FEMSA exit triggers scramble to liberalize sugar imports, DTI says

THE GOVERNMENT is rushing to liberalize the importation of sugar to address supply issues after a major Mexican bottler gave up its rights to make and sell Coca-Cola products in the Philippines.

“It has been a concern in terms of access to and cost of sugar. So we shall review the system of sugar importation to make it more accessible at competitive cost with ample protection to sugar producers,” Trade Secretary Ramon M. Lopez said in a mobile phone message yesterday when asked for his comment on Coca-Cola FEMSA Philippines, Inc.’s sale of its Philippine franchise back to the Coca-Cola Co..

Mr. Lopez noted that the measures being contemplated do not include lowering tariffs for sugar imports.

He said the desired outcome will still have “appropriate tariff protection for local producers.” It will however involve “opening up to more importers, and industrial users and not a select few. And no other fees. So tariff revenues go to the government, which can support sugar farmers in their modernization programs,” he added.

Mr. Lopez has said that the DTI is drafting a plan that will facilitate direct sugar imports by removing middlemen and effectively reducing the retail price of sugar.

Socioeconomic Planning Secretary Ernesto M. Pernia said in a separate mobile phone message yesterday that “sugar imports should be liberalized.”

“Imports will increase supply, supplementing domestic production. Intermediation cost should be minimized if not eliminated,” he said.

In a statement on Friday, Coca-Cola FEMSA Philippines Inc.’s Mexican parent, Coca-Cola FEMSA S.A.B. de C.V. approved the sale of its 51% stake in the Philippine unit to the Coca-Cola Co.

Asked for comment, Sugar Regulatory Administration (SRA) Administrator Hermenegildo R. Serafica said that FEMSA’s Philippine unit did not obtain sufficient sugar before the new sugar-sweetened beverage excise tax under the Tax Reform for Acceleration and Inclusion (TRAIN) law was imposed in January.

“My personal opinion is that Coca-cola was scrambling for sugar supply since they weren’t buying as much sugar in the past. So when TRAIN kicked in, most domestic sugar traders had committed their volume to their other long-standing and previously contracted buyers,” he said.

“These traders would only be able to accommodate Coca-Cola if they had sugar in excess of the demand of their long-standing buyers but unfortunately for Coca-Cola, production was lower this year so there was no excess supply to fill Coca-Cola’s demand,” he added.

Presented as a health measure, the TRAIN law imposed a P12 per liter tax on drinks with high fructose corn syrup sweeteners, and a P6 levy on caloric sweeteners such as sugar.

Coca-Cola FEMSA Philippines has reduced the distribution of its products to store and has laid off some workers.

Mr. Serafica said he “welcomes” the entry of the Coca-Cola Co. unit taking over the FEMSA investment, which is known as the Bottling Investments Group (BIG), “especially since it expressed its intention to work with the Philippine sugarcane industry in increasing productivity and ensuring a stable supply of sugar for Coke.”

Mr. Serafica said sugar output in the latest crop season fell 16.9% year-on-year.

SRA data as of Aug. 14 indicate that the average retail price for sugar rose to P55.83 per kilo from P47.56 in September 2017, the start of the crop year. The average retail price of washed and refined sugar rose to P58.94 and P66.25 per kilo, respectively, from P50.27 and P54.92 in September.

The SRA addressed the supply issues by reallocating to the domestic market sugar intended for export, and asked the Bureau of Customs to auction off smuggled sugar imports. —