugarcane area remains at 425 thousand hectares and cane harvest will likely reach 26 MMT this year. Raw sugar production for MY 2013/14 is projected to reach 2.5 MMT due to a slight expansion in sugarcane areas for food use and ethanol production (analysts estimate that less than 10 percent of sugarcane production is used for ehtanol).
On a Philippine Crop Year (September/August) basis, raw sugar production in CY 2012/13 is forecast to reach 2.434 MMT, up 3.3 percent from the initial forecast of 2.356 MMT, due to good weather and better cane recovery (according to the SRA). 2013/14 raw sugar production is seen to increase to 2.5 MMT due to a slight increase in sugarcane areas.
Sugar Cane for Centrifugal
The island of Negros still continues to account for a majority (57%) of total domestic sugar production. Luzon produced 14 percent; Mindanao, 19 percent; Panay, 6 percent; and Eastern Visayas, 4 percent.
Total domestic sugar production comes primarily from four major sugar planter federations and three major miller associations. Producers who belong to these organized federations account for 90 percent of the total domestic sugar production. Planters and millers not affiliated with the major federations produce the remaining 10 percent.
According to SRA, there are about 59,600 sugarcane farmers in the country. Of these 79 percent have landholdings less than 5 hectares in size; less than one percent have farms greater than 100 hectares. Being a plantation crop, farms of more than 100 hectares have an average productivity of 7.34 MT/ha, while smaller farms of less than 5 hectares have an average productivity of 5.03 MT/ha. Many agronomists assert that Philippine land reform policies have prevented consolidation of farm sizes and thus prevented many farms from achieving greater efficiencies.
While there is no formal domestic trade in sugarcane due to the unique “quedan” system (a quedan is a warehouse receipt attesting to the presence of a certain amount of farmer-owned sugar in a facility, see Marketing Section) in the Philippines, industry sources report that in April 2013 a metric ton of sugarcane sold for about P2,200 ($55/MT at $1=P40 ). In comparison, Thai farmers received 1,154 baht/ton ($34/MT) in 2012.
Sugar prices have remained relatively stable in MY 2011/12. Industry sources expect prices to remain stable for the remainder of MY 2012/13 due to adequate supplies.
Demand is composed of consumption plus exports. In the Philippines, consumption has been traditionally measured by monitoring sugar withdrawals from the mills by traders and industrial users, as mills are the main holders of the country’s stocks. Sugar consumption in MY 2011/12 increased to 2.13 MMT from 1.82 MMT the previous year, as demand for local sugar by industrial users rose due to attractive and stable local sugar prices. Consumption is expected to increase further in MY 2012/13 due to the upcoming national elections in mid-2013 (traditionally in the Philippines, there is an uptick in demand for food items due to festivities and other events put on by national campaigns and elections) as well as a rapidly growing economy and rising population. Consumption is projected to further rise to 2.25 MMT in MY 2013/14 as incomes and the populations continue to grow.
About 70 percent of all sugar produced is consumed locally while the rest is exported to the United States and other countries. Roughly half of domestic consumption is by industrial users, 32 percent by households and the remaining 18 percent by institutions (e.g., restaurants, bakeshops, hospital etc.).
The export market is almost exclusively to the United States, which generally pays a premium price. Sugar exported under the tariff rate quota is generally priced higher than world market prices. Exports outside the quota are generally only resorted to during years of surplus production and usually priced lower than domestic sugar.
In MY 2011/12, the average mill site price of “A” raw sugar for the U.S. market was P1,141/50-kg bag. National average mill site price for “B” raw sugar for the domestic market was P1,455/50-kg bag. The average composite price was P1,364/bag.
Despite domestic prices being well above world prices most years, the Philippines typically exports 100-250,000 tons of sugar as a way to support local producers (see Policy Section). Post forecasts total raw sugar exports for MY 2012/13 will be 250,000 MT, the majority of which will go to markets other than the United States. These export markets include Japan, South Korea, Singapore, Canada, Samoa, Tonga and Malaysia. FY 2012/13 exports to the United States under the tariff rate quota (TRQ) program are set at 144,901 MT Raw Value (138,827 MT Commercial Weight). However, Post believes that the TRQ will not likely be filled this year due to ample U.S. supplies. Also, no announcement of additional U.S. quota this year is expected.
In MY 2013/14, total raw sugar exports are likely to increase as the Philippine government and local traders actively explore new markets such as the Middle East. Despite this, the FY 2013/14 U.S. sugar TRQ is also expected to remain at the base quota level.
