Sugar still P105/kilo
Late last week, I was in a supermarket that’s part of a big chain. After picking up the things I needed, I checked the price of sugar out of curiosity. It was P105/kg. I wondered, why?
The DA Senior Undersecretary rushed the importation of sugar so that shipments started to arrive even before a sugar order authorizing importation was issued. Resorting to cutting corners that violated rules was supposed to quickly bring down the retail price of refined sugar which had gone as high as over P130/kg.
Why were shipments not released to the market? I am told those imports have not been reclassified into “B” domestic use. Industry sources say this may happen at the end of April after most milling has been done. If so, why were the importations by three favored traders rushed to the point of breaking regulations?
The President was understandably worried because retail sugar price was spooking the inflation rate and forcing the BSP to keep on raising interest rates, something that may slow down the economy’s recovery. Headline inflation accelerated to 8.7 percent year-on-year (YOY) in January due primarily to the faster price increases in rent and utility rates, food, as well as restaurant services.
According to the Philippine Statistics Authority, the YOY inflation rate for sugar, confectionery, and desserts was 37 percent, the highest inflation rate for all items in the consumer price index or CPI. We are now paying 80 percent more for sugar compared to a year before. This is clearly a shortcoming the Marcos administration could have done something about.
Both BSP Governor Felipe Medalla and Finance Secretary Ben Diokno have called for non-monetary measures to control food inflation. The Monetary Board echoed the need “for crucial non-monetary measures to fill short-term supply gaps (e.g., temporary reduction of tariff rates and time-bound increase in import volumes and expansion of import sources) and boost local production (e.g., longerterm productivity-enhancing programs).”
Of course, we can’t keep raising interest rates to tame an inflation rate driven by supply constraints, specially in food. We are simply not growing enough food and must import a good part of what we need. But regulations on who can import and how much can be imported are causing our problems. From the rice tariffication experience, it seems better to just liberalize importation and let market forces work.
BSP Governor Medalla pointed out the elephant in the room. Government regulations, he said, through import quotas, would only result in benefiting food cartels.
Medalla brought out the brutal truth when he said only “friends” of people in power benefit from the current quota system of regulating food importation. “The fact that we have so many quotas, quantity limits, and if your theory is correct that there’s cartelization, the quotas themselves become a tool for cartelization. Yung mga kaibigan lang ang bibigyan ng quota. So, madaling mag-organize ng cartel,” Medalla told a hearing of the budget coordination committee.
Marikina Rep. Stella Quimbo agreed that the current system has failed to bring down food inflation due to the cartelization of markets. “When the imports come in, naeembudo lang yan sa kaunting cold storage facilities at alam nating doon nangyayari ang hoarding at price manipulation,” the congresswoman and economist said.
Medalla thinks shifting from quotas to tariffs could prove more effective in controlling inflation. His economic managers are telling Mr. Marcos what to do. Why isn’t he moving?
Former DA Usec Fermin Adriano explains how these government regulations make things worse for Filipino consumers:
“Quantitative (import) restrictions (QRs) and arbitrary issuances of sanitary and phytosanitary (SPS) clearances by the Department of Agriculture (DA) were encouraging rent-seeking (corruption) in the government.
“Through QRs and the selective issuance of SPS clearances, the government can regulate import volumes and the timing of their entry, and also assign quotas to favored individuals and companies. This results in a cartel-type operation where prices are manipulated to gain enormous windfall profits.
“Obtaining these will require little effort from the import allocation beneficiaries. All they need are capital and the proper political connections. This is why I have repeatedly argued that the overregulation and protection of our agricultural sector have resulted in its inefficiency and uncompetitiveness.”
The sugar situation is a case in point. The retail price is higher than ever despite that rushed importation done by three favored traders. The DA Senior Usec couldn’t explain what criteria he made for choosing the traders. He chose the lucky traders all by himself and gave them windfall profits. A public auction for the right to import would have been more transparent. Proceeds could be used to help the poorest of sugar workers.
Big money is involved, according to a source: “Boo, the computation for the recent 440,000MT sugar imports was: P40 per kilo (includes purchase price, landed cost and transport to the local warehouse). If the importer sells at P50 per kilo, they make P10 per kilo x 440,000MT = P4.4 billion. If they sell at P100 per kilo, then P60/kilo x 440,000MT = P26.4 billion is their profit.”
Former Usec Adriano more or less confirmed the information of my source in his column last Friday.
“What is not being mentioned is that the wholesale price in Thailand is around P20 to P25 per kilo. A tariff of five percent is imposed on sugar coming from ASEAN countries, and it was reported that the landed cost of Thai sugar is around P38 per kilo. This means the transaction will easily yield a profit of around P40 to P45 per kilo. Multiply that by 440,000 MT and this means that P16 billion will benefit a few pockets at the expense of poor Filipino consumers.
“Note that in May 2022, the price of refined sugar was just P52 per kilo. Why is this not being used as the target price by the DA if it really wants to help bring down food inflation? The agriculture department also had the temerity to declare that importations were needed to reduce the price of sugar to P80 to P85 per kilo and tame inflation. Parang utang na loob pa ng sambayanan na napababa nila ang presyo ng asukal!”