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Sugar Mills Pangasinan PDF
Sugar Mills Pangasinan PDF
Introduction
There are three (3) major grades of refined cane sugar: (1) standard refined, which is
used primarily as table sugar; (2) premium sugar, which is used by food manufacturers;
and (3) bottlers grade sugar, which is used by the beverage industry.
The manufacturing process for refined cane sugar may be broken down into the
following phases:
Melting
Drying
The objective of the study is to analyze the state of competition within the refined cane
sugar industry and how competition can help develop the refined cane sugar industry
into a viable industry as a potential major input to processed food manufacturing. An
analytical framework specially developed for this purpose will be utilized and
recommendations made, if necessary, on how to make the sector competitive or
improve its competitiveness. It is hypothesized that to improve the input sectors of the
Philippine export industry (such as refined cane sugar) will translate into
competitiveness or better competitiveness of Philippine exports.
2
held constant. A relevant market is a group of products and a geographic area that is
no bigger than necessary to satisfy this test1.
Simply put, a relevant market is defined by the product or service involved, the
geographical area in which said product or service is sold, and the sellers and buyers of
such product or service.
! Product Market
In defining the relevant product market, the approach followed is: assuming a
hypothetical monopolist for a product, would said monopolist profit by imposing at
least a small but significant and non-transitory increase in price?
Figure 1 depicts the flow of commodities from the sugar industry to user
industries. Sugar cane goes into the production of raw cane sugar which, in
turn, is transformed into either cane molasses or refined cane sugar. As
previously mentioned, refined cane sugar is an input to the production of sugar
confectioneries, sugar preparations, pastry, cakes, biscuits and other bakers
wares, preserved fruits and nuts, and beverages.
1
As defined by Section 1 of the U.S. Department of Justice and Federal Trade Commission Horizontal
Merger Guidelines dated 2 April 1992.
3
! Geographical Market
Considering, however, that local food processors and beverage makers are
effectively restricted to purchasing their sugar requirements from domestic
producers, the relevant geographical market for domestic refined cane sugar is
defined as the Philippine national territory, for purposes of this study.
The relevant participants in the market are the sixteen (16) cane sugar
mills and refineries with the highest revenues.
As of crop year 1998 - 1999, the total number of Philippine sugar mills was thirty
six (36) (see Table 1).
The sugar milling industry has a rated plant capacity of 185,000 tonnes of cane
per day or a daily utilization rate of 53%. The refiners actual capacity is 5,200
4
tonnes per day while rated capacity is 7,050 tonnes per day, so capacity
utilization is around 74%.2
Sugar industry associations include: the Philippine Sugar Millers Association, the
Philippine Sugar Refiners Institute, the Sugar Industry Foundation Inc., the
National Congress of Unions in the Sugar Industry of the Philippines, and the
Philippine Association of Sugar Refineries, Inc.
Rated Capacity
Sugar Mills (50k-bags/day) Plant Site
LUZON
BASECOM, INC. 4,000 San Fernando, Pampanga
Batangas Sugar Central, Inc. 5,500 Balayan, Batangas
Cagayan Robina Sugar Milling, Co. 4,000 Piat, Cagayan
Central Azucarera Don Pedro 10,000 Nasugbu, Batangas
Hind Sugar Company 500 Manaoag, Pangasinan
Peafrancia Sugar Mill 4,000 Pili, Camarines Sur
Central Azucarera de Tarlac 7,080 San Miguel, Tarlac
Western Agri-Ventures Corporation 1,200 Paniqui, Tarlac
VISAYAS / MINDANAO
Central Azucarera de Bais 8,000 Bais, Negros Oriental
Bogo-Medellin Milling Co., Inc. 2,800 Medellin, Cebu
Busco Sugar Milling Company, Inc. 10,000 Quezon, Bukidnon
Crystal Sugar Company, Inc. 4,500 Maramag, Bukidnon
Davao Sugar Central Company, Inc. 4,000 Hagonoy, Davao del Sur
Durano III & Sons, Inc. 2,000 Danao City, Cebu
Hideco Sugar Milling Co., Inc. 5,000 Kananga, Leyte
Ormoc Sugar Co., Inc. 2,000 Ormoc City, Leyte
Universal Robina Sugar 8,000 Manjuyod, Negros Occidental
South East Asia Sugar Mill Corp. 4,000 Matalam, North Cotabato
Herminio Teves & Co., Inc. 3,000 Sta. Catalina, Negros Oriental
PANAY
Capiz Sugar Central, Inc. 3,500 President Roxas, Capiz
Monomer Sugar Central, Inc. 2,500 Dumalag, Capiz
New Frontier Sugar Corp. 4,200 Passi, Iloilo
Passi (Iloilo) Sugar Central, Inc. 5,000 San Enrique, Iloilo
NEGROS
Binalbagan-Isabela Sugar Co., Inc. 10,000 Binalbagan, Negros Occidental
Dacongcogon Producers' Coop. 2,200 Kabankalan, Negros
Mktg., Inc. Occidental
Danao Development Corp. 3,000 Toboso, Negros Occidental
First Farmers Holding Corp. 5,000 Talisay, Negros Occidental
Hawaiian-Philippine Co. 6,500 Negros Occidental
2
Tariff Commission, 1997.
