R_)O_/ 515 NEDA
PHILIPPII"IE INSTITUTE FOR DEV_%0PMENT Working Pap e: _o3-04_ • I_[PACT OF GOVhf&qMENT POLICIES
SA _AKAT_
STUDIES
ON PHILIPPINE
by G_aZ.d. Co Ne/son Merce._, Agcaa,J.i February 198_
SUGAR
BUILDTI_@
_MPACT
OF GOVERNMENT
POLICIES
Gerald
ON PHILIPPINE
SUGAR*
-C]-Nelson**
Mercedita Agcaoili*** February 1983
Sugar
has
Philippi,_,.. During of
been
economy
as since
_:h,, 19hO's,
total
for
_Jxporr.earnings
_arning_
was roughly
(Table
the
earner
early
example,
and growth
22 percent
share of totai
of
part sugar
(Table
has been declining,
sugar consumption
sugar's
a major
I).
foreign
of
the
twentieth
exports
made
SugarTs
however,
share
due both
in other exports,
of total exports, exports
exchange
for
the
century.
up
18 percent
of
export
to increasing
domestic
in the 1950's, sugar
but by the late 1970's,
had declined
to only
i0 percent
I). The predominance
of sugar
in Philippine
result of coloniai
and post-colonial
Until
all Philippine
_974, almost
protected
United
States market
trade was largely
ties with
the United
the
States.
sugar was sold duty free into the
where
prices
were kept stable
at.
*This working paper has been written as part of the Impact of Ecooomi.c Policies on Agricultural Development project. The authors wish to thank Cristina David, John Power, and Laurian Unnevehr for helpful comments on earlier drafts. All comments and suggestions are welcome. **Agricultural Development Assistant Professor, UPLB. ***Staff
Economist,
National
Council
specialist
Economic
and Visiting
and Development
Authority.
TABLE Qua_=ity
TOTAL SUGAR EXPORTS Quantity Value
YEAR
1955-1959
1
1960-19641
864 _1,032
1
and Value of Philippine Exports of Centrifugal and Refined (000 metric tens and million U.S. dollars)
U.S. Quantity Value
I01
839
98
140
1,032
140
I_ORTERS CENTRALLY PLANNED JAPAN ECONOMIES Quantity Value Quantity Value
8
1
-
-
Sugar
OT_ERS Quantity Value
17
.....
I
Share of Su_a in Total Exports (percent.
2
25
-
19
i
i965_ 1969 _
984
i44
984
144
1,383
325
1,3!7
286
1975
972
581
329
1'47
1976
1,466
429
961
1977
2,442
5 12
1978
i, 124
1979 1980
......
18
I 1970-1974
Source:
7
21
107
25
81
19
!7
166
79
18
16
199
35
237
42
6
63
[38
24
260
50
5
363
137
382
113
575
223
ii
F oreisn
Trade
51
33
,-
-
15
476
324
II.
9
156"
285
9i
28
333
97
1__/,234
278
237
50
892
197
626
II0
62
I0
i, 150
212
405
75
347
I, 735
624
415
151
National
Economic
National
Census
and. Development
and Statistics
Authority,
Office_
various
years.
statistics
of the Philippines,
_;CN
3
levels in
usually
large
well
measure
above
the
world
market. maximum
designed
to
secure
access
to
the
Philippine benefits
policies from
were
these
arrangements. Preferential tating
a major
over
control
this
as
of
a way
fluctuations world
change
markets.
ment.
These
price,
production,
goal
of
sugar
this
paper
production
is
its
domestic
a barometer
of
A second
goal
to
trade,
policies
on
from
sugar It
production
and
been
argued
is high
What
mentioned
not
paper
those
of
government
of
by an
interest
minimum
impact
rates
price in
cooking
to examine
the
effect
of
and
therefore
the
distribution
ban, on
on
good oil,
control
is
govern-
A major
consumer
and to
import
policies
visible
efforts
the
wages.
these
rice
world
that
the
the to
cost
other
extent
of
producing
major
government
to which
sugar
exporters the
high
is
inflation,
of income
processing.
relative is
special
justifying
production,
taxes_ low
took
position
regulated
is a highly
with
of
prices
Philippines is
along
domestic
has
sugar
success
sugar
closely
the
from
negotiating
1974,
precipi-
government
consumers
contro]s_ and
1974,
marketing,
included/export
examine
trade.
this
been
loans_
to
price,
of
after
marketing
and
the
and
always
equipment
and
in
The
international
Philippine
have
and
In addition and
has
regulations
and
the
ended
policies째
and
before
trade
marke_
producers
improving Both
and
production
domestic
protecting
and
processing
in Philippine
both
of
U.S.
in
the
(FEER). costs
reflect
4 GCN
social
opportunity
policies
costs of the inputs or the impact .of govern_nt subsidies
and Price
controls.
If the costs are not due pri:marily tO government
policies,
and are
greater
such as mi_limum wages,
credit
than long run sugmr prices,
encouraging
_rginal
goal of the paper
Rroducers
is to examine
a stro[_g case can be made
to shift
out of sugar.
comparativeadvantage
for
A third in production.
_N
5
WORLD TRADE IN SUGAR
Because sugar,
international
i.tis usefulto
trade
discuss
international
sugar market_
are notorious
for
provides
in"l.970, the world and
thendropped
followed equally
(Figure
rapid decline
followed
In 1982, free market
low of about
commodities_
account
steadily
sold at free marke_
production
fluctuations
variation
adomestic
floor price well
of member
onto
above
price
a
and as a result,
is xkot
of •sugar traded
amd this includes
control,
sugar
domestic
forcing
price
sugar
from world
domestic
For example,
the free market
and sells
ether
traded sugar
In addition_
market.
It also has large preferential countries
near
countries are.protected
the world
production,
fell to an average
Relativeto
70 percent
c•osts.I
bygovernment
An
ton.
about
in many
production
market..
1981, prices
sugar •prices remained
Only
production
and consumption
purchases•excess
and in
ton
increase
over• $600 per metric, ton.
is sold on the free market
sold at prices below
A rapid
of internationally
prices°
of suga_
to .a peak of $552 in 1974,
for chis fluctuation,
share
prices
From a low of $81 per metric
$lgO per metric
a large
internationally
free market
of the
and the decade of the 1970's
I).
price•climbed
to.Philippine
the characteristics
back to only $i71 in 1978.
