Why sugar prices are high

(Following is the transcript of the segment "Analysis by Winnie Monsod" which aired on News on Q on Jan. 29, 2010. Prof. Winnie Monsod is the resident analyst of News on Q which airs weeknights at 9:30 p.m. on Q Channel 11.) With the growing attention on the prices of sugar, three questions have been asked: Why are the prices of sugar going up? Is there a need to import sugar? Is the suggested retail price of sugar at P52/kg reasonable? Let's take them one by one. Why are the prices of sugar going up? Actually, world prices of sugar have been rising since 2008, and are now the highest in 28 years, although at 30 cents per pound, they are still half of the levels they reached in 1981, which at that time was something like 60 cents per pound. But over the past year alone, the world prices have roughly doubled. So why didn't we notice until now? Because unlike in the case of rice or oil, sugar expenditures constitute a very small portion of the household budget. The factors that contributed to the increase in world prices naturally have to do with a combination of demand and supply factors. For one there has been reduced production in Brazil and India – which are two of the largest world sugar producers – due to bad weather, as well as, the diversion of sugar resources to ethanol production in the case of Brazil. On the demand side, there is not only the growth of population, but also the stronger presence of what is called the "sweet-tooth" in consumers who are eating more candy and sweets. As far as Philippine prices are concerned, the Sugar Regulatory Administration has mentioned the rising costs of production and the influence of the world price on mill gate prices. And to that must be added that there has also been a not insignificant diversion of sugar resources to ethanol production, which in turn has been partly influenced by the effort to avoid agrarian reform. Now what are the predictions with respect to world prices? World prices will continue to rise at least up to next month. The good news, however, it is expected that the increasing prices of sugar will encourage sugar producers to increase their production by devoting more acreage to it, diverting from other crops, and then the prices of sugar will come back down. What goes up must come down. Second question: Do we really need to import? There are two possible reasons for importing: One is that the volume of domestic production plus what is in stock, is less than the apparent domestic consumption or demand. SRA Administrator Rafael Coscolluela, has stated that the production of sugar this year is actually greater than last year's production. But what has happened – and this is really ironic – is that the increase in world prices has discouraged the smuggling of sugar into the Philippines. It seems that the usual situation has been that world prices are lower than Philippine prices, but because of a 38 percent tariff on sugar, importing legally is too costly. So smuggling is resorted to. But now that world prices are high, traders have turned to the domestic market. The result is that apparent consumption, according to Coscolluela, has increased by 280,000 metric tons. Computations made by the SRA show that while there is a current buffer stock of 300,000 metric tons to tide us over until the next harvest, the amount needed is 360,000 tons, so that there is need to import 60,000 tons. However, if an attempt is made to control prices, all bets are off. You have to import more or there will be shortages. Third question: Is the SRP of sugar at P52/kg reasonable? Well, if we compare this price to the prices prevailing for example in India which is a very large producer of sugar the answer is yes because the prices in India come up to 51.50 rupees/kg which is about P52/kg in the Philippines. If we are comparing that P52/kg with the landed price of imported sugar, including tariff, the answer is also yes because that price would be, including the retail mark up, something like P68.12/kg. That's why, they are suggesting, if we are going to import sugar, to remove the 38 percent tariff.