5
Central Azucarera de La Carlota 10,000 La Carlota City, Negros
Occidental
Lopez Sugar Corp. 6,000 Sagay, Negros Occidental
Ma-ao Sugar Central 5,000 Bago City, Negros Occidental
Sagay Central, Inc. 3,000 Sagay, Negros Occidental
San Carlos Milling Co., Inc. 4,800 San Carlos City, Negros
Occidental
Southern Negros Development Corp. 4,000 Kabankalan, Negros
Occidental
Sunnix Management Corp. 4,000 Silay City, Negros Occidental
Victorias Milling Co. 12,000 Victorias, Negros Occidental
Source: Sugar Regulatory Administration
Five (5) sugar mills were included in the top 1,000 corporations from 1995 to
1997. These were: Central Azucarera Don Pedro, Universal Robina Sugar
Milling Corporation, Central Azucarera De Tarlac, BUSCO Sugar Milling
Company, Inc. and Central Azucarera de Bais, Inc. (in 1996 and 1997 only).
To determine the degree of competition within a market and the presence of market
dominance and abuse, the calculation of market shares is essential.
Ideally, market shares are computed based on sales that may be committed or so
profitably employed within the market. Sales are considered the best indicator of a
firms future competitive significance.
With no available information on individual sales by sugar mill/refinery, this study looks
at data on gross revenues provided in the publication Top 7000 Corporations. The
publication lists sixteen (16) sugar mills/refineries. The individual gross revenue shares
are shown below:
6
Players 1995 1996
Central Azucarera Don Pedro 32.9 29.3
Central Azucarera de Tarlac 12.3 16.4
Busco Sugar Milling Co., Inc. 9.7 10.3
New Leyte Edible Oil Mfg. Corp. 12.2 8.3
Central Azucarera de Bais, Inc. 4.3 7.4
Universal Robina Sugar Milling Corp. 9.1 6.7
HIDECO Sugar Milling Co., Inc. 5.2 6.1
Sagay Central, Inc. 2.9 3.2
Pampanga Sugar Development Co., Inc. 2.8 2.5
Bogo-Medellin Milling Co., Inc. 2.9 2.3
Ma-ao Sugar Central Co., Inc. 1.2 1.1
Southern Negros Development Corp. 3.1 1.0
Tarlac Development Corp. Nil 0.4
Southwind Sugar Corporation 0.5 4.1
Manuel L. Teves, Inc. 0.5 0.6
Associated Sugar, Inc. 0.2 0.5
Source of Basic Data: Top 7000 Corporations
The level of concentration, i.e. firm ownership and industry structure, in the industry was
computed using the Herfindahl-Hirschman Index (HHI). The HHI is an indicator used in
the United States. It is the sum of the squares of the individual market shares of all
market participants. An HHI of 10,000 means a pure monopoly while an HHI
approaching zero indicates an atomistic market. To aid in the interpretation of the HHI,
the United States uses the following approach: an HHI below 1000 means non-
concentration in the market, an HHI between 1000 and 1800 means moderate market
concentration, and an HHI above 1800 means high market concentration. An HHI of
above 1800 is considered highly concentrated even though it seems a long way from
10,000, i.e. absolute monopoly power. This is because, in the merger context at least,
7
U.S. antitrust laws are concerned not only with mergers that result in a monopoly, but
also with mergers that result in a highly concentrated market.
Under American law, the HHI is not strictly mandated in any situation, even in mergers.
Rather, it is used in guidelines of the U.S. Department of Justice when reviewing
mergers. Courts have adopted the guidelines, including the HHI, as useful in analyzing
mergers, and they look to the HHI for guidance in other areas of antitrust law as well.
While the HHI has no legal authority, courts, regulators and economists recognize it as
a useful tool in analyzing market concentration in mergers and other areas of antitrust
law.
Based on the revenue shares of the sixteen (16) market players identified in Table 2
(and therefore making the bold assumption that other mills/refineries are insignificant
players), the HHI for 1995 and 1996 are as follows:
Year HHI
1995 1,641
1996 1,481
The HHI figures indicate that the product market is moderately concentrated. No single
firm can influence market behavior. However, the market participants acting in concert
can influence or dictate market behavior, including pricing and limiting supply.