Two factors
price
wildly
and by 1980, prices•were
of 8390. decade
briefly
International
fluctuating
a •good example
is _o.important
the EC sets
in most years •,
it at a loss i.n the world _mports
from Frevious
is the second
or third
colonies
largest
GCN
7
importer
and the second or third
Although is only
the Philippine
two percent,
or five exporters, sugar.
largest
net exporter
share of world
it has been
consistently
supplying •about
1974, essentiaily 1974, expert
all Philippine
markets
the U.$. were only over 20 percent,
and the centrally
less than 20 percent.
of all exported
sugar was exported
of the total. planned
to sugar
one of the top four
trade with
have been diversified•and
25 percent
area devoted
five percent
Until the end of its preferential
of sugar.
the U.S.
in
to the U.S.
in 1980, exports Japan
Since to
took a little
economies
bought
somewhat
8
]_ILIPPII_
SUGARPRICE _ICIES
In the
post
World War 'II period,
policy
environment.s--from
_ued
peso
t_
rechtcml
devaluations
holders
the
tw_d of
tb_ d_Irability
profits,
the _
he*re boen
in U.S.
and 197& to the
thr_
_o 1962 _mn
of e_rti_8,.
stud an increame
larae
there
dist.inct an o_sr-
1962 to
q_ot_8
ga_
present
_
1974
_q_ort _
quota
8ovmrnwmlt
took direct coutrol of domestic and iuternational _rketin8. of
these periods,
affecti_8
s_arp
8mmrally,
b_
s_b
po,licies deals
s_z
e_h
_o s _at_
T_
81so
as
the
of the
_t
m_r_ti_
to_ti_Is
st_£_ies,
poet _r
U._.
of p_otec_:i_n. reed foreia_
I_£e
lectioa
.e_e
poiic:i_s. ie tlefer_ed
_uCs
_s
poliey _v_romt
policies,
aed
_s_kets _y
2
_ b_-lef
B_ea fr_
loo_
b_-
strongly
b_c._rd
191_ and 193_
_rm_<_Idly.
of
.q_ports
that _
reached
e _k
_ot exceeded _ntil
_hemged
_he str_tt_ee
i_fl_ced
_lps
i. 3 miili,_a
gi_e_
_e_
q_,stiti_s,
_s a
we_s fo_r export, to_
_1971 (_uke, 1'963 ).
_f proteet£on
to
_£!il_p_e
stud _- _r_rlct_ _11 of _ieb
U.8.
agri_l_e
and by tm_:r_c
t_t_It, l_il_ppi.e proc1_e_ic_,a:_t
til_
d£_etly
smcti_.
e_rent
_te_d
by po1_i_
of p_l£oi_s e_t_
by p_e _mr &v_rlop_.te, _s_d
attar#re
price,
c_ly
d_r_c_ed
and fer_ili=er
o_raIZ
_rith
Dot
by polleiee
as credit
privately
A &is_umio_
_ms &fluted
In each
im 193_, In
a
1935,
_o domestic
8_Ear
¢_N
9
from high tariff barriers Philippine thirds
were
sugar was provided
of its previous The
primary
principal
producers
of only 850,000
the export
quot_
and to maintain
which
for the U._. market the price
regulated
sugar production,
se!l into the respective to the U.S. quota.
mgrkets,
domestic
Each mill owner and producer in the export
market
The need the agreement shipped
the U.S.,
to the U.S. umrket
The original
implemented,
amounts
The
market.
set up to m_et unforseen that a producer
needs.
could
_um of all A quotas was equal
prices
to domestic
is clear.
the quantity
was limited
sT_ply,
at a predetermined
was free to trade
sugar
Under
level.
domestically
and
A and B quotas.
t_e provisions
of exports
of
that could
be
and the A quotas allocated
producers.
the quota arrangement
Philippine
exports
A_41_
and
to the domestic
goal of the B quotas was to =_intain
In 1935 when
The
A second
up to the ii=_it of his respective
_he U.S. quota among domestic
prices.
for sale
consumer
for the A quota with
processing,
The sum of all B quot_s was equal
and was set to keep
sugar.
Each mill and grower was given
(the C quota) was also
Both the A and B quotas were maximum
among
Law of 1934, set up the
(called the A quota).
the B quota, was set aside
A small reserve
of domestic
Limitation
quota
two-
War II regulation
the Sugar
a share of the U.S. export
tons_
to the U_S.
pre-World
trade for most of the next 48 years.
quantity,
limits o_ imports,
frec trade exports
legisl_tion,
basic mechanisms
a quota
goals of Philippine
to distribute
domestic
to quantitative
with
domeatic
th_ U.S. was
to the U.S. were about
400,000_ tons
10
CCN
greater _ons
than the quota.
(8uke,
Since
to cause a drastic
tbis, producers
of their standing domestic
consumption
1963), the i_pact oi diverting
market would have been To prevent
domestic
cane
Sugar
TO
(_S_,
to the domestic
fall in domestic
priees_
May' 1980), and production
part and
imposed.
1962
plantations
d_mage during
the excess
lO0,OOO
were paid a one time f_e to destroy
sales restrictions
POST WAR POLICIES
wa._ only
and processing, facilities
World War II, and i_ediate
below pre war peaks.
Furthermore_
two pesos per dollar,
a rate
suffered
m_stantial
post war production
the exchange
was well
rate wam frozen at 3
that overvalued
the peso
(Baldwin_
prices
w_re roughly
the
prJ.ce (Table 3).
