Divert sugar prices | Philstar.com

Philequity Corner – Wilson Sy – The Filipino Star

August 22, 2022 | 00:00

Filipino consumers pay more for their sweetener than residents of most other countries. Despite being the 12th largest sugar producer in the world and historically producing more than enough for national needs, local sugar prices are kept relatively high compared to world sugar prices.

The Philippine Statistics Authority (PSA) Food Availability and Sufficiency Report from 2010 to 2019 shows that the country’s self-sufficiency rate in sugarcane is 100%. This means that the country’s sugar supply is 100% covered by its national production. Yet domestic sugar prices have diverged from international trade prices over the past decade. It has fetched up to twice the world market price and Thai export prices, according to “An Assessment of Reform Directions for the Philippine Sugar Industry,” a NEDA working paper released in 2021.

Big price disparity

This year, the gap between local and global sugar prices has widened further. Driven by high fuel costs, a shortage of fertilizers and supply chain disruptions, global sugar prices soared along with other agricultural commodities after Russia invaded Ukraine. However, prices for most agricultural commodities such as wheat, corn, soybean oil, palm oil and fertilizers have fallen from their peaks. Similarly, after an initial surge in March and a peak in April, sugar prices stabilized and returned to pre-invasion levels. In fact, world sugar prices are 8.5% lower year-on-year and 11.8% lower than their peak in April.

Below is the chart of the #11 sugar futures contract traded on the Chicago Mercantile Exchange (CME). Sugar No. 11 is the global reference contract for raw sugar trading.

By contrast, domestic sugar prices rose steadily throughout the year despite lower fuel and fertilizer prices in recent months. According to the Sugar Regulatory Administration (SRA), the average price of raw sugar is 71.43 pesos per kilo in public markets as of August 5. It has increased by 59% over the past year. On the other hand, refined sugar in public markets sells for 95 pesos per kilo, up 81% from the previous year. In some areas, refined sugar sells for as much as 115 pesos a kilo, more than double the price a year ago.

Source: SRA, based on retail prices in public markets

sugar shortage

While many have blamed unfavorable weather, high fertilizer costs, hoarding by unscrupulous traders and protectionism for the current sugar shortage, it is evident that sugar production is significantly lower this year. For the 2021-2022 crop year, actual raw sugar production is 1,792,102 MT and refined sugar production is 737,254 MT. According to the latest data from the SRA, these are respectively 15% and 12% lower than the average production of the previous four years.

An important industry

Despite its shortcomings, the sugar industry remains an integral part of the Philippine economy. About 88,000 small and medium cane growers cultivate 24 million metric tons annually. Sugarcane is the country’s fifth-largest crop, after rice, bananas, corn, and coconuts, earning $815 million in 2020. Additionally, the sugarcane supply chain – composed of producers, millers and associated logistics personnel – provides half a million jobs and generates 86 billion pesos a year.

A balancing act

NEDA chief Arsenio Balisacan said the cause of rising sugar prices is insufficient current supply, adding that imports should be allowed if local production cannot meet demand. He noted the impact of soaring sugar prices not only on local producers, but also on food manufacturers, SMEs and other small sellers. Balisacan is also aware of the delicate balance that they, as economic managers, must achieve.

“There are a lot of jobs that will be affected by the spike in prices. So that should be a concern for us as an observer of the economy and a manager of the economy, you have to have some sort of balancing act. While we protect our farmers from headwinds, we also need to ensure that the tools we use to protect our farmers do not harm the rest of the economy,” Balisacan said.

Long-term solutions needed

Last week, the government confirmed a proposal to import 150,000 metric tons of sugar to increase the current deficit and halt the steady rise in sugar prices. Additionally, in cooperation with the government, the country’s largest supermarkets (Robinsons, SM, Puregold and S&R) have agreed to sell refined sugar at 70 pesos per kilo on a limited basis. Customers are allowed to buy a single kilo of cheaper sugar. But more than these short-term measures, we hope that the government and our economic managers will find long-term solutions that will revitalize this essential industry, ensure long-term domestic supply and maintain price stability for this food staple. . .

Philequity Management is the fund manager of the leading mutual funds in the Philippines. Visit www.philequity.net to learn more about funds managed by Philequity or to view previous articles. For inquiries or to send feedback, please call (02) 8250-8700 or email [email protected].

Rachel J. Bradford