8
The attainment of greater competition in markets may be constrained by the
conditions of entry of new firms in said markets. Where entry is easy (i.e. the
market is contestable), the threat of potential entrants increases the competitive
pressure on incumbent firms. Incumbents are thus forced to become more
efficient and competitive, since failure to do so could mean the loss of market
share and power to new players. With easy entry, abuse of market power is
therefore unlikely and the efficiency benefits of competition are more easily
realized.
Where exit barriers exist, the release of unused or excess resources by failed
firms is made difficult. Attaining allocative efficiency is hindered.
Where entry or and/or exit barriers exist, however, the attainment of equilibrium
as close as possible to a case of perfect competition, becomes that much more
difficult.
In the domestic refined cane sugar industry, the conditions of entry and exit are
as follows:
However, both entry and exit would be difficult, entry in view of the heavy
investments required, and exit in view of the heavy investments, estimated
at P160 billion, already made. Around P80 billion has been spent on
sugar farms, P50 billion on mills, and P30 billion on refineries.
9
Traditionally, the government has regulated the sugar industry, from the
planting of sugarcane up to the eventual disposition of the sugar product.
The intended objectives of these policies are to distribute the benefits of
the high-priced U.S. quota market, to support the industry, and ultimately
to reduce poverty in the rural areas.
(1) Tariff Policy The tariff rates on imported refined cane sugar
have always been high, never falling below the 50% level. In 1973,
the tariff was 70% (see Table 4). This fell to 50% in 1981, went
back up to 70% in 1993, fell to 60% in 1994, and then to 50% the
following year.
10
1995 50%
E.O. 313 1996 50% (In-Quota); 100% (Out-Quota)
(May 1996) 1997 50% (In-Quota); 80% (Out-Quota)
1998 50% (In-Quota); 80% (Out-Quota)
1999 50% (In-Quota); 65% (Out-Quota)
2000 50% (In-Quota); 65% (Out-Quota)
Source: Tariff Commission
3
BusinessWorld, 1999. According to the SRA, there were thirty six (36) importers of raw and refined
sugar in 1998, the majority of whom were traders.
11
Under the Agriculture and Fisheries Modernization Act
(AFMA), certain agriculture and fishery inputs, machinery and
equipment (including fertilizers, insecticides, tractors, hybrid seeds,
farm implements and machinery) may be imported duty-free for a
period of five years commencing 1999. Products falling under List
A may be imported duty-free with no restrictions, while importers of
products falling under List B need to get prior certification from the
Department of Agriculture as enterprises duly engaged in
agriculture and fishery. Combined with high output tariffs, the duty-
free importation of inputs in effect increases the protection enjoyed
by the sugar industry from the tariff system.
It is noted that the tariffs on sugar are higher than the tariffs on the
finished products (e.g. sugar confectioneries, sugar preparations,
pastry, cakes, biscuits and other bakers wares, preserved fruits
and nuts, and beverages), which are at a maximum of 20% (see
Figure 1).
12
duty of 2.63 baht/kilogram (equivalent to about 20% ad valorem) on
refined sugar.
During the 6th ASEAN Summit held in Hanoi in December 1998, the
ASEAN Leaders decided to accelerate the implementation of AFTA
by one year from 2003 to 2002. The Philippines will likely exercise
the flexibility option and sugar will be phased into the Scheme by
2003 at a CEPT rate of 5%.
13
In reality, however, the SRA continues to exercise regulatory
powers over sugar importation, affecting its entry and practically
isolating the domestic market from imports.
4
Tolentino, 1999.
14
The market quota system works in the following manner:
The quota system was devised to allow all planters and millers
proportionately equal access to the higher-priced U.S. quota
market. The SRA estimates production at the start of a crop year
and then prepares a sugar order containing the percentage
allocations of the sugar produced into the various destinations.
These allocations are adjusted as production estimates are
modified or the countrys share of the U.S. quota market changes.
15
The market quota system is implemented through a quedan
system and controls on the withdrawal of sugar from warehouses.
All milled sugar is deposited in registered warehouses and the
owners provided quedans (as proof of ownership) which state the
classification, or market destination, of the sugar. The quedan is a
negotiable instrument and sugar is traded using these. Sugar may
be withdrawn from warehouses only with a sugar release order
from the SRA and upon surrender of the quedan.
16
! Factors Affecting Competitiveness
Moreover, some farmers who were granted land under the CARL, have
either sold it to developers who in turn develop these into subdivisions or
golf courses, lease it to small business entrepreneurs or leave the land
idle. Interest accruing to farmers, if they sell the land and deposit the
proceeds, as well as income from leasing are greater than profits they
may realize from planting sugar cane. On the other hand, some farmers
prefer to leave the land idle, as income generated from working the land is
not proportionate to taxes paid. Another reason for leaving lands idle is
the lack of capital to fund planting activities. Thus, the reduced hectarage
has led to a deficient supply of canes and the consequent underutilization
of milling capacity and lower sugar production.