The
Until the 1962 de'valuation, U.S. and domestic _ame, and Were overvaluation Philippine years
40 percent reduced
exports
higher
incentive
than the werld to export
to the U.S. _ere below
¢_ring "the period
sugar
1975).
to the U._S.
export quota_
(Table 2), and there were small
in several exports
to
Japan. During introduced. at the same
this period, However,
explicit
since
export
level and the export
was little need
to enforce
price regulations.
domestic
price
(U.$.) and do_stic
quota was-not
_trictly
ceilil!:gswere prices were
always met_
there
either prod_JEc:tl.on co_trols
or
GC_
iI
TABI.E 2 United
States Quota on Philippine Sugar and Actual Philippine Exports (000 metric tons, cormuercial weight I)
Actual Year
U.S. Qu,9_t,. _
19552 1956_ 1957_ _
_
_
8
_
890.6 870.6 630,:7
063"
S
_I
863.6 I,019.0
1961_ 1962. 1963_ 1964_ 1965. J i966._
i, 296i i 116.5 I,099.5
X
9
6
7
:_i
_i
if,
Oi._
.
1,055.5
19694 1970. 19/I_ _ !972_ I973 :_
! 1,214.9 1,413. l ,
0
5
1
_
.
5
1,039-0 979_4 1,081.1 1,119.5 I, 122. S 941_ 7 942.7
3
1968_
92
_tates
909 _i 940.6
!, 159.8 !, 123.A l'O_ 'I}
?
,Note_:
to the United
863.6 863.6 863째 6
1959_ 1960"_
!I
Phi l.ippin@ e.i_.p_r ts6
904.4
5
]I
_
0
1
0
.
5
l,236,2 1,421.4
1,239.0 I _410, 7
I ]. , 2 "_._ . 4
I, 295.4
I.
Sugar sta_iIstics that .include _=th raw or rmfined _Iga_" _i_' 4J_ reported either in commercial weight or raw value. Com_ercial weight is simply the su_= cf the tonnages of both types cf _.ugar_ In fig,_res reported in raw value te_nns, refined sugar is converted to its raw equivalent. The convermion rate depends upon the degree of purity of the refined sugar but is roughly equal to 1.05.
2.
Niceto S. Poblador (1964), "The Philippine Sugar Industry: A Case Study of Government Control, _' _!#_;_kLi_lip_._,D_@. _<_v'iewof Business and_,E__conom_cs, Volume I:.Number 2, October. The raw _alue equivalent is 980,000 short to_,s.
3.
_hili_ine
4.
S_gar News_ February 1972. These figure_ were reported raw _a!ue and have been converted to _o_merc_al weight
6.
Sugar Handbook_
July
equivalent
a_ a rate of 10,0294,
From Table
l,
1974, in
GC_
12
Cont. of Table 2.
Statistics on the United States quota on sugar are complicated in a n,,mber of ways. The quota provided for import_ of both raw and refined sugar, in addition, the quota was usually expressed long tons. but ie sometimes referred to in short tons or in metric tons. Finally, in additio, to the basic export tonnage, which was increaeed occasionally, the Philippines was provided a share in the gz_'¢th of United States consumption above a cert:_in level as well as a share in quota shortfalls of other countries. This table p_eseuts figures which are reasonably close to whaC the actual quota was, but should not be viewed as exact.
C_N
i3
POLICIES BETWEEN !962 AND 1974
The direct
impact
of the devaluatio_1 of the peso between
1960 and 1962 was to raise exported
to the U.S.
B_tween
substantially
relative
to the Phi!ippine
1960 and i962, export
wholesale
price increased
and imposition
unit values
consumer
export
and export
1962 to 1973, the export, price consumer
access
was eliminated
qt_oÂŁa holders.
while
_he Manila
A second
tax in 1970 further
prices and
was 30 percent
25 percent
another
200,000
sumptlon
to the U.S. _rket
in 1.960 and its share
Between
rou@_ly
1.959 and
(250,000
during higher
devaluation widened
the period _han the
tons had been
increased
less exports)
added.
growth in
the export
Average
was 355,00Q
had been before increased
prices were
of increased quota-made
1962.
allocated
amon_
weight)
other
undesirable
1974
domestic
.con-
con_,umption
tons in 1955-60, h,._thad period_
pe_o prices
axporting
demar_d.
and by
annu, l domestic
for exports
mole attractive
At the same time, growth
domestic
politically
when the Cuban
V.naddition,
to 652.,000 tons in the 1969-1973
The combination
increased
1962, the quota was increased
tons commercial
was rising steadily.
(production
income
doubled
;rice,
price on average.
Philippine quota
of sugar
consumer
less than 50 p.ercent.
of a I0 percent
the gap between
the peso price
Substantially
and that it
in population
and
higher domestic
and i_p_/ts at the lower
free
GCN
14
market
price were
impossible,
tained.
A combination
domestic
price increases
demand.
Producers
weekly
required
export
sales became
between
before
year_s
a residual
exports
were
1962 and 1973, exports
the quota in 4 out of 12 years
IMPACT OF GOVERNMENT
A comparison for almost above
to allocate market
sales in the next year went
until the previous
satisfied
as the way to meet domestic
POLICIES
their
domestic
entirely
in a
market was
An important
to the U.S. were
quota
their B
In essence,
The domestic
allowef.
until
to the domestic
quota was filled.
market.
of their
effect was that
below
95 percent
of
(Table 2).
BETWEEN
1955 AND 1974
and U.S.
domestic
prices
all of the period between
1955 and
1974, U.S. prices were well
the world
of world
30 percent
(B quota-sugar)
If they did not meet
market
to be main-
in B quotas with moderate
was chosen
to the domestic
quotas was filled. given year,
of increases
were
production
if this U.S. quota were
price
(Table 3 and Figure
the protected
U.S. market
allowed
substantially
more on exports
2).
Philippine
indicates
Duty
producers
than if they could
that
free access
to
to earn
sell only
to the
world market. At the official
exchange
equal to export
(U.S.) prices
consumer
were below
With
prices
devaluation
rate, until
export
and the increased
domestic: prices were 1961, but from
unit values U.S. export
roughly
1962 on Philippine
but above worl_ quota,
a wedge
prices. _ was
GCN
15
TABLE 3 Nominal Tariff Rates, Implicit Tariffs, and Related Sugar Price Ratios, 1955 to 1980 (percent)
1955-1961
Nominal
tariff
Implicit U.S.
rate I
tariff 2
to world
Philippine
export
to
Philippine
export
to U.S°
Wholesale
Manila
world
1962-1973
1974-!980
65
7q
-,%.5
6_
39
-31
71
)06
29
63
|02
- 3
-5
4
-2
-2
-32
_
-17
to
export Millgate
to export
Source:
Calculations
based
on the appendix
-18 -20
table.
