Sugar’s sour tale

Last year, local sugar producers had reason to feel comfortable again. The harvest was good, more than good in fact, because they had excess production, a first in more than 10 years. And they were expecting good prices just like the previous year. They were in for a disappointment however.

Since the start of the milling season, millgate prices have skidded steadily. From the peak of P815.86 per 50-kilo bag, this dropped to P807.87 by October, P772.96 by November, and to less than P700 in the last two months.

Making matters more difficult, world market prices of sugar are also dipping while technical and actual smuggling in the country has stepped up. President Arroyo recently instructed the Bureau of Customs, the Bureau of Internal Revenue and the Department of Agriculture to look into both technical and actual smuggling to stop the skid in local millgate prices of sugar.

And soon, thanks to the strong lobbying by our sugar producers, Malacañang is expected to issue an executive order that will allow the National Food Authority to buy at least 70,000 metric tons of domestic sugar at the floor price of P715 to P720 per 50-kilo bag, siphoning off excess supply, and hopefully, perk up sugar prices again.

However, these measures are mere palliatives.

Tariff Classification Anomalies

If government really wants to ease their plight, it should hasten the approval of the industry’s request to reclassify sugar-based premixes as sugar and effectively plug an existing tariff loophole that has allowed the entry of these products at very low import duties.

In recent years, there has been an increasing volume of imported sugar-based premixes used as raw material in making beverages like instant teas, powdered juice drinks, or sugar-based foods with vitamin and mineral content entering the country. The industry estimates that about 200,000 metric tons entered the country last year and this could climb further this year.

The entry of these masked sugar-products, including carbonized sugar, should be considered as technical smuggling but the Tariff Commission allows their classification as ingredients when in reality they contain 65 percent to 99 percent sugar.

These products are currently classified under the Tariff Code such that their corresponding tax rate is zero percent. The industry is appealing to the government that these products should be reclassified and should be considered as containing over 65 percent sugar by dry weight used as raw materials in making beverages or goods for human consumption. If government reclassifies these products, then the 65 percent WTO tariff rate and the ASEAN Free Trade Area tariff rate of 48 percent should be applied.

A New Loophole To Be Plugged

In addition to the need to reclassify a number of imported sugar-based products, there is this other concern of the sugar industry. While the Philippines was able to include raw and refined sugar to the sensitive list under the Asean Free Trade Agreement (AFTA) and was given a reprieve until 2010, it failed to include sugar with added flavoring or coloring.

Unfortunately, this loophole allowing industrial users and manufacturers to import sugar containing added flavoring and coloring matter at a low tariff of three percent will eventually give the imported products an advantage over the locally produced sugar.

As of now, some unscrupulous sugar traders are already catering to the local food and beverage sector. They either buy premixes manufactured overseas for smuggling into the Philippines to benefit customers who want to avoid paying the right tariffs and duties for raw and refined sugar or buy those sugar-based products that are allowed to be imported at lower duties as a result of this tariff loophole.

Another Sugarland Crisis In The Offing

The government better act decisively on these issues lest it wants to risk the economic dislocation of millions of workers dependent on the sugar industry. These include the sakadas and those engaged in all aspects of production such as milling and refining.

The tariff classification anomaly must be corrected and the unabated smuggling of sugar products must be stopped. If this situation is not corrected soon, there will be a disaster for both the industry and the administration.

Training OFWs For Future Industry Needs On TV

"Isyung Kalakalan at Iba Pa" on IBC News (4:30 p.m. and 10:30 p.m., Monday to Friday) continues today the discussion of issues affecting our overseas Filipino workers, regarded today as the country’s modern day heroes. The Philippine economy has grown to be so dependent on the constant and increasing inflow of foreign exchange from them. What actions are being taken by the government to ensure that our OFWs can continually compete with workers from other countries? Are there changes in the educational system and in training programs to prepare our OFWs for the future manpower needs of industries abroad? Watch it.

‘Breaking Barriers’ With DTI Sec. Purisima

"Breaking Barriers" on IBC (11 p.m. every Wednesday) will feature Secretary Cesar V. Purisima of the Department of Trade and Industry (DTI) on Wednesday, Feb. 25. Sec. Purisima is a first timer in government service. Prior to his appointment as secretary of DTI, Purisima was the chairman and managing partner of Sycip Gorres and Velayo (SGV) and chairman of the board of directors of The Knowledge Institute, Inc.

What can the public expect from the new DTI secretary in the next few months? What are the immediate actions to enable us to catch up with competing neighboring countries in the regional trade? How can semiconductor companies be encouraged to stay when the cost of power and electricity has been relentlessly going up thus becoming more and more uncompetitive?

Just recently, the courts delivered another jolt to the economy and slammed government plans to resuscitate the dying mining industry. How do you then expect mining investors to come and extend their financial resources and technical expertise to help us extract our resources for the benefit of local economy?

Join us break barriers and gain insights into the views of Secretary Cesar V. Purisima of the Department of Trade and Industries (DTI) on current issues affecting the various sectors of Philippine business. Watch it.

Should you wish to share any insights, write me at Link Edge, 4th Floor, 156 Valero Street, Salcedo Village, 1227 Makati City. Or e-mail me at reygamboa@linkedge.biz. If you wish to view the previous columns, you may visit my website at http://bizlinks.linkedge.biz.