[Vantage Point] The transformation of the sugar barons

[Vantage Point] The transformation of the sugar barons

During the 16th Congress on February 18, 2016, the Senate issued an official press release titled, “Sugar barons sweeten Sen. [Ferdinand] Marcos’ [Jr.] VP offer. »

Official communications released to the media that day related to Marcos Jr. joining the country’s industry leaders at a dinner at the Manila Polo Club where he outlined his government platform, particularly regarding the agriculture and the sugar industry in particular.

“I would like to be very active in all agriculture,” Marcos Jr. announced over dinner. “Let’s just say that I would work very hard for agriculture in general, and the sugar industry in particular.”

The press release also reported that “the country’s sugar barons were throwing their support behind Marcos Jr’s running for vice president.”

Among those present at the dinner were Francis dela Rama, president of the Negros-Panay branch of the Confederation of Sugar Producers (CONFED), Enrique Roxas, president of the National Federation of Sugar Cane Growers (NFSP), Danilo Abelita, president of PANAYFED (Panay Federation of sugar cane growers) and UNIFED. (United Federation of Sugar Growers of the Philippines), President Manuel Lamata, as well as several other leaders of various sugar growers’ associations.

After hearing the former senator’s position on issues affecting the sugar industry, Dela Rama asked his fellow sugar farmers, “Well, gentlemen, are we for it? The question was met with a unanimous “yes”.

Now that Marcos Jr. is president, various business leaders Rappler has spoken with couldn’t help but recall how the industry became the darling of Ferdinand Marcos Sr. during his murderous dictatorial reign under martial law. During his reign (1965-1986), certain companies were chosen, pampered and endowed with financial support, exclusive benefit, tax exemptions and dominance over entire industries, making these companies monopolies .

I find it truly odd that Marcos Jr. now takes a similar stance toward an industry that, despite being weakened by land reform, has enjoyed preferential treatment from the government for a very long time.

The industry was a monopoly during martial law. A series of unfortunate events, however, soured the industry. Its boom ended in 1974, the preferential trade agreement the Philippines had with the United States expired, and exports have fallen steadily since then. Today, the Philippines – once one of the world’s leading sugar exporters – has become a sugar importer. One of the reasons the industry is struggling to be competitive, an industry insider told Rappler, is that “some planters would rather splurge on luxury items than invest in measures. productivity enhancement, such as machinery, irrigation or fertilizers”.

Despite the fall, the sugar barons haven’t given up on their swagger and penchant for the luxurious lifestyle: “The only thing that’s changed for the sugar barons,” the industry source noted, ” it is that they no longer own huge tracts of sugarcane plantations due to land reform.”

I should note, however, that while land reform forced these barons to cede five hectares each to their respective farmer-beneficiaries, large swathes of their farms were reclassified as industrial/commercial zones, helping them to avoid reform distribution. agrarian.

Our source says that while some barons have become sugar traders who now control sugar prices, the farmer-beneficiaries themselves have coalesced into a formidable pressure group, with some of them engaging in speculation. on prices that affects sugar prices. The quedan system allows planters to easily engage in speculative trading. The quedan is a negotiable instrument backed by the value of sugar in storage – usually in a specific warehouse (usually in a sugar factory). The Sugar Regulatory Authority (SRA) authorizes the use of the quedan as a transferable ticket.

The other factor affecting sugar prices is the system of transporting crops from farmland to millers. In the past, agricultural yields were transported by train (the bagon system) to the millers. However, enterprising planters got into the trucking business and began charging millers per haul. Trucking rates fluctuate as millers try to outdo each other in luring planters to their mills. The price per transport fluctuates between P300 and P500 per metric ton, depending on fuel prices. Transport costs represent about 30-50% of milling costs, which millers then pass on to consumers.

The sugar cane planters’ association has launched a weekly tender process for raw sugar, using the result of the tender in Negros – which normally takes place on a Thursday – as a reference price for sugar which is made available to other planters’ associations throughout the country. Negros accounts for 51% of the country’s sugarcane acreage, followed by Mindanao, 20%; Luzon, 17%; Panay, 7%; and Eastern Visayas, 4%. The decision then rests with the sugar trader whether to charge buyers for the product, using the same reference price or to sell at a higher or lower price.

When the price of sugar drops relative to faster-growing, more profitable crops, it’s no wonder some farmers stop planting sugar cane and do so when prices soar. Their projected income is calculated in terms of the factory site price using the sugar yield (LKG/TC) and the prevailing sharing system implemented in the factory district (i.e. say, 70% of the sugar production for the farmer and 30% for the miller).

This sharing system is part of what the National Economic Development Authority (NEDA) wants to eliminate in favor of the buying cane system that is practiced around the world. Under the cane buying system, which I explained in my last column, the miller pays planters for all the cane delivered, at prices depending on the quality of the cane. The cane purchase system allows the miller to acquire full ownership of the processed production. Yet another alternative is toll milling, where the planter pays the miller a service fee while retaining ownership of the cane and the product(s) derived from it. The sharing system involves shared ownership of ground sugar, which introduces considerable disincentives on both sides of the transaction.

Although some people will argue that the Philippines no longer has sugar barons, perhaps after reading historical accounts of the industry on Google or Wikipedia, the term “sugar barons” still means “people who have made a fortune from sugar”. What the decades have not erased, however, is the negative impact of protectionism on the Philippine economy.

Protectionism has been the scourge of our country’s economic development. The entrenched elites in agriculture and industry are not only experts in the search for enrichment without reciprocal contribution. They use their connections in government to gain protectionist favors that burden consumers.

NEDA identified the ultimate reason for the industry’s decline as its historical isolation from the international market. In a study, NEDA observed: “Although the high protected domestic price of sugar has helped sustain the sugar industry, domestic sugar cane production has not achieved higher productivity; nor has the industry as a whole become more competitive over time. On the other hand, it has increased the cost of sugar for consumers and for food and beverage manufacturers, which has undermined the competitiveness of the latter.

With approximately 700,000 Filipinos directly engaged in sugar production and between 5 and 6 million indirectly employed in the industry, Marcos Jr. is expected to strive to disrupt the status quo and invite stakeholders and experts to develop new approaches to address issues of corruption, low productivity, climate change, outdated or ill-conceived policies and other challenges that tarnish the industry’s image as a question mark in the global marketplace.

Albay 2nd District Representative Joey Salceda favors abolishing the Sugar Regulatory Administration (SRA), describing it as a bankrupt agency. “In its current form, the SRA must change or be abolished. It has not been very effective in its role of developing local industry. Low utilization rates of AIDS and TRAIN Law funds have plagued this agency. Senator Cynthia Villar, for her part, is pushing for legislative fiat on the plan to abolish the SRA.

Former President Rodrigo Duterte himself vowed to abolish the SRA because of corruption. The people and the business sector await the Solomonic decision of Marcos Jr. – Rappler.com

Val A. Villanueva is a seasoned business journalist. He was a former economics editor for the Philippine Star and the Gokongwei-owned Manila Times. For comments, suggestions, email him at [email protected].

Rachel J. Bradford