Why are sugar prices high if there is overproduction?

Despite the huge decline in millgate prices of sugar, traders are not reducing their retail prices and continue to charge consumers peak prices, industry observers said yesterday.

Sugar Regulatory Administration (SRA) officials said the retail prices of sugar should have gone down by as much as P2 per kilo had traders passed on to consumer the significant drop in millgate prices.

But the price of sugar in Metro Manila remains at the level of P27 to P28 per kilo, its highest price for the crop year that stared in September 2002 and ended in August 2003.

Data showed that at the start of the 2003-2004 crop season, the average millgate price of "B," or domestic, sugar plunged from P815.86 per bag in September to P807.87 in October, P772.96 in November and P700 in December.

But even at P700 per bag, sugar producers claim they are having difficulty breaking even while others said they are forced to sell at prices below cost.

Earlier, SRA administrator James Ledesma said that since the millgate prices of sugar slid by more than P100 per 50-kilo bag, the adjustment should already be reflected in its current retail prices.

Ledesma said that the downtrend in millgate prices will be sustained in the coming days because on the prevailing perception that there is surplus production.

The SRA earlier projected raw sugar production to hit 2.2 million metric tons (MT) this crop year, exceeding the country’s requirement of 2.06 million MT.

To prevent sugar prices from hitting rock bottom, the SRA is encouraging the exportation of some 2000,000 MT into the world market and initially dispatched 80,000 MT in the first quarter.

But while exports are being eyed to keep prices of local sugar stable, sugar producers complain that sugar prices are being kept low by the entry of cheap sugar from other countries.

Recently, industry leaders pressed the Department of Agriculture (DA)to limit the entry of imported pre-mixes and sugar products and hike its tariff rates.

In response, President Arroyo instructed Agriculture Secretary Luis Lorenzo Jr. to review the one to five percent tariff rates on pre-mixes and sugar products used primarily by industrial processors of soft drinks and fruit juices.

Importers, according to SRA officials, avoid paying higher tariff by declaring shipments of sugar products with 99.7 percent sugar content as ingredients, thus skirting the regular tariff rate of 80 percent pegged on pure sugar.

The DA and SRA were also told to prepare the draft of a presidential order giving SRA the authority to regulate the entry and use of imported sugar products that are brought in through customs bonded warehouses.

Sugar producers claim that the shipment of imported sugar products, estimated at 120,000 MT annually, influences millgate prices of local sugar.