Professional Documents
Culture Documents
Introduction
There are three (3) major grades of refined cane sugar: (1) standard refined, which is
used primarily as table sugar; (2) premium sugar, which is used by food manufacturers;
and (3) bottlers grade sugar, which is used by the beverage industry.
The manufacturing process for refined cane sugar may be broken down into the
following phases:
Melting
Boiling/Crystallization
Drying
The objective of the study is to analyze the state of competition within the refined cane
sugar industry and how competition can help develop the refined cane sugar industry
into a viable industry as a potential major input to processed food manufacturing. An
analytical framework specially developed for this purpose will be utilized and
recommendations made, if necessary, on how to make the sector competitive or
improve its competitiveness. It is hypothesized that to improve the input sectors of the
Philippine
export
held constant. A relevant market is a group of products and a geographic area that is
no bigger than necessary to satisfy this test1.
Simply put, a relevant market is defined by the product or service involved, the
geographical area in which said product or service is sold, and the sellers and buyers of
such product or service.
!
Product Market
In defining the relevant product market, the approach followed is: assuming a
hypothetical monopolist for a product, would said monopolist profit by imposing at
least a small but significant and non-transitory increase in price?
Given these
restrictions, food processors and beverage makers do not have the option to
switch to imported refined sugar assuming the existence of a hypothetical sugar
monopolist who imposes a price increase. The relevant product market is then
clearly defined domestic refined cane sugar.
Figure 1 depicts the flow of commodities from the sugar industry to user
industries.
Sugar cane goes into the production of raw cane sugar which, in
As
As defined by Section 1 of the U.S. Department of Justice and Federal Trade Commission Horizontal
Merger Guidelines dated 2 April 1992.
Geographical Market
Considering, however, that local food processors and beverage makers are
effectively restricted to purchasing their sugar requirements from domestic
producers, the relevant geographical market for domestic refined cane sugar is
defined as the Philippine national territory, for purposes of this study.
!
The relevant participants in the market are the sixteen (16) cane sugar
mills and refineries with the highest revenues.
As of crop year 1998 - 1999, the total number of Philippine sugar mills was thirty
six (36) (see Table 1).
The sugar milling industry has a rated plant capacity of 185,000 tonnes of cane
per day or a daily utilization rate of 53%. The refiners actual capacity is 5,200
tonnes per day while rated capacity is 7,050 tonnes per day, so capacity
utilization is around 74%.2
Sugar industry associations include: the Philippine Sugar Millers Association, the
Philippine Sugar Refiners Institute, the Sugar Industry Foundation Inc., the
National Congress of Unions in the Sugar Industry of the Philippines, and the
Philippine Association of Sugar Refineries, Inc.
Table 1. List of Sugar Mills
Sugar Mills
LUZON
BASECOM, INC.
Batangas Sugar Central, Inc.
Cagayan Robina Sugar Milling, Co.
Central Azucarera Don Pedro
Hind Sugar Company
Peafrancia Sugar Mill
Central Azucarera de Tarlac
Western Agri-Ventures Corporation
VISAYAS / MINDANAO
Central Azucarera de Bais
Bogo-Medellin Milling Co., Inc.
Busco Sugar Milling Company, Inc.
Crystal Sugar Company, Inc.
Davao Sugar Central Company, Inc.
Durano III & Sons, Inc.
Hideco Sugar Milling Co., Inc.
Ormoc Sugar Co., Inc.
Universal Robina Sugar
South East Asia Sugar Mill Corp.
Herminio Teves & Co., Inc.
PANAY
Capiz Sugar Central, Inc.
Monomer Sugar Central, Inc.
New Frontier Sugar Corp.
Passi (Iloilo) Sugar Central, Inc.
NEGROS
Binalbagan-Isabela Sugar Co., Inc.
Dacongcogon Producers' Coop.
Mktg., Inc.
Danao Development Corp.
First Farmers Holding Corp.
Hawaiian-Philippine Co.
