Sugar quota

The best outcome for our sugar industry is to be set free from the apron strings of the government. After all these years, it should be able to stand on its own. Sugar industry leaders should be ashamed that they still think they cannot survive without all the outmoded rules.

It is no longer like the old days when the sugar industry was a top exporter. We no longer have enough sugar to export. Unless the industry modernizes, we will never be a competitive exporter again.

The price of sugar in the domestic market is a lot higher than in the international market. It no longer makes sense to keep the sugar quotas.

The overgrown mama’s boys of the sugar industry refuse to let go, and the over indulgent mama – otherwise known as our government – pretends it should still be setting up export quotas and controlling imports.

At a time when the domestic market was suffering a shortage, as evidenced by extremely high retail prices, SRA was holding a lot of sugar stocks in bodegas as quota for sale to the US market and the rest of the world. It doesn’t make sense until you hear whispers that some people are making tons of money. Some people must be very influential to keep that fiction going. It is said that through outdated rules, traders buy cheap from abroad and sell high in the domestic market. Many planters suffer as their tons of sugar are kept as a fictional “A” quota for export kuno.

Experts and sugar industry participants have called for an end to the quota system. And to alleviate our current state of emergency, release sugar stocks being kept supposedly for export to the US. But SRA is not listening.

The situation must have gotten too hot and difficult to explain. Or perhaps, Junior has started to ask the right questions and is determined to make things right.

So, early last month, a draft sugar order (SO#4) of Crop Year 2022/23 was circulated. It called for the conversion of all domestically produced Class “A” and “D” outstanding export sugars into class “B” sugar for domestic consumption.

Prices have already come down from their highs last October, according to industry sources, but that’s still not felt in the retail market. The 2022/23 sugar harvest season is underway, so there should theoretically be more stocks flowing into the market.

But the crisis isn’t over. In Sugar Order #1 released last Sept 13, the SRA projects 1.876 MMT sugar production this crop year, far short of the approx. 2.4 MMT annual domestic consumption. There is still a big risk of another massive shortage situation during the off-season months unless the SRA plans a properly calibrated importation program ahead of time.

All things considered, conversion of about 17,000 MT sugar, as stated in the draft order, is a much-needed win for the starved sugar consumers. Many, particularly small and medium enterprises, are still struggling with low supply.

There are also domestic sugar producers who withheld their export sugars to protest previous highly questionable sugar export programs. Credit to Junior for moving towards this conversion order.

But the draft order still smells of rent-seeking behavior. To clear the air, SRA should clarify.

To begin with, while holders of Class “A” and “D” raw sugar quedans are granted the right to convert at a ratio of 1:1 or 1 Lkg bag of export sugar to one Lkg bag of Class “B” raw sugar, the Sugar Order says that the SRA will still determine the conversion coefficient.

This conversion co-efficient determines how much Class “A” and “D” export sugar the quedan holders can convert for free and how much can they convert only upon payment of a conversion fee. Why should there be a conversion fee at all?

So, the SRA will issue an implementing regulation on how the conversion fee will be computed. The SRA appears to want producers who did not produce the export sugar subject to conversion to dictate the price of the conversion fee.

Non producing producers will be issued by the SRA a conversion rights certificate. For the holders of the export quedans to convert their export sugar to Class “B”, they will have to buy conversion rights certificates at a price fixed by the nonproducers.

Interestingly, one industry source said, the producers who will benefit from the conversion of Class “A” and “D” quedans did not object or, at the very least, acquiesced to the wrong and illegal allocation of export sugar by the SRA. Technically, export sugar cannot be allocated unless there is a surplus in supply to meet the requirements of the domestic market.

They are also the same producers who, for years, profited on massive sugar import margins from the SRA’s export replenishment program. Under the questionable programs, traders who exported the raw sugar were granted the right to import the same volume of raw sugar by paying the producers, who sold the export sugar to traders, a substantial amount in exchange for signing the traders’ import rights certificate.

In a letter to the SRA dated Oct 12, the majority of export quedan holders have already signified their commitment to provide financial assistance to the many sugar planters who have been suffering from high fertilizer and fuel prices and were forced to sell their export sugars cheap to traders for many years.

However, it is counter-productive for the SRA to also reward the big millers/traders, most of whom have already exported their sugar and benefitted for years from the huge import price margins, during the export replenishment programs.

Perhaps the sugar cartel is dreaming of exporting again in the future, as if they can manage to compete with Thailand and other more efficient sugar producers.

Indeed, it is mind-boggling why the SRA has even waited this long to draft an order for conversion. All this while prices remain at all-time highs and rampant sugar smuggling continues...

It is time for the sugar industry to grow up and for the government to let the industry manage itself with the government’s participation limited to providing credit assistance when needed.