By Chino S. Leyco
The Department of Finance (DOF) is standing firm on its proposal to liberalize the sugar sector due to a string of problems under the current system that restricted the growth of the industry.
Finance Secretary Carlos G. Dominguez III (DOF photo / Howard Felipe)
Finance Secretary Carlos G. Dominguez III said the sugar industry’s output failed to cope with the population growth resulting in skyrocketing prices in domestic market in the past two to three years.
“You see, the situation in the sugar industry, our population has really grown. It's already at 105 million at least. We’ve seen in this last two to three-years, always there's a shortage (of sugar) and the domestic prices are double the world market,” Dominguez told reporters.
The finance chief believes the commodity’s high domestic retail cost is attributable to anemic private investment in the highly regulated sugar sector.
“One problem is on the supply. The other problem is the legislation that regulates the relationship between the planter and the mill,” pointed out Dominguez, who heads the Duterte administration’s economic team.
According to the DOF chief, the law mandating the planter–miller production sharing system that favored sugarcane planters has discouraged private investment to improve the efficiency of the mills.
Under the Philippine rules, sugarcane planters receive 60 percent to 70 percent share of the sugar output and the remaining 30 percent to 40 percent go to the millers depending on the area.
Dominguez said the present sharing scheme does not provide any incentive to put capital expenditures to improve the efficiency of millers.
“When you put a capital expenditure there, you only are able to recover 30 percent to 40 percent of the revenue of the mill… Why should they put 100 percent of the capital expenditure and only reap 30 percent to 40 percent of that?” he added.
Dominguez said he already discussed the regulatory problem with Senate Majority Leader Juan Miguel Zubiri, whose family has business interests in the sugar industry.
“I said we should also think about a new kind of relationship between a mill and the planter so that the mill is also incentivized to be more efficient. So they will spend for the necessary technology and the capital to extract more sugar from the cane,” he said.
“If you look worldwide, the mills and the farmers do not share. The mill buys the cane. So if they own the whole cane, then they can extract—they have every incentive to extract the most amount of sugar,” he added.
Zubiri, however, suggested to Dominguez the halting of the United States tariff-rate quota (TRQ) scheme wherein the Philippines is required to set aside five percent of its total domestic output for export, equivalent to 105,000 metric tons.
“If we convert the US TRQ, which is equivalent to 105,000 metric tons of sugar for our local industrial consumers, we can satisfy the demand of our local manufacturers and processors and we may no longer import for their needs,” Zubiri explained.
But Dominguez responded that decision to stop the US TRQ is with the Sugar Regulatory Administration (SRA).
“That's up to the SRA, that’s their job to allocate the sugar among export-domestic reserve and world market also. That's up to them,” he added.
The finance chief, however, assured the lawmaker that the DOF is willing to sit down with Congress to arrive at “a good solution” beneficial to all stakeholders and consumers.