I.
The nominal protection rate is based on the ratio of the millgaÂŁe price to the world price. The prices are not at the same point in the marketing chain and these figures overstate the protection provided to producers.
2.
The im_,_licittariff is based on the ratio of the wholesale Manila price to the world price.
F:GU_I_
Selec:ed
4,500
4,000
o--o Intex_,:aC_onai Sugar Org_ii_ization World Price x--x Philippine Export Unit Value m~°
••3,500
_h.olesale Delivered Manila
2
Sugar P_ices
C__N
16
introduced
betwee_
consumers to
sell
order than
from
a sharp
export.
As
a result_
domestic
market_
he
the
P'D
PUS
quantity they
depended
upon
which
the
extent
to which
supply
curve
less
market
import
+
into
consumer
shares
3,
ahd
QUS
production
the
Figure
free
were
prices,
In
producers the
prices
to
order
protect
were
required
domestic
market
in
increased
much
less
the
they
level
were
of
the
allowed
domestic
export
and
to semi
into
production
was
curve,
is
sufficient
quotas.
curve
world
incomes
and
both
domestic
sugar
prices_
prices.
prices,
In
consu_ner
in
their
Producer
supply
rise
of
to
to meet
and
a portion
Export
each
export
DD'
the
ban
QA
B),
than
domestic
marginal
U,S.
quota,
the
if
cost QUS"
export
consumption ACB
demand
QB
would that
If
quota_
would
(ACB
curve), PUS
respectively.
and
consumers
consumed
the
(the
prices
domestic PD
is
be
susar
(P_ were
the the
average
pay
and
SS'
S-_S PW
is
are
only
cost
of production
imported
at
the
would
would
for
and
policies
price
Producers
domestic
CIF
domestic
QA"
more
the
U_S.
domestic
PW ) QA
the
earn
at
the
sugar
free
market
5 price. In
addition
government producers export,
$ - QD
had to In
is
the
export
a domestic
price
sell Figure
the
to
in
the
quota ceiling
domestic
4,
SS W is
domestic
supply
and
which
market
again
curve
the
import
it met
before domestic
less
the
ban,
they supply
domestic
however_ by
the
forcin_
were
allowed
curve
quota.
and
to
Given
FIGURE Demand
3
fo_ and Supply of Philippine
Sugar,
._-Qus
l _A
Q_
Q
1962-!973
GCN
17
the ban on imports,
the domestic
quota_ and the price
of exports
6 (PUS), producers
want
to produce
If the U.S. quota and one of the quotas than _S'
the domestic quotas
market.
If the U.S,
this period,
OUt of
equillbrium--growing
quota,
and
outward,
logical .changes and fertilizer the
greater
acted
the supply
factors
due both
policies
demand
shift
increases
the
to
techno.
growth shifts
SS _ and therefore periods
and quota rents were
an indication
in
U.S.
such as credit S-QD to S-Q D tO
when _S
was. :
generated,
but
I962 and 1974, exports ware
of the U.S. quota,
the export
to move the system
curve
It is not p0ssibla to observe
in four years between
sell first to
are generated. 7
demand,
Domestic
than the U.S. quota
percent
_ents
cost reducing
subsidies.
mu_t
is greater
quota is less than _S'
three factors
in
and input
left, while supply
the right.
producers
domestic
shifts
is in equilibrium
If the U.S. quota
because
and quota
_S"
to EUS, the system
is redundant.
become binding During
is equal
not be _t
itwill
QTOT and export
less than 95
that EUS was less than the
u.s.q.ot. Four
general income
these policieE Philippine
distribution
can be seen.
producers
First, U.S.
than if theyhad
there was a revenue
transfer
producers.
1955 and 1973,
million
Between
per year
augers pa_d more
Philippine
consumers
imported
effects
of
paid more
to
from the free.market;
from U.S. consumer_
(1972 dollars), to
or producti_
to Philippine
this amount averaged second,
producerJ
Philippine than
if the
$53
confree
marker
FIGURE 4
•S-D
Pus / × /
Pw
....... /
//s_ %
%s
%oz "
18
GCN
price had prevailed'in
_he Philipp_.ne_째
surplus was roughly
$I0 million
domestic
expanded
production
profitab!_ with better
i.f the world than average
years all producers
per yea_
This
(1972 dollars).
beyond what wculd
p_ice had prevailed. lands
earned
l_ss ef consumer
earned excess
quota
rent_o
Third,
have been privately Finally,
profits
producers
and in some
GCN
19
PHILIPPINE
SUGAR POLICIES" 1974 TO 1982
The end of preferential led to a major change the government
access
in Philippine
had allocated
trade to handle
termination
of the Laurel-Langley
Bank
Incorporated
In contrast responsible bought
an agency
"domestic"
shares
system
its export
were
ban on exports UR_ rS,
inwhich
National
industry
at
from the sugar
each mill was quotas,
determined
Philex by
"export"
(Table _).9
to licensed
system
for sugar and the problems tempo_arily
so high, an additional
C0.$
Exchange
(A),
Philex
traders
and exported
itself.
The end of the U.S. quota
situation
to the
price--calculated
(C) prices
sold sugar for the domestic market
world prices
of sugar
and domestic
of the officially
(B), and "reserve"
the remainder
butallowed
of the Philippine
for the sugar
all sugar at a single "composite"
taking weighted
1974,
of sugar. _
to the previous
for marketing
in response
Act_ the Philippine
the sole buyer
mills and the sole exporter
Before
and export quotas_
institution
that time), was designated
policies.
the marketing,
(Philex),
(the major financial
sugar
domestic
the private
Company,
to 'the U.S. m_rk.et in. 1973
postponed째
export
was declared
coincided
with
of adjusting Because
world
record high to the new prices were
tax was implemented_ 0 and a temporary
in late
1974 to protect
domestic
-:" ......
20
C ,,omposl_ "'" Price ar_ " .v:xp_t r
,!i!'_ t_'L ._i./SY.<?II::_:: i!i!!'!;!;
Unie
Vai,_e ......" o.f _uaar .