17
(b) Technology
Some sugar mills have invested in modern technology and this has
resulted in higher mill output as well as more efficient operations.
However, a majority of the mills have outdated technology and are in need
of modernization to improve efficiencies.
18
Mills normally shoulder the transport cost of cane from farm to mill. This
aggregates to about 40% of the budget allocated to transportation cost.
Moreover, mills have to invest in water/pollution control system in line with
the legislated Clean Air Act.
According to industry sources, banks do not accept the plantation (or the
land itself) as loan collateral, which seriously inhibits the ability of planters
to source credit. Credit is especially crucial for investments in new
technology necessary for attaining greater efficiency and productivity. The
investment required to rehabilitate and modernize is huge. According to
an industry informant, P20 billion in modernization expenses have been
made since 1992. Another P40 billion is required but a loan interest rate
above 12% will not prove profitable for millers.
The sugar industry as a whole is one of the countrys oldest and most important
industries. Until the mid-1970s, the industry contributed approximately 9% to
agricultural gross value added (GVA).5 In the 1980s, the share of GVA from
sugar cane production to total agricultural GVA averaged 4%.
Over the period 1990 to 1994, the sugar industrys GVA has been increasing
(see Table 5). From P3.65 billion in 1990, GVA from the sugar cane sector
topped the P4 billion mark the following year, then went on to pass the P5 billion
19
mark in 1993. In 1995, however, the industrys GVA fell to less than P4 billion.
1996 saw a recovery, however, with GVA increasing by 21% to P4.8 billion.
Sugar canes contribution to GVA in the agriculture sector has become smaller in
the 1990s compared to the previous decades.
Percent
Gross Value Added Share of
(in million P; at constant 1985 prices) Sugarcane
Year to Total
Sugar Cane Total Agriculture Agriculture
1990 3,652 122,631 2.98
1991 4,646 126,204 3.68
1992 4,871 127,010 3.84
1993 5,257 130,736 4.02
1994 5,326 135,068 3.94
1995 3,964 172,844 2.29
1996 4,787 178,143 2.69
Source of basic data: Philippine Statistical Yearbook
(b) Supply
The sugar crop year commences 01 September and ends on 30 August of the
succeeding year. Sugar cane is planted in Luzon (i.e. Laguna, Tarlac, Batangas,
Pampanga, Pangasinan), Visayas (i.e. Negros, Bacolod) and Mindanao (i.e.
Davao).
Mirroring the movement in sugarcane GVA, the total area devoted to the planting
of sugar cane was increasing from 1990 to 1994, fell in 1995, then expanded
again in 1996 (see Table 6). In 1990, 235,300 hectares were devoted to this
agricultural crop which represented nearly 2% of the total agricultural area. In
5
De la Pea, 1998.
20
1993, 3% or 384,000 hectares were used for sugar cane production. In 1996,
hectarage utilized was lower at 2.90% of total area. Figures indicate that the
sugar cane area fell further in 1997 to around 368,000 hectares (Sariling Ani
Movement, 1998).
It is noted that in the late 1980s, the hectarage devoted to sugar cane was mainly
decreasing, from 368,500 hectares in 1985 to 261,700 hectares in 1989. The
average sugar cane hectarage for this period was approximately 283,000. In
1975-76, sugar cane hectarage was much higher at 544,000.6
Production of refined sugar has been erratic, increasing one year then
decreasing the next. From crop year 1987/88 to 1988/89, production of refined
sugar grew by almost 16% from 13.97 million 50-kilo bags to 14.12 million 50-kilo
bags (see Table 7). Production growth was also impressive from 1994/95 to
1995/96 with a rate of growth of nearly 18%. Mill efficiency, measured as the
product of percent sucrose extraction and boiling house losses, averaged 78.6%
in 1993-94.7 At the farm level, cane yield is at 49 tons cane/hectare in 1994-95
while sugar recovery from cane dropped from 1.59 in 1980-81 to 1.41 in 1994-95.
6
Dela Pea, 1998.
7
Ibid.
21
In crop year 1996-97, production volume was 15.87 million 50-kilo bags which is
almost 11% lower than the volume produced in the previous year. The volume
subsequently rose to 17.61 million 50-kilo bags in 1997-98.
(c) Demand
Domestic demand for refined sugar, measured as the sum of production and
imports, increased at an average rate of only 1.06% per year from 1991 to 1997
(see Table 8). Apparent consumption, indicated by domestic demand less
exports, grew at basically the same rate with an average annual growth rate of
1.7% over the period.
