Postpone sugar's tariff reduction?

MANILA, Philippines – It’s been a couple of years at least since we launched the biofuels to national consciousness. We held our breath for the passage of the Biofuels Act of 2006, and now that that is out of the way, how does this emerging industry now fare?

Actually, according to National BioFuels Board vice chair Rafael Coscolluela who is also the head of the Sugar Regulatory Administration (SRA), there has been a significant number of applicants wanting to get into the business, notwithstanding the tremendous costs involved. An ethanol plant costs about P4 billion to put up and there are about 20 pending applications with the BioFuels Board. 

Right now, there are six to eight actual projects, but we will probably see a lot more in the next two years. With this figure, we are looking at investments worth P24 to P32 billion.

The investors’ spirit was somehow dampened by the low prices of fuel in the global market. When the ethanol fever was raging, fuel was still at an all-time high. Projections for the market price pegged global prices at a conservative $60/barrel, which still made ethanol an economically sound alternative. However, with prices as they are now, the prospects for shifting to ethanol has somehow lost its urgency. Some quarters seem to have the attitude of why bother when oil is dirt- cheap now?

But that is precisely the point of the proponents of ethanol. Now is the time to construct these plants. We all know that the price of oil will not stay in this uncomfortable level very long. It has no way to go but up, and the Arab nations are doing everything to move the price up.

In the meantime, we’re still a long way from meeting the local demand for ethanol. The national BioFuels Board authorized the importation of 184 million liters of ethanol for this year because we simply can’t produce enough for local consumption. The big producers we have like San Carlos Bio-energy has a capacity of 30 million liters per year, and the Leyte Agri (which is molasses-based) can only produce nine million/year. We need around 200 million liters just to meet the requirements for this year, so countries like Brazil and other ethanol producers are reaping the benefits because of our inability to produce enough ethanol. Brazil, on the other hand, has so many surpluses to sell to the rest of the world, after serving their own domestic needs. The industry is well and thriving.

The thing is, the Biofuels Board is reluctant to push for more local production because there is a dire need to pour in hefty investments for these ethanol plants. We just have to keep importing until we are able to woo these investors to come in.

The infrastructure is more or less ready for these investments, more or less. The policies and incentives have been laid down, but the VAT issue remains unresolved, and this is a big question mark. Then too, the current producers are looking for some form of tariff protection. As things stand now, the oil companies may find it more advantageous to import ethanol rather than buy from our local producers, which is a big pity. The Department of Energy’s knee-jerk reaction to this is to require all importers, including the big oil firms, to first secure a certification from the local ethanol producers that they have sold out their production capacity before these firms are allowed to import. The consultation process with all the stakeholders involved is still going on.

Meanwhile, the BioFuels Board finds the prospects for molasses-based ethanol plants very encouraging. One of the major players here, Leyte Agri exported a lot of molasses last year, and has strengthened its production capacity. Other sugar mills with feasible molasses operations include ROXOL which is based in Negros Occidental and whose La Carlota and Don Pedro mills recently embarked on a modernization program for their plants.

These big players have succeeded in adding value to their molasses by selling the by-products as animal feeds to big buyers like New Zealand. The creation of additional markets for cane and molasses producers for feedstock provides more options and gives the ethanol producers an extra level of assurance of profitability. They cannot depend solely on sugar cane which is seasonal, and the world prices of sugar are very volatile, especially now that 2010 is approaching and we are looking at zero tariffs for sugar.

The SRA is currently in the thick of R & D on the potentials of sweet sorghum for ethanol production. They still have to determine the right variety, but between the Philippine Sugar Research and the scientists of UP Los Baños, they should be able to pinpoint the right varieties pretty soon. This group also forms the technical committee tapped to firm up the industry’s annual crop estimate system which is necessary because it would be the basis for formulating the policies for the sugar industry for the year. The system is science-founded, a bible sort for sugar planters for better planning and pricing.

While they’re at it, the SRA has also just signed a memorandum of agreement to set up organic fertilizer plants all over the country. There is already a precarious level of over-fertilization of our soil, which is understandable as the formula for soil preparation has been overused for 20 to 30 years now. While it served the planters well in the past, they have not factored in the problem of climate change, soil changes, etc., and there is a need to educate and implement new technologies now in order to maximize their level of profitability.

About the very real fears of the sugar industry for the zero tariff prospects by next year, the sugar industry has found itself in a corner because it has committed to this in the earlier AFTA agreement. Right now, tariff on imported sugar for the ASEAN region stands at 28 percent. By 2010, this would be reduced to 0-5 percent. How can we possibly compete with world prices of sugar with this scenario?

They are now trying hard to reclassify sugar to the highly sensitive list in order to hold on to the 28-percent tariff. If the tariff protection they are currently enjoying disappears, the sugar mills, especially the big ones that recently embarked on modernization programs and who have invested much in R & D to improve their production efficiency stand to lose their shirts. How will they pay their loans for their plant improvements?

If the tariff protection disappears, it will be cheaper to import sugar, but then how does that sit with our efforts for national food security? When the prices suddenly go up and we have no choice but to import because our sugar mills have long dried up, where do we go?

Time to think this one up.           

Tales from a Mediterranean Cruise

I’ll try to find time to write a column from aboard a cruise ship next week or I’ll just have to pass. But should I opt to pass you can expect some series of insights into taking a Mediterranean cruise in our succeeding columns. And that can be interesting reading for leisure lovers.

Mabuhay!!! Be proud to be a Filipino.                         

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