197_
I'.;'<:._:_)pos:_.,te .Price ( _'/ p _cu I ) <_/k_. ';
to
1982
A%;'e-i_'a_e Ex_,ort Un±_: 'i,,_l ue (_+f'kg.
_, calenc_a:F
'2¢ear)
25 October 197t_ 5 P.;_:-4_' t9;5 :?.6 _Vlarch 1976 2 D,_-_,.. ...... m1._.r--_ !!_76 1.3Dec,e_'_',,5,E' ;: )i !_ '.._ ;_': 1 !_ay i9l7 i J_nL,_=::, 1978 2 _,p_........ ' .:.r 'i 0 "'a _,,1 Sep'_ember1980 1 Feh_u_',, _
1982
140..94 _,)S .... _:'_',. !0&.75 79._6= " _,_ I.50 90._:(_ 90.00 _. 20 (t23.5) &12,_";0(145.0)
2 '_3 i. 83 i. 72 !.26 i,. 2_ i.42 /E,42 I_57 '. ._ '; .... ":_ :_" 0" i°78 (2_29) ...... " "_ ?9)
_68.80
2.6b
'_ _'_ _. 3¢ 2.17 t.. 55";' i, 55'R I.5.5 ._..>u 1,36 2o58
Source._ _At:..U'ICRA
Note:
"1977
_:'_:;_:ure_, i_ _:,_:. ............ ,..L.th_.:..es" ' ,_ , i.ncl_d;_.';, _.dd:i_ion,zl '*,,.avmen_ ...... to millers ,.*,,r,,,...,, and _)i.,._._,.er., ""...... _"as a _si_are:Of '_ _A_U_, .... '_:<cofits,. 'price.
GCN
World sugar prices began only 27 percent was lowered December
falling
of 1974 levels,,
from 2.23_/kg_
In response,
(its original
of 1976 and then increased
it remained
until world
De...spi_:e the reduction
prices
prices
of the composite
domestic
and foreign
Despite
above world
high world
of them), domestic reached
banks
I_68 million
nearly
a result cf the substantial sugar was transferred body,
the Philippine
operations
were given
In order
in
to maintain
loans
from
went
because
up and by 1975/76 had
tons. 12
The next
two years
to Russia
and China)
Unfortunately,
these
exports
lowest and export
as mucL. as export quantity.
losses in.:urred, government
in i978 to a newly Sugar
expor-t unit values
made large
prices were at their
revenues' did not increase
1977 where.
in 1973 and 1974 (or'perhaps
down somawha*_.
came in years When world
in May
in
]978_ and 1979. !I
(most of the increase
and stocks were drawn
to i.28F/kg,
lower still.
in _977_
prices
price_
Phi!ex
price
in J979.
_.tocks of sugar _ere built
a 1970's peak of
saw record exports
prices,
level)
rising
1977 were
the composite
to !.40P/kg_
began
most of !977, 1978, and 1979_ were producer
i_ !975 and by
constituted
As
control
policy
of
making
Co__mmission (Phiisucom) 13 and day to day
to the new National
Sugar
Trading
Company
(NASUTEA). Philsucom were
and NASUTRA
were saddled
'._tilllarge by historical
large loans made previously.
standards
with
domestic
and the need
A fortuitous
s_ocks
that
t6 rep_y t_he
rise in world
prices
in
22
GCN
1979
and
1980
(exports 1980
in
allowed 1980
were
RASUTBA to
draw
the
largest
NASUTRA entered.into
yea_s
to sell half
second long
of total
price
s remarkably cents
par
kg.
reached
in
1981
and
stocks
ever
profitably
recorded), of
at roughly
and
three
and
in four
51.8 U.S. cents per
that price was o_ly half of the
in the spot market
goc_d bargain
its
contracts
exports
kg. (_3.7 per kg.). Although highest
term
down
because
in 1980, it proved
world, prices
remained
at
or below
to be
fell to about that
level
22
through
1982. As world prices were raised, first â&#x20AC;˘ again
in
the
Phi!sucom's
began
in the middle
beginniug
of
price policy
of the composite
increasing
the
in 1979_ composite
of the 1978/79
1979/80
crop
was to change
price with
changes
were not fully passed NASUTRAts percent
profits
through
were
in December
crop year
year.
In
the export
in the world
of the need to repay the loans, however,
world
to producers.
paid
component
price,
Fifty
and then
general,
price
price
kept to pay off the loans
1981) and fifty percent
prices
Because
increases
percent
(changed
of to 20
to planter_/
14 millers.
By March
P1,5 billion
1981, the president
of the loans
(approximately 15
repaid
(SuKar News, March
1981).
of NASUTRA 60 percent)
reported had been
that
_CN
23
'IMPACT O_ CURtLED_rSUGAR PRICE A_
The most is tion
io
dra_ti.c
the
d_cliue
from
implic_,t
impact
iu
consumers(Table
3).
to
price.
i_ nominal
during
due to large
seve_.
prices
were above _orld
and in=ernational controlâ&#x20AC;˘ reduces
arg_,ments for
_arket_ng,
makes it possible
contracts_
and rmises
to examine
conceal
impl,ici_
prices.
tariffs
Producer
i_ three years
prices are again
the govermment
in prices
out of
above world
the average
prie_
takeover
consumers
favorable
producers
arguments
of domestic
common--government
facing
to negotiate
each of these
and
long term
earn.
It is
in turn.
of Price Variation
Price variability opposit_
and
in world
prices
paid only
however,
three _re the most
the variability
producers,
Reduction
rates
percent
5).
Of the various
decline
changes
In 1982 and 1983 producer
prices (Figure
useful
protection
transi-
sugar
only
consumers
period
_he
of
received
averages,
this
and
sobsidization
producers
These
in
producers
this period while
large fluctuations
_=d censumer
policies
to
implicit
On average,
of the world
the period
government
protection
t_x_.tion
of the world price during 69 percent
of
nominal
POLICIES
_RICETINC
ways.
affects
consumers
and producers
of sugar
Both face =ielative price effects (a sugar
makes o_her comnloditi.es relatively
more expensive
price and
in
â&#x20AC;˘v....