No official imports are expected for MY 2012/13 due to adequate sugar production for the current year. Industry contacts and newspaper reports point out smuggling of sugar (and other agricultural products), trade estimates unofficial volume of between 150,000-200,000 MT annually, mostly from Thailand.
The Philippines has long maintained high tariffs on raw and refined sugar imports, but significant changes are underway. Executive Order No. 892 reduced tariffs under the ASEAN Free Trade Agreement (AFTA) from 38 percent in 2010 to five percent in 2015. This reduction in AFTA tariffs is expected to significantly impact Philippine sugar production and trade, as other ASEAN producers, particularly Thailand enjoy lower production costs.
Under the Uruguay Round of the WTO, the Philippines committed to a final 10th-year Minimum Access Volume (MAV) of 64,050 MT of raw sugar, with a tariff rate of up to 50 percent. All importation in excess of the MAV is subject to a tariff rate of 65 percent. The tariff on sugar is among the highest of all agricultural commodities which essentially blocks all imports. MFN tariffs have not changed since 2005.
Philippine sugar policy is generally controlled by the Philippine DA’s Sugar Regulatory Administration, working closely with various influential industry stakeholders. During the start of each crop year, the SRA issues a central policy (known as Sugar Order No. 1) on production and marketing of sugar for the country, which basically allocates how much of production goes to the domestic and export market as well as for reserves. These “orders” are adjusted as the season progresses. In September 2012, SRA estimated raw sugar production would reach 2.356 MMT, of which 82 percent was earmarked for the domestic market, 8 percent for the world market and 10 percent to the U.S. market. With the full implementation of the AFTA beginning in 2015, the Philippine DA continues to make the strengthening of the Philippine sugar industry a priority through the following key programs:
Sugar Industry Roadmap: The Philippine Department of Agriculture aims to make the country’s sugar industry globally competitive in time for the full implementation of AFTA through programs such as the Sugar Industry Roadmap which will promote block farming or the operational consolidation of small farms to take advantage of plantation scale production.
Bio-fuels Law: The Government of the Philippines’ ambitious plan for increased ethanol use has not met the original goal. In 2007, Republic Act 9367 (RA 9367) was signed into law which mandates the use of bio-fuels in the country. The bio-fuels law mandates that gasoline and diesel be blended with bio-fuel at 5-10 percent and 2 percent, respectively. According to analysts, only 15-20 percent of the estimated 420 million liters of ethanol (at 10 percent blend) needed is locally produced due to a shortfall in the availability of feedstock and the uncertainty in the implementation of the bio-fuels law. Only 4 ethanol plants are currently operating with another plant set to operate by next year. Unlike biodiesel, which already has an ample domestic supply, most ethanol is still imported by oil companies from Brazil, Thailand and India to meet the mandate.
Most sugar in the Philippines is produced and marketed under the long established “quedan” system. In this sharing arrangement, the sugarcane planter allocates a percentage of the output of his sugar to themill in payment for the processing of the cane. As soon as the sugar is processed, the mill issueswarehouse receipt, called a quedan, to the farmer representing his share of the sugar. The warehouse receipt attests to the physical presence of the sugar in the storage facility. There are five different types of quedans:
“A” Sugar allocated for the US market in compliance with US quota requirements;
“B” Sugar for the domestic market;
“B-1” Sugar for Food Processors/Exporters;
“C” Sugar classified as reserve, which may subsequently be converted to either
A or B as the need arises;
“D” Sugar allocated for the world market
SRA determines the proportion of sugar that is designated for different types of quedan. With the present volumes of production, only A & B quedans are assigned to producers. The “A” sugar is based on the percentage of production determined by SRA from the volume of the quota allocated to the Philippines by the U.S. government and the estimated volume of production for the crop year. This is normally less than 10 percent of total domestic output. The rest of the output is classified as B sugar.
Because the quedan is a negotiable instrument and the bearer may use it to withdraw sugar stocks at any time, there is a thriving secondary market in the sale of these certificates. Upon receipt of their quedans, planters usually sell them immediately to local traders who in turn sell them to larger traders. The major traders accumulate the quedans and subsequently sell them in volume to wholesalers, distributors, or processors who withdraw sugar from the mills. The processors use the sugar as an input for food and beverage processing while the wholesalers and distributors sell their sugar to major retailers. From the retailers, the sugar eventually reaches consumers through supermarkets, wet markets and sari-sari (mom-and-pop) stores