2
Rated Capacity
(50k-bags/day)
Plant Site
4,000
5,500
4,000
10,000
500
4,000
7,080
1,200
8,000
2,800
10,000
4,500
4,000
2,000
5,000
2,000
8,000
4,000
3,000
3,500
2,500
4,200
5,000
10,000
2,200
3,000
5,000
6,500
10,000
6,000
5,000
3,000
4,800
4,000
4,000
12,000
Five (5) sugar mills were included in the top 1,000 corporations from 1995 to
1997.
II
To determine the degree of competition within a market and the presence of market
dominance and abuse, the calculation of market shares is essential.
Ideally, market shares are computed based on sales that may be committed or so
profitably employed within the market. Sales are considered the best indicator of a
firms future competitive significance.
With no available information on individual sales by sugar mill/refinery, this study looks
at data on gross revenues provided in the publication Top 7000 Corporations. The
publication lists sixteen (16) sugar mills/refineries. The individual gross revenue shares
are shown below:
Players
Central Azucarera Don Pedro
Central Azucarera de Tarlac
Busco Sugar Milling Co., Inc.
New Leyte Edible Oil Mfg. Corp.
Central Azucarera de Bais, Inc.
Universal Robina Sugar Milling Corp.
HIDECO Sugar Milling Co., Inc.
Sagay Central, Inc.
Pampanga Sugar Development Co., Inc.
Bogo-Medellin Milling Co., Inc.
Ma-ao Sugar Central Co., Inc.
Southern Negros Development Corp.
Tarlac Development Corp.
Southwind Sugar Corporation
Manuel L. Teves, Inc.
Associated Sugar, Inc.
1995
32.9
12.3
9.7
12.2
4.3
9.1
5.2
2.9
2.8
2.9
1.2
3.1
Nil
0.5
0.5
0.2
1996
29.3
16.4
10.3
8.3
7.4
6.7
6.1
3.2
2.5
2.3
1.1
1.0
0.4
4.1
0.6
0.5
III
The level of concentration, i.e. firm ownership and industry structure, in the industry was
computed using the Herfindahl-Hirschman Index (HHI). The HHI is an indicator used in
the United States. It is the sum of the squares of the individual market shares of all
market participants.
approaching zero indicates an atomistic market. To aid in the interpretation of the HHI,
the United States uses the following approach: an HHI below 1000 means nonconcentration in the market, an HHI between 1000 and 1800 means moderate market
concentration, and an HHI above 1800 means high market concentration.
An HHI of
above 1800 is considered highly concentrated even though it seems a long way from
10,000, i.e. absolute monopoly power. This is because, in the merger context at least,
U.S. antitrust laws are concerned not only with mergers that result in a monopoly, but
also with mergers that result in a highly concentrated market.
Under American law, the HHI is not strictly mandated in any situation, even in mergers.
Rather, it is used in guidelines of the U.S. Department of Justice when reviewing
mergers. Courts have adopted the guidelines, including the HHI, as useful in analyzing
mergers, and they look to the HHI for guidance in other areas of antitrust law as well.
While the HHI has no legal authority, courts, regulators and economists recognize it as
a useful tool in analyzing market concentration in mergers and other areas of antitrust
law.
Based on the revenue shares of the sixteen (16) market players identified in Table 2
(and therefore making the bold assumption that other mills/refineries are insignificant
players), the HHI for 1995 and 1996 are as follows:
HHI
1,641
1,481
The HHI figures indicate that the product market is moderately concentrated. No single
firm can influence market behavior. However, the market participants acting in concert
can influence or dictate market behavior, including pricing and limiting supply.
IV
efficient and competitive, since failure to do so could mean the loss of market
share and power to new players. With easy entry, abuse of market power is
therefore unlikely and the efficiency benefits of competition are more easily
realized.
Where exit barriers exist, the release of unused or excess resources by failed
firms is made difficult. Attaining allocative efficiency is hindered.
Where entry or and/or exit barriers exist, however, the attainment of equilibrium
as close as possible to a case of perfect competition, becomes that much more
difficult.
In the domestic refined cane sugar industry, the conditions of entry and exit are
as follows:
(a)
Investment Cost
However, both entry and exit would be difficult, entry in view of the heavy
investments required, and exit in view of the heavy investments, estimated
at P160 billion, already made. Around P80 billion has been spent on
sugar farms, P50 billion on mills, and P30 billion on refineries.