23a
FIGURE _ Produc:er,Consumer_ and Werld S.ugarPrices, !.974+to_.=_8_
--------------International Sugar ,Orga+J:_iz_tion World _riee +----------+W'nolesaledelivered Manila ...... Mi!Igate
1974
1975
1976
1977
_978 YEAR.
Souse.e: Appenc_x table.
1979
1980
1981
198,2
GCN
2_
makes sugar less profitab]le than other crops) (arki.ncr_:as_:in the sugar pri.ee reduces consumers
and increases
__ke tbeJ.r buying _herefore
decisions hazvest
decisions
Producers, on the bmsis
base_
Consumers
on the cur_'ent price a_d are
thmir purchases
on the other of expected
to an unexpected
hand_ _mke price_
aha_,ge in
their planti_:_g
not the ,_.ctu_l. pric_
at
time.
It is not sufficient
that ';:herehe social benefits
stabi.lization_ the benefits of running
government
must 'De greater
the stabiliz_.ti.on policy.
is the epportunit_
producer
the real income of sugar
tbe r_al income of producers)_
able _o adjust
'the p_ice.
and income eff_c_:s
than the social comt_
Probably
cost of the foreign
the la:¢gest cost
_.xcha_ge loans m_mdm by _.he
t.ocover the: period whe_ e:q_ort prices
prices,.
P.oughiy US$376 million
during
arLd a half times tbe va_t._eof annual
sugar
this period, exports
in the economice
eight years about the impact
are below
were borrow_.d between
1977 and 1979 to su.bsid:i,..ze producers
Much has been written
of consume"<'price
but :few definitive
Probably
the most
that can he said :[.s; that if there
variability. _,_oul,d increase
Th_s stabilization consumer
_tabi,l:i.zati.on of wildly
conclusions
on real income
welfare
of wildly
i.n the last
stabilization
welfare,
from the impact
are gains,
variability
they
than on pri<,e
fluctuating
rice prices
sn_,ar prices because
p_,_rehasesa_:e a l.srger share of exDenditures
o._
bare been r:_ac_-e,_.
in the Phi!ippi.'_esmore
fluctuating
_l:_._:lut one:
in 'chr._.se year_
literature
consumer
arise more
from
t.han rice
than ._;uga';:.
C,CN
25
Three which
potentia_
arise
because
pxofitability. distorted is
in
that
than
resources level. than
the
Another socially
are
when
optimal
to
variability_
producers
is
the
based
on
it
these
bee_
is possible
divergences
difficult
country.
to
It seems
would
be
tural
crops
on
Io_
produce
and
o,en financial belG_
are
more
because at
of
growers.
toc _ little. that
_ro%yers
because
their
producers
is
are
sugar but
of
E_ocial
to sugar
technology
identify
especially
relatively in
more
the
most
con_ercial
receive
the
bulk
of
,umber
of
the
little
evidence decreases
of
all
the risk
_:_ptimal averse
A
final
of
price
a rate
slower
than
that
of
sugar
in
and
returns_
sugar
Sugar
machines
in
for
these than
at_
country
fluctuations
are
in
other
are
or
agricul-
a_ng
the They
agricultural and
sector,
o_nn a large
excessively would
it
di'_ergences
the Philipp_,nes.
sugar
crop
entrepreneurs_
to the
the
of
private
producers
agricultural
in
price
situations
that
creditprovided
producers
theoretical
ei_pirical!y
unlikely
fertilizer
agricultural
in
them
Philippines.
all
social
important
and
a quarter
to construct between
iargemt
that
capital_
produce
new
to
to rely
second,
adopt
and
marketm
lending
c_pital
that
again
private
a_l
optimum. Although
use
are
exist,
capital
of
supply
prices
and
of
forced
possibility
related
has
that
cost
won't
side
between is
opportunity
possibilityt
the
p_oduc.er
profitability
producers
in times
the
divergences
lenders
case,
on
possibility
the
distortion, this
of
One
so
greater
the
gains
increase
There risk
is averse
average
or
GCN
26
sugar production. when
Thus i{ is not clear
the government
uses its scarce
capacity
to stabilize
Improved
Bargainin_Pos_tion
The decision h._s proven were
either
Filipino
in 1983 roughly
double
%_e record over marketing
to make one.
prices
enj6yed
prices
the whole
world
when world
lowest
(19_7).
export prices
the period
correlated.
period
stocks were built
world prices were high,
might be desirable~-to
up rather
optimal1$
of government prices
sold _en
restrict
less than the
control export
export
stocks (1974) 16
prices were
at their
control,
on average
two were made
than drawn
why government
of
Ig74 to 1980, the
Record
]ecisions,
and stocks were
There are two reasons
control
their hi_est
have bee_ some:what above world contract
prices
the Philex period,
expor_:ed when world
export
enjoy
of government
prices were at
Thus over the whole
but of three critical incorrectly;
were
As a result,
price.
during
inversely
in 1980
the contracts
exports was somewhat
Furthermore,
a1_d prices were
after
in 1982 and will
During
average
and record quantities
Shortly
period
unit value of Philippine
were accumulated
long term contracts
the free market
average
quantities
borrowing
sugar prices.
fell precipitously.
is not so favorable_
price.
exchange
arise
in the E:'_ort Market
to be an. excellent
producers
foreign
consunJer or producer
of NASUTRA
made, world market
the_: many benefits
down when
prices were
low.
of exporting supply,
and to
_CN
2_
_k_advantaKe If the is,
world
of
economies
demand
for
Philippine
exports
theoretically prices
however_
that
markets.
are
s_zgar is
exports
o,_e million does
difficul=
to
on world
any
about
not
prices_
It
lo_g
a little
seem
that
then
induce
it
is
a rise
is unlikel.y b
run
15 million
or
i.ufor_at_on. s],oping,
e_qports,
revenues_.
have
tons
exports
downward
Philippine
export
is
gatherin_market
impa._t
reduce
trade
in
impact
tons over
on world
and
five
Philippine percent.
a l_ke]_y _3_iy to increase
_'evenues., :It is
better
also
position
private should
be
of
tobe
to predict
sector_
price&_ job
only
some
increase
market
restricting
export
to
Philippine
Free
exports Thus
and
scale
Philippine have
possible
in world
of
If
able Even
to if
long
private
develop for
forecasting, provided
the
iwmgine
the
some
to
the
run
private
were
necessary
nmke
NASUTRA
should
p.rj.ce ].evels than
sector
reason
it would
why
to
expertise
NASU'YRA most
free
_ere
be is
in e
the
export_
it
to Dredl, ct
abl_
to
future
do a better
sense
for
that
information
sector
to make
its
ow_, contract
decide
when
and
mistakes
in
decisions. Ultir_tely, abroad,
No
,_doubt_dly costs
of
! decision. tion,
the
someone
one
is
take a wrong
must
infallible
place.