22
1994 834,250 26,604 860,854 3.19 857,745
1995 754,050 129,783 883,833 17.21 882,333
1996 888,600 192,321 1,080,921 21.64 1,080,921
1997 793,350 21,682 815,032 2.73 815,032
Sources of basic data: Philippine Foreign Trade Statistics and Sugar Regulatory Authority
(d) Exports
While a majority of locally produced refined sugar is sold in the domestic market,
the industry managed to export minimal levels between 1993 and 1995 (see
Table 10). In 1993, the volume of refined sugar exports amounted to a mere 300
net kilos. This level of exports would increase to 3,109 net kilos in 1994 but
23
would not be sustained in the succeeding years, falling to 1,500 net kilos in 1995
and totally disappearing from 1996 onwards.
The market for refined sugar includes Vietnam, Hong Kong, Malaysia, Indonesia,
the U.S.A., and Thailand.
The excess of domestic demand for refined sugar over local supply can be
traced to rising demand by the downstream exporting industries the food
processors (see Figure 2 for the distribution network).
24
processors include: Philfoodex, the Philippine Chamber of Food Manufacturers
Inc., Nestle Philippines Inc., and Coca-Cola Bottlers Philippines Inc.
25
(g) Effective Protection Rates and Domestic Resource Costs
In 1983, the sugar refining industry was an efficient earner of foreign exchange
based on a Domestic Resource Cost (DRC)/Shadow Exchange Rate (SER) ratio
of 0.76 (see Table 12).8 The industry further improved its efficiency in 1988. The
industry turned inefficient in 1994, however. Such shift from efficiency to
inefficiency coincided with an increase in the effective protection enjoyed by the
industry.9
Table 12. EPR and DRC/SER of Sugar Refining (PSIC Code 31232)
The world price of refined sugar increased by an average of 13.6% from 1993 to
1998. The increase in the domestic price of refined sugar is slightly less: the
average annual growth rate over the period is 11.2%. Nevertheless, the
domestic price of refined sugar has consistently been higher than the world price.
It has been determined that even over a longer period, from 1981 to 1998,
domestic prices of refined sugar have exceeded international prices
8
An activity or industry is said to have comparative advantage if the domestic cost it incurs (expressed in
shadow prices) to earn or save a unit of foreign exchange is less than or equal to the shadow price of
foreign exchange. A decline in the DRC/SER ratio implies an improvement in an activitys comparative
advantage position. The criteria for efficiency used in Tecson (1996) was used to determine degree of
efficiency.
9
The effective protection rate (EPR) is defined as the percentage excess of domestic value added over
world market value added due to the imposition of tariffs and other protective measures on a product.
The higher the EPR of an industry or activity, the greater the protection enjoyed from tariffs and similar
measures.
26
continuously. Further, over this longer period, domestic prices have increased at
a faster rate of 10% annually on average, as compared to an average annual
growth rate of 1% for world prices. Domestic prices have also been more
volatile.10
The gap between world and domestic prices has widened from P6.93/kilogram in
1993 to P9.66/kilogram in 1998 (see Table 13). The widest disparity occurred in
1996 when the domestic price was 93% greater than the world price or almost
double. The gap, although smaller, remained significant in 1998 with domestic
prices higher by more than 50%.
The local price of refined sugar has exceeded the world price by more than 100%
on average over the 1981 to 1998 period. Moreover, during the sugar crisis in
the latter semester of 1998, the domestic price of sugar was increasing rapidly
even though the world price was stable or on a downtrend.11
In producing a 50-kilo bag of refined sugar, more than 90% of the cost comes
from raw sugar. The other expenses (e.g. labor, overhead expenses, steam
generating fuel, process material, container) contribute less than 10%.
10
Tolentino (1999).
27
! An examination of world and domestic prices of raw sugar reveals the
reason for the higher domestic prices of refined sugar. For five (5) of the
eight (8) years comprising the period 1991 to 1998, the price of a 50-kilo
bag of locally-produced raw sugar was more than double the world price
(see Table 14). For the remaining three (3) years, the price of domestic
raw sugar was still considerably higher than the world price. It may be
given then that refined sugar using high-priced local raw sugar would be
more expensive than refined sugar sourced from the world market.
11
Ibid.
28
with a Philippine domestic price of P25.23/kg, then the Philippines would actually
have the cheapest sugar.
! The high cost of refined sugar ultimately affects its users the food
processors for whom refined sugar constitutes the bulk of production
cost. For instance, sugar contributes 32.58% to the total cost to produce a
piece of candy.