(b)
Traditionally, the government has regulated the sugar industry, from the
planting of sugarcane up to the eventual disposition of the sugar product.
The intended objectives of these policies are to distribute the benefits of
the high-priced U.S. quota market, to support the industry, and ultimately
to reduce poverty in the rural areas.
(1)
have always been high, never falling below the 50% level. In 1973,
the tariff was 70% (see Table 4). This fell to 50% in 1981, went
back up to 70% in 1993, fell to 60% in 1994, and then to 50% the
following year.
Rate of Duty
P40/100 kgs. g.w.
P160/100 kgs. g.w.
70%
50%
50%
1993 70%
1994 60%
10
E.O. 313
(May 1996)
1995 50%
1996 50% (In-Quota); 100% (Out-Quota)
1997 50% (In-Quota); 80% (Out-Quota)
1998 50% (In-Quota); 80% (Out-Quota)
1999 50% (In-Quota); 65% (Out-Quota)
2000 50% (In-Quota); 65% (Out-Quota)
BusinessWorld, 1999. According to the SRA, there were thirty six (36) importers of raw and refined
sugar in 1998, the majority of whom were traders.
11
It is noted that the tariffs on sugar are higher than the tariffs on the
finished products (e.g. sugar confectioneries, sugar preparations,
pastry, cakes, biscuits and other bakers wares, preserved fruits
and nuts, and beverages), which are at a maximum of 20% (see
Figure 1).
12
Organization (WTO), the final binding tariff rate on both raw and
refined sugar is 50% to be implemented in 2004. To reach the 50%
target by 2004, reductions must be implemented in 1997 and 2000.
Thus, from 100% in 1996, the out-quota rate of duty on refined
sugar was reduced to 80% in 1997 and further to 65% in 1999 and
2000.
(APEC), the goal is zero tariffs in 2010 and 2020 for developed and
developing countries, respectively.
(2)
13
Tolentino, 1999.
14
The quota system was devised to allow all planters and millers
proportionately equal access to the higher-priced U.S. quota
market. The SRA estimates production at the start of a crop year
and then prepares a sugar order containing the percentage
allocations of the sugar produced into the various destinations.
These allocations are adjusted as production estimates are
modified or the countrys share of the U.S. quota market changes.
15
sugar mill), refining occurs only after surrender of the raw sugar
quedans and replacement with refined sugar quedans. Refined
sugar can be withdrawn only with the surrender of the refined sugar
quedans.
(3)
(a)
Backward Linkage
Under the CARL, farm sizes have been reduced such that
afford the tractor that is needed for deep plowing. Sugar cane roots must
reach one meter (1m) deep for higher yields and more efficient harvesting.
Hence, sugar cane farming under the CARL is not cost effective. Industry
sources state that in Australia, sugar cane yield per hectare is two
hundred times more than sugar cane yield per hectare in the Philippines.
Sugar cane farms in Australia are fully mechanized, from soil preparation,
to planting to harvesting. Sugar is a plantation crop where economies of
scale are important.
Moreover, some farmers who were granted land under the CARL, have
either sold it to developers who in turn develop these into subdivisions or
golf courses, lease it to small business entrepreneurs or leave the land
idle. Interest accruing to farmers, if they sell the land and deposit the
proceeds, as well as income from leasing are greater than profits they
may realize from planting sugar cane. On the other hand, some farmers
prefer to leave the land idle, as income generated from working the land is
not proportionate to taxes paid. Another reason for leaving lands idle is
the lack of capital to fund planting activities. Thus, the reduced hectarage
has led to a deficient supply of canes and the consequent underutilization
of milling capacity and lower sugar production.
17
(b)
Technology
Some sugar mills have invested in modern technology and this has
resulted in higher mill output as well as more efficient operations.
However, a majority of the mills have outdated technology and are in need
of modernization to improve efficiencies.
(c)
(d)
18
Mills normally shoulder the transport cost of cane from farm to mill. This
aggregates to about 40% of the budget allocated to transportation cost.