If
decision
and
decision
accrue
If
that
decision
making
cost
of
a mistake,
such
making
only is as
to
the
how
sell
judgment
is
sugar
will
decentralized,
person
concentrated the
to
decision
who
made
in one by
Philex
th.e the
organizato
78
bu/.i,i,_p:_o.._.:. at a time of record world all sugar tra_}ed or that could have been
Increased
Prices
Unless producers market,
the government
previously
wants
provided
to the world market
consumers u_likeiy
at increased that NASUTRA
domestic
would
exports.
production
solely to increase
is to either
be able
incomes
tG this.
14Opercent
to use market
prices.
price,
price
the producer
to the U.S.
prices
in supply
above,
power
if it could,
it seems
to increase
the mechanism
requires
a drop in
lower prices.
to raise
consumer
and the evidemce
prices
suggests
that
in the !962 to 1.973 period, of the world
price
on average.
prices were only 69 percent
The impact of government
no_ raise, consumer
access
the arguments
undesirable
1974 and 1980, consumer
world prices.
Given
todomestic
sell abroad or sell to
or paying producers
producer
prices were
the subsidy
clln raise producer
Reduction
quotas
has not resorted
consumer Between
to finance
Furthermore,
It would be politically
NASUTRA
on
traded,
by the preferential
prices.
long run export prices. would be reduced
is incurred
to Producers
the only way the government
relative
priceS,
In order
control
has been
to finance
has been kept below
the
of
to lower,
this low consumer world
price.
GCN
29
Sum.l_t r-,i
NASUYRA's at
least
export
good
partially
and
stock
offset
from
Philippine
price
because prices. by
prices
It is
the
!os_es
theoretical from
not
or
government have
sugar
consumers.
the
been
time
Phi]ex
an
nor
_ but
they. face clear
It
• control • of large
.this paper
vas
comparative advantage was handout will be available
affect
be_n the
in
appear and
kept•well
gains
the
marketing
to
gain
much
are
either run
not
lose
world
ti_ consumers
are
control
producers
that
offset
from
overall
large,
transfers
from
sugar
producers
reproduced_
the
final
sectien
not .yet complete. at the Workshop.)
of
p_ices.
below
long
was
timing
•does•not world
gain
thus•appears
standpoint, sugar
income
_o
contracts
decisions
producers
have
term
Philippines
consumers
whether
empirical,
long
bad
The trad_
consumers
to producers.
there
(At
by
of world
stabilization
the
in nmking
acc,_ntlation.
a ._uff._.cient amount Neither
dacision
A supplementary
a gains
but to
on
that
GCN
3O
FOOTNOTES
IThe world special
free market
government
includes
to government
Cuba and the European
socialist
sugar are to the free market, countries
of Philipplne-U.5.
exchange
earnings
depends
imported
were
of s_sidized
of sugar
from ACP
domestic
at which
unit values
that average
costs and that production
price as the marginal decisions
revenue.
on a weighted less.
average
foreign
consumer
and world
sugar Could have been
If an average
Sugar
were
of Japanese,
39 Hong Kong
are used as the world
price,
higher.
also lose the standard
6This assumes
between
of their
1965_
If the International
prices were only 18 percent
5Consumer
a part
is used domestic prices
above world prices.
of the early
at the old rate through
upon the price
world price
discussion
to comvert
of the difference
and South Korea imported
somewhat
EC exports
relations.
required
into the Philippines.
Organization
average
such as those between
but its imports
sugar
to pesos
4The magnitude
percent
countries.
1965, for an extended
3Sugar exporters
prices
arrangements
are not from the free market.
2See Castro, history
all sugar not traded under
dead weight
revenues
loss triangle
at QTOT are greater
decisions If producers
are made with base
than
the U.S.
their production
of PUS and PD, pr0duction
abco
will be
GCN
31
71n other words, â&#x20AC;˘ PUS is greater production
equals
whole constellation, of Philippine
the U.S, quota, U.S., however,
and U.S, sugar
was not sufficient
buying would
foreign
Philippine
imports
of foreign
sugar
and the domestic
sales
more sugar to the U.S, market
8The molasses
to make
trade
prices
it allow domestic
the U.S, quota.
because,
given
The
the ban on
producers
want
to sell
by the U.S. quota,
in the hands
of the private ,.
sectorl
9Since
1974, the reserve
since control tribution Reserve
of allsugar
in the composite
sugar is sometimes
lOThe basic export premium
The
of non-Philippine
requirement,
remained
The
up the difference.
tomeet
than allowed
of the
demand and
to meet Philippine
sugar
to in the text arise
world
to meet domestic
quota, nor would
demand and sales of Philippine rents referred
sugar
These
policies.
producers
not allow U.S, imports
sugar to meet the Philippine
imports
_li.thinthe context
rents could be earned by paying
and if production
cost when
the Sum of the U.S. and domestic.quotas,
quota rents must be seen as occurring
maximum
than the marginal
is in government
FOB value of exports centrifugal
significance
Its price
to the export
used to meet ISA stockholding
tax was 6 percent.
Originally
sugar
The new
of the difference
for February
and refined
hands.
price is identical
duty, was 20 percent
price and a base price,
has lost any practical
set equal 1974,
and molasses.
price.
commitments.
taxi called
between
the CIF
to 80 percent
The taxes
con-
applied
of the to
a
GCN
32
Neither been
the export
fully collected.
tax nor the prem4m
The premium
1974 to 1976.