The relatively expensive local refined sugar has put processed food
exporters at a disadvantage. Exports of sugar-bearing products generally
slumped between 1996 and 1997 (see Table 16). The high price and low
quality of local refined sugar have driven food exporters to appeal to the
government to support their industry and allow them access to cheaper
imported refined sugar.
29
Commodity 1991 1992 1993 1994 1995 1996 1997
Sugar E 3,250 3,734 3,124 3,099 4,561 5,325 5,098
Confectioneries I 843 1,163 1,643 3,940 5,331 3,730 5,386
(000 nk) T 2,407 2,571 1,481 -841 -770 1,595 -288
12
Revealed Comparative Advantage (RCA) is an indicator of a countrys export competitiveness. It is
computed as the share of a products exports to total country exports over the share of the products
total exports in the world market. A greater-than-one RCA estimate indicates that the country has
comparative advantage to export the product in the world market.
30
SITC DESCRIPTION RCA
1992 1993 1994 1995 1996
048 Cereal
preparations 1.46 1.50 1.62 0.14 0.13
062 Sugar candy,
non-chocolate 1.59 1.08 8.42 0.96 1.06
058 Fruits,
preserved,
prepared 4.92 5.47 4.42 3.13 2.89
098 Edible products,
preparations,
n.e.s. 4.78 4.52 3.55 2.49 2.43
073 Chocolate and
products 0.02 0.02 0.03 0.04 0.14
111 Non-alcoholic
beverages 0.33 0.24 0.29 0.23 0.10
Source of basic data: United Nations International Trade Statistics (various years)
(a) Conclusions
! Market Concentration
While there are no legal barriers to entry and exit, exit is constrained by the huge
investments that have already been made. Entry, too, is constrained by the
prevailing environment of excess capacity in mills and refineries caused by the
fragmentation of sugar lands under the CARL (Republic Act No. 6657) and
31
declining sugar productivity in terms of hectarage and piculs per tons cane or
sugar yields.
! Anti-Competitive Behavior
13
The mechanism of using bonded warehouses to take advantage of reduced tariffs on imported inputs is
generally limited to those with the capability and resources to utilize such and process all the required
paperwork in Manila (Tolentino, 1999).
14
Philippine Daily Inquirer, 1999.
32
players are assured of a protected domestic environment, it also
discourages entry if they allow incumbents to entrench themselves as
seems to be the case in the sugar industry. Sugar
producers/millers/refiners form a well-organized group willing to pay the
costs of ensuring that their interests remain protected and the government
incentives they have long enjoyed stay. In contrast, consumers are
scattered, the awareness level with respect to the burden from high local
sugar prices is low, so an effective counterforce to the sugar-producing
group that can influence policy does not exist.
The quota allocation and quedaning system has clearly dulled any
competitive edge that the refined sugar industry may have developed had
it been allowed to face competition. When asked what steps the sugar
producers are taking or have taken with respect to the probable reduction
of the U.S. sugar quota allocation to Mexico (under the North American
33
Free Trade Accord), an industry source merely said that they (sugar
planters and millers) are watching with concern and that the reduction is
farfetched yet anyway.
(b) Recommendations
It is apparent that government policy that has led to the suppression of market
forces and the low level of competition within the refined sugar industry.
15
Tolentino, 1999.
16
Sacada is the local term for sugar tenant farmer.
34
The inefficiencies of the sugar industry, graphically illustrated by high domestic
prices for sugar, penalize downstream and export industries (like the food
processors) and the Filipino consumer. The high cost of food impacts on the
cost of labor which, in turn, impacts on the countrys competitiveness. With
respect to the export industries, these have proven potential in the world market.
However, the high cost of refined sugar is certainly a factor in the decline in
export competitiveness of sugar confectioneries and preserved fruits and nuts
during the past three (3) years. This suggests that the country may lose potential
export niches. How many other export industries were prevented from emerging
due to the high cost of sugar?
17
Competition policy would have to be supported by an integrated package of reforms. Industry sources
cite the following problems, among others: poor infrastructure leading to high transport costs,
inadequate irrigation, insufficient funds for research and development, outdated production sharing
system, lack of countryside credit, the adverse effects of CARL.
35
devolve certain services that it currently performs to the more efficient
private sector.
The effects of competition policy will not necessarily be immediate. Pending the
same, temporary and/or additional measures may be taken:
36
problem on the supply side is that the millers/traders do not have the
resources to deliver the individual orders of each industrial consumer.
Industrial consumers should therefore organize their own centralized
distribution network where their sugar orders may be placed and
consolidated with other orders. All orders will be delivered to the
distribution network office, which will then make the deliveries to the
individual industrial consumer or groups of industrial consumers.
