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Govt should tread carefully on sugar importation

The Manila Times logo The Manila Times 10/8/2019 The Manila Times
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WITH debate still raging over the impact on farmers of the liberalization of rice imports, the Department of Finance (DoF) has proposed taking a similar course on sugar, another Philippine agricultural staple. This has been met by fierce resistance from the sugar industry, including formal opposition from the Sugar Regulatory Authority (SRA). To avoid the sort of extended tension that has resulted from the Rice Tariffication Law, the government must approach liberalization of the sugar trade with caution.

The sugar import liberalization scheme, which would allow for up to 400,000 metric tons of imports to augment the annual domestic supply, is necessary, according to the DoF, because domestic sugar production consistently falls short of demand, and domestic sugar prices have been consistently double the world average.

We are inclined to give the DoF the benefit of the doubt when it comes to the proposed sugar liberalization scheme because from the perspective that the DoF should and does take — what is best for the broader economy and the financial stability of the state — rice import liberalization has been very successful. Last year at this time, supply instability and the resulting higher prices of rice were a key factor in driving inflation to its highest levels in a decade. As of September, inflation is now below 1 percent, and there is a healthy surplus of the food staple.

This has not been a positive development for the rice farmers, however, at least not yet, because the opening up of rice imports has driven farm gate prices of rice to near-record lows. That, unfortunately, is free market economics at work; the DoF anticipated the effect, and a framework whereby rice tariff revenues would be cycled back into the domestic rice farming sector by way of financial and technical support was included in the Rice Tariffication Law. When fully implemented and managed properly — which it is not, yet — the program will more than compensate for lower commodity prices by enabling rice farmers to be more financially stable, efficient, and produce a higher-quality and more competitive product.

We can likely expect the same sort of outcome from the sugar import liberalization scheme. Supply and prices will improve, benefiting the whole economy, but the domestic sugar sector will be left at an economic disadvantage.

The SRA has proposed that the sugar sector will only “accept” liberalization if the government copies the policy of Thailand towards its sugar industry. This would involve massive investment in mechanization and crop research, but more to the point, heavy price subsidy guarantees to farmers. These demands, if accepted, would cause more problems than the liberalization scheme would solve, and should be rejected out of hand. Price controls and subsidies distort markets, and have been proven time and again to produce quickly diminishing returns.

Nevertheless, maximizing the productivity and competitiveness of our own sugar industry must still be a priority. Even though economic policy, in any area, should allow markets to operate as freely as possible, it would be harmed by allowing the sugar industry to flounder.

The government should apply the lessons being revealed by the experience with rice liberalization to find the practical solution between the extremes of a completely open and a completely controlled market. Investing tariff revenues effectively to improve the quality of the domestic sugar harvest and the efficiency of our sugar farmers is a necessity, and must not be delayed by bureaucratic processes as support for the rice sector has been. The government must also be more proactive in addressing supply bottlenecks that affect prices, particularly those caused by speculators and others who engage in unfair trade practices. Much more work needs to be done on the sugar import liberalization proposal before we can be confident these issues are being properly addressed.

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