Between
export
taxes averaged
only
1.8 percent
were
reportedly
billion
the International • I.025 billion of credit Planters
Monetary
of the value
borrowed;
Fund commodity
from the foreign
banks,
(Sugar News, March stocks were
of exports.
from
stabilization, fund,
_1.3 billion
National
from
F332 million
price
Bank, and an PI8 million.cred_tline
12These
to have
1970 and 1977 total revenues
lines from the Philippine
Royal Bank
appear
duty was paid only. in three
year_,
|!_2.78
d_y
in the form
Bank and .the Republic from the Traders
1981).
equal
to 8 percent
of total world
exports
of sugar. !3The authorization Decree
No.
for Philsucom
in 1974, but Philsucom
!4The planters/millers distributed First, margin
in the following the NASUTRA
of. _0_316 per kgo
of the composite this export between
price.
cost, called
NASUTRA
were
in Presidential
was not organized
until
share of the export profit.was
1978. •
"
way.
export
costs.was
(_20/picul)
calculated
by adding
The difference
between
the world.price
the export differentialT
for the 197911980
used to calculate
a
to the export p rice component
was
shared
and the millers/planters.
For example, •figures
was contained
crop season,
the basic composite
the following price:
and.
GCN
33
Export
Reserve
i.n the composite
sugar
If the average
45,0
II0
46
-50o6
90
4
3.6
price
.99.2
export price
were F200.per differential
price
99.2
less NASUTRA margin
20,0
export
89.8
differential
the initial
sharing
to the export
arrangement,
price
the new composite
price would
the two composite
prices
proportion
15The president
financial
of
Planters
services
(approximately
45
be
fifty percent
component
sharing
Bank which
for the sugar
price
The differential millers
and
between
and planters
in
arrangement.
Ambassador
and chairman
of P44.9 would
of the Composite
be P121.65.
NASUTRA,
of Philsucom
of the Republic
would
is split between
to their production
also Chsirman
picul
200,0
less basic composite. price
be added
Contribution thecomposite
50
per kg.) the export
export
share
90
sugar
Composite
W_th
Percent
sugar
Domestic
percent
Price â&#x20AC;˘ Fi_.
Roberto
Benedieto,
is
of the Board of Directors
took over the bulk of
industry
in 1978,
t.o
34
â&#x20AC;˘GCN
l6Apart on exports. difficult alone.
of this accumulationwas The ban was designed
to see why record
undoubtedly
due to the ban
to protectconsumers,
stocks were necessary
but it is.
for that reason
GCN
_5
REFEI_E_CES
Castro, Amado. 1965. "Philippine-Ame-rican Tariff and Trade Relation, 1898-1954, _ Philip_ine_.[FA'.0jiOmic Journal, Vol_ IV, No. I.
}luke,
Robert. i963. Shadows on. the Land_ An Economic of the Philippines, Manila, Bookmazk.
Ge_
Sacerdoti, Guy. 1982, "Short-term Swee_:ness Can't Prevent term Canning," Far Eastern _concmic Review_ November
a Long5-11.
36 APPEND IX TABLE Select_:d Ra_,_Sugar Prices, (Peses per metric ton)
I i_ terna ti. ona 1 " fear
I.._5 9 r,' 1956 1.q_. ...,_7 1958 i.$59 1-960 i961 1.962 1,963 1964 _,_,_: _, .:..._ ,._ ._
Su_.,arOrganiza_ion World Price
2
3
New York
Philippine Export
CIF
Unit Value
4
5
.Wholesale Del.ivewed Manila
Mill.gate-
IA3 154
240 247
226 222
176 204
207 218
227 154 131 138 119 623 696 492 174
253 255 253 256 253 436 633 539 526
236 244 238 249 259 441 555 550 612
261 249 227 22 i. 301_ 3f_7 350 334 314
243 243 232 250 325 384 401 422 396
_966 I._.}67 1968 1969 1.970 1.97_t 1972 .[972'. 1974 _97._ •_.976 1.97"? 1.97_ 'i!979 11980
151 161 159 275 478 669 1,074 !:. 401 4,453 3_ 244 I,886 I, 323 I,275 I,5'76 4_668
1.981 !1982
v 79"_ ~'_ 2,055
548 572 593 6!2 950 __114 1,258 i,442 4,258 3,567 2_ 1'71 1,79! 2_ ?66 2,_33 4,902 • -" -
527 562 569 589 897 998 I,152 I.,. 265 3,250 4,298 2,16S 1,547 1,295 i_362 2,575 _ _
408 395 404 547 602 607 791 787 826 1,060 !_240 1,374 '1,439 i, 739 1,850 I,850 I., 8.50
479 489 496 572 709 823 987 i,052'" I.,458 .I,955 _, 763 1,331 1,423 1,568 I,.953 I,790 _' 660 _.:_
Conn. Appendix'<TaSle,
F--em FAO,_ 2,. .._l._].k r_._ s_.ga:.r_ lar-i, ed '_Te.,:,.;-Y::,rk *,_i.;.;h apglic_bi._ duties paid. .7-. ._e
v_!r_e
"_: ::.e;.,-_._:r].fugal suger
exports
dl",;i_e(.._ by
_n_
quantity_ " 4.. :_l'._olesaie '?-__'ic_ "_'-or _ju:g_'-_r (ordinario 97 °).. bas_s " "" bu_'ars ° e:×-central._ delivered Manila. For 1955 to 197$_ from Philippine '.gouncilfor Agrie.r.:!ture and Re.,zo_rce.s Research (1980), '"D_.'xSeri.'.!_::_ on Sugarcan.e St:_tistics .in the Philippines." From 1979 to 1981, from Domestic Marketing Office, NASUT_... 5.
For !955 to 1973, s weighted averege of the ex:port prices for s_gar,..Victori,as ex_.warehouse, and the wholesale price presented in t:oltgm: fo,_r. The weights are t.he s.bare of produ.ztion being exported.and one minus _hat sb_:_re. F'_:om 1974 to 1980_ the composite price. Prices _nd prod:,',_c£ion are for _he crop year ending in the year indicated, e._purP-s are for the calendar year.