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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


30 April 2013

USDA GAIN: Philippines Sugar Annual 2013USDA GAIN: Philippines Sugar Annual 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’s 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.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Sugar Cane for Centrifugal
Sugar, Centrifugal

Production

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 remain at 2.4 MMT as 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, as production of sugarcane for ethanol continues to increase with more ethanol plants operating.

On a Philippine Crop Year (September/August) basis, raw sugar production is seen to reach 2.36 MMT in CY 2012/13. SRA projects 2013/14 raw sugar production to increase to 2.4 MMT.

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.

Consumption

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 demand in MY 2011/12 increased to 2.13 MMT from 1.82 MMT 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 increasing demand by the food processing industry due to a rapidly growing economy and rising population. Demand for sugarcane for ethanol production is also expected rise as more ethanol plants become operational. Ethanol still consumes only less than 10 percent of domestic sugar.

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 that 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.

Trade

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. No announcement of additional U.S. quota this year is expected.

No offiial 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.

Policy

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. A running history of SRA Sugar Orders may be obtained from: http://www.sra.gov.ph/policy_so.html

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.

April 2013

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