In fine, the urgency for the sugar industry to gain even domestic competitiveness is
highlighted by the reduction and probable disappearance of the U.S. sugar quota with
the implementation of the NAFTA. Without a sure source of income, the sugar industry
must look closer to home to sustain and develop itself. The most logical and profitable
way is to supply the domestic market at competitive prices. To charge uncompetitive
prices would undoubtedly be self-destructive, for to bleed to death the domestic food
processing industry is to ultimately kill the sugar industry as well.
Competition policy could play a key role in ensuring that not only this objective is
realized but also the national goal of attaining sustainable economic development
through the strengthening of exports.
37
SUGAR CANE Cattle for
CANE MOLASSES Slaughter
(1212.92 00) (0102.90 00)
(1703.10 00)
MFN MFN
MFN
20% (1998) 3%
10% (1998-1999)
15% (1999) ASEAN
7% (2000) Excluded
10% (2000)
CEPT
CEPT
10%
15%
Liquor
(22.08)
REFINED CANE SUGAR MFN
RAW CANE SUGAR 20% (1998-1999)
(1701.99) 15% (2000)
(1701.11) MFN CEPT
MFN 50% (In-Quota) 15%
50% (In-Quota) 80% (1998 Out-Quota)
80% (1998 Out-Quota) 65% (1999-2000)
65% (1999-2000) ASEAN MSG
(2922.42 10)
ASEAN 65% MFN
65% 20% (1998)
15% (1999)
10% (2000)
ASEAN
20%
Sugar Preparations Preserved Fruits
(18.06) and Nuts
MFN (20.06/ 20.07/ 20.08)
3/20/10% (1998-1999) MFN
3/10/15/7% (2000) 3/20/10% (1998)
CEPT 20/15/10/3% (1999)
3/15/10% 15/10/7/3% (2000)
ASEAN CEPT
10% 15/10%/Excluded
ASEAN
20%
! 3 Major Grades of Refined Sugar: (a) standard refined - used primarily as table
sugar; (b) premium sugar - used by food manufacturers; and (c) bottlers grade -
used by the beverage industry.
! Linkage Chart: Flow of commodities from the sugar industry to user industries
(see Figure 1).
Rated Capacity
Sugar Mills (50k-bags/day) Plant Site
LUZON
BASECOM, INC. 4,000 San Fernando, Pampanga
Batangas Sugar Central, Inc. 5,500 Balayan, Batangas
Cagayan Robina Sugar Milling, Co. 4,000 Piat, Cagayan
Central Azucarera Don Pedro 10,000 Nasugbu, Batangas
Hind Sugar Company 500 Manaoag, Pangasinan
Peafrancia Sugar Mill 4,000 Pili, Camarines Sur
Central Azucarera de Tarlac 7,080 San Miguel, Tarlac
Western Agri-Ventures Corporation 1,200 Paniqui, Tarlac
VISAYAS / MINDANAO
Central Azucarera de Bais 8,000 Bais, Negros Oriental
Bogo-Medellin Milling Co., Inc. 2,800 Medellin, Cebu
Busco Sugar Milling Company, Inc. 10,000 Quezon, Bukidnon
Crystal Sugar Company, Inc. 4,500 Maramag, Bukidnon
Davao Sugar Central Company, Inc. 4,000 Hagonoy, Davao del Sur
Durano III & Sons, Inc. 2,000 Danao City, Cebu
Hideco Sugar Milling Co., Inc. 5,000 Kananga, Leyte
Ormoc Sugar Co., Inc. 2,000 Ormoc City, Leyte
Universal Robina Sugar 8,000 Manjuyod, Negros Occidental
South East Asia Sugar Mill Corp. 4,000 Matalam, North Cotabato
Herminio Teves & Co., Inc. 3,000 Sta. Catalina, Negros Oriental
PANAY
Capiz Sugar Central, Inc. 3,500 President Roxas, Capiz
Monomer Sugar Central, Inc. 2,500 Dumalag, Capiz
New Frontier Sugar Corp. 4,200 Passi, Iloilo
Passi (Iloilo) Sugar Central, Inc. 5,000 San Enrique, Iloilo
NEGROS
Binalbagan-Isabela Sugar Co., Inc. 10,000 Binalbagan, Negros Occidental
Date: July1999
! 5 sugar mills in the top 1,000 corporations (1995 to 1997): Central Azucarera
Don Pedro, Universal Robina Sugar Milling Corporation, Central Azucarera De
Tarlac, BUSCO Sugar Milling Company, Inc., and Central Azucarera de Bais,
Inc. (1996 and 1997).