Moreover, mills have to invest in water/pollution control system in line with
the legislated Clean Air Act.
(e)
Access to Financing
According to industry sources, banks do not accept the plantation (or the
land itself) as loan collateral, which seriously inhibits the ability of planters
to source credit.
(a)
Domestic Industry
The sugar industry as a whole is one of the countrys oldest and most important
industries. Until the mid-1970s, the industry contributed approximately 9% to
agricultural gross value added (GVA).5 In the 1980s, the share of GVA from
sugar cane production to total agricultural GVA averaged 4%.
Over the period 1990 to 1994, the sugar industrys GVA has been increasing
(see Table 5). From P3.65 billion in 1990, GVA from the sugar cane sector
topped the P4 billion mark the following year, then went on to pass the P5 billion
19
mark in 1993. In 1995, however, the industrys GVA fell to less than P4 billion.
1996 saw a recovery, however, with GVA increasing by 21% to P4.8 billion.
Sugar canes contribution to GVA in the agriculture sector has become smaller in
the 1990s compared to the previous decades.
Sugar Cane
3,652
4,646
4,871
5,257
5,326
3,964
4,787
Total Agriculture
122,631
126,204
127,010
130,736
135,068
172,844
178,143
Percent
Share of
Sugarcane
to Total
Agriculture
2.98
3.68
3.84
4.02
3.94
2.29
2.69
(b)
Supply
The sugar crop year commences 01 September and ends on 30 August of the
succeeding year. Sugar cane is planted in Luzon (i.e. Laguna, Tarlac, Batangas,
Pampanga, Pangasinan), Visayas (i.e. Negros, Bacolod) and Mindanao (i.e.
Davao).
Mirroring the movement in sugarcane GVA, the total area devoted to the planting
of sugar cane was increasing from 1990 to 1994, fell in 1995, then expanded
again in 1996 (see Table 6). In 1990, 235,300 hectares were devoted to this
agricultural crop which represented nearly 2% of the total agricultural area. In
5
De la Pea, 1998.
20
1993, 3% or 384,000 hectares were used for sugar cane production. In 1996,
hectarage utilized was lower at 2.90% of total area. Figures indicate that the
sugar cane area fell further in 1997 to around 368,000 hectares (Sariling Ani
Movement, 1998).
It is noted that in the late 1980s, the hectarage devoted to sugar cane was mainly
decreasing, from 368,500 hectares in 1985 to 261,700 hectares in 1989. The
average sugar cane hectarage for this period was approximately 283,000. In
1975-76, sugar cane hectarage was much higher at 544,000.6
Year
1990
1991
1992
1993
1994
1995
1996
Area
Percent Share of
(000 hectares)
Sugarcane to All
Sugarcane All Agricultural Crops Agricultural Crops
235.3
13,096.3
1.80
271.5
12,983.7
2.09
267.0
12,520.4
2.13
384.0
12,549.4
3.06
401.6
12,786.9
3.14
302.0
12,574.8
2.40
375.1
12,937.1
2.90
Production of refined sugar has been erratic, increasing one year then
decreasing the next. From crop year 1987/88 to 1988/89, production of refined
sugar grew by almost 16% from 13.97 million 50-kilo bags to 14.12 million 50-kilo
bags (see Table 7). Production growth was also impressive from 1994/95 to
1995/96 with a rate of growth of nearly 18%. Mill efficiency, measured as the
product of percent sucrose extraction and boiling house losses, averaged 78.6%
in 1993-94.7 At the farm level, cane yield is at 49 tons cane/hectare in 1994-95
while sugar recovery from cane dropped from 1.59 in 1980-81 to 1.41 in 1994-95.
6
7
21
In crop year 1996-97, production volume was 15.87 million 50-kilo bags which is
almost 11% lower than the volume produced in the previous year. The volume
subsequently rose to 17.61 million 50-kilo bags in 1997-98.
(c)
Demand
Domestic demand for refined sugar, measured as the sum of production and
imports, increased at an average rate of only 1.06% per year from 1991 to 1997
(see Table 8).
exports, grew at basically the same rate with an average annual growth rate of
1.7% over the period.