3. Level of Concentration
2
Date: July1999
! Government Regulation: Republic Act No. 809 (1952) regulates the sugar
industry from the planting of sugarcane up to the eventual disposition of the
sugar product. Regulatory Agency - Sugar Regulatory Administration (SRA)
Executive Order (EO) No. 18, s. 1986, governed by the Sugar Board, chaired by
the Secretary of Agriculture, with a representative each of sugar millers and
sugar planters as members. It has the power to regulate production of, establish
market allocations for, and institute a quedaning system for sugar.
! Supply: Domestic Sugar Production - The total area devoted to the planting of
sugarcane increased from 1990 to 1994, fell in 1995, then rose again in 1996
(see Table 3). In 1996, utilized hectarage was lower at 2.90% of total area.
Sugarcane area fell further in 1997 (Sariling Ani Movement, 1998), leading to
a further decline in domestic sugar production, which has been erratic,
increasing one year then decreasing the next (see Table 4).
! Supply: Imports - grew at an average rate of 77% from 1991 to 1997 and
accounted for an average 0.09% of the countrys total imports during the same
3
Date: July1999
period (see Table 5). As of January to September 1998, refined sugar imports
amounted to 23,928 metric tons which is already greater than the 1997 level.
Excess of domestic demand for refined sugar over local supply traceable to
rising demand by the downstream exporting industries the food processors,
which use refined sugar as a major input to food processing (see Table 7):
Source: Philippine Chamber of Food Processors and Exporters Organization Inc. (Philfoodex) and Dy and
Macabasco, 1998
4
Date: July1999
! Exports: The industry managed to export minimal levels between 1993 and
1995. Exports totally disappeared from 1996 onwards.
To produce a 50-kilo bag of refined sugar, more than 90% of the cost comes
from raw sugar. Other expenses (e.g. labor, overhead expenses, steam
generating fuel, process material, container) contribute less than 10%. World
prices of raw sugar is much lower than domestic prices (see Table 9).
5
Date: July1999
5. Entry Analysis
1
According to the SRA, there were 36 importers of raw and refined sugar in 1998. Majority of these were
traders.
6
Date: July1999
likely exercise the flexibility option and sugar will be phased into the Scheme
by 2003 at a CEPT rate of 5%; (e) WTO - To reach the 50% target by 2004,
reductions must be implemented in 1997 and 2000. Thus, from 100% in 1996,
the out-quota rate of duty on refined sugar was reduced to 80% in 1997 and
further to 65% in 1999 and 2000; and (f) Asia Pacific Economic Cooperation
(APEC), the goal is zero tariffs in 2010 and 2020 for developed and developing
countries, respectively.
Percent Share
Gross Value Added of Sugarcane
(in million P; at constant 1985 prices)
Year to Total
Sugarcane Total Agriculture Agriculture
1990 3,652 122,631 2.98
1991 4,646 126,204 3.68
1992 4,871 127,010 3.84
1993 5,257 130,736 4.02
1994 5,326 135,068 3.94
1995 3,964 172,844 2.29
1996 4,787 178,143 2.69
Source of basic data: Philippine Statistical Yearbook
2
e.g. Sugar Order No. 8, s. 1995-1996, as amended by Sugar Order No. 10, s. 1998-1999.
3
among these are: monitoring fee of P10.00/50 kg. and a clearance fee imposed on exporters of
sugar-based products; P50.00/50 kg. added to the world price for B1 sugar used by food processors and
exporters; clearance fee of P0.45/50 kg. imposed on sugar exporters to the U.S.; import fee of P13.60/50
kg.; PhilSURIN lien of P2.00/50 kg.; SIFI of P4.75/50 kg.; SMDF of P0.70/50 kg.; PASUDECO of P1.00/50
kg.; and P0.40/50 kg. (Tolentino, 1999).
7
Date: July1999
Table 13. EPR and DRC/SER of Sugar Refining (PSIC Code 31232)
Table 14. Volume of Imports and Exports of Various Food Products and Beverages
4
The effective protection rate (EPR) is defined as the percentage excess of domestic value added over
world market value added due to the imposition of tariffs and other protective measures on a product. The
higher the EPR of an industry or activity, the greater the protection enjoyed from tariffs and similar measures.
8
Date: July1999
(000 nk)
5
Revealed Comparative Advantage (RCA) is an indicator of a countrys export competitiveness. It is
computed as the share of a products exports to total country exports over the share of the products total
exports in the world market. A greater-than-one RCA estimate indicates that the country has comparative
advantage to export the product in the world market.
9
Date: July1999
sugar-sum/phlxprt-taps5
6
Competition policy would have to be supported by an integrated package of reforms. Industry
sources cite the following problems, among others: poor infrastructure leading to high transport costs,
inadequate irrigation, insufficient funds for research and development, outdated production sharing system,
lack of countryside credit, the adverse effects of CARL.
10
Date: July1999