Year
1991
1992
1993
Production
(in MT)
802,450
861,250
817,800
Imports
(in MT)
12,195
15,640
12,159
Domestic
Demand
(in MT)
814,645
876,890
829,959
Imports as a
Percentage of Local
Production
1.52
1.82
1.49
Apparent
Consumption
(in MT)
814,465
876,890
829,659
22
1994
1995
1996
1997
834,250
754,050
888,600
793,350
26,604
129,783
192,321
21,682
860,854
883,833
1,080,921
815,032
3.19
17.21
21.64
2.73
857,745
882,333
1,080,921
815,032
Sources of basic data: Philippine Foreign Trade Statistics and Sugar Regulatory Authority
As of
Year
1991
1992
1993
1994
1995
1996
1997
Value of Imports
(CIF US$)
5,356,989
6,739,889
5,466,859
11,699,401
56,953,660
81,182,850
9,635,609
% Share to
Total Philippine Imports
0.04
0.04
0.03
0.05
0.20
0.23
0.02
(d)
Exports
While a majority of locally produced refined sugar is sold in the domestic market,
the industry managed to export minimal levels between 1993 and 1995 (see
Table 10). In 1993, the volume of refined sugar exports amounted to a mere 300
net kilos. This level of exports would increase to 3,109 net kilos in 1994 but
23
would not be sustained in the succeeding years, falling to 1,500 net kilos in 1995
and totally disappearing from 1996 onwards.
The market for refined sugar includes Vietnam, Hong Kong, Malaysia, Indonesia,
the U.S.A., and Thailand.
Year
1991
1992
1993
1994
1995
1996
1997
1998
Volume
(NK)
----300
3,109
1,500
-------
Value
(FOB US$)
----753
1,640
1,160
-------
% Share to Total
Philippine Exports
----Nil
Nil
Nil
-------
(e)
Major Users
The excess of domestic demand for refined sugar over local supply can be
traced to rising demand by the downstream exporting industries the food
processors (see Figure 2 for the distribution network).
Finished
chocolate and chocolate products contain 40% to 50% sugar, on the average.
Other sugar and chocolate confectioneries contain 50% to 75% sugar. Figures
from the Philippine Chamber of Food Processors and Exporters Organization Inc.
(Philfoodex) indicate the amount of sugar used in various food products: citrus
fruit juices 25% to 70%; confectioneries 80% to 90%; preserved fruits 30%
to 65%; candied fruits 65% to 70%; ready-to-drink juices - 10%; beverages 80% to 90%; and sauces - 30% to 35% (Dy and Macabasco, 1998). Food
24
(f)
Year
1991
1992
1993
1994
1995
1996
1997
Import Penetration
Ratioa (%)
1.50
1.78
1.46
3.09
14.68
17.79
2.40
Share of Exports to
Productionb (%)
----*
*
*
-----
* Less than 1%
a
Import Penetration Ratio = [Imports/(Output+Imports-Exports)] x 100
b
Percentage of Exports to Total Production
Sources of basic data: Foreign Trade Statistics of the Philippines and
Sugar Regulatory Authority
25
(g)
In 1983, the sugar refining industry was an efficient earner of foreign exchange
based on a Domestic Resource Cost (DRC)/Shadow Exchange Rate (SER) ratio
of 0.76 (see Table 12).8 The industry further improved its efficiency in 1988. The
industry turned inefficient in 1994, however.
Table 12. EPR and DRC/SER of Sugar Refining (PSIC Code 31232)
YEAR
1983
1988
1994
EPR
DRC/SER
0.76
0.64
1.79
5.08
175.51
(h)
Price Competitiveness
The world price of refined sugar increased by an average of 13.6% from 1993 to
1998. The increase in the domestic price of refined sugar is slightly less: the
average annual growth rate over the period is 11.2%.
Nevertheless, the
domestic price of refined sugar has consistently been higher than the world price.
It has been determined that even over a longer period, from 1981 to 1998,
domestic
prices
of
refined
sugar
have
exceeded
international
prices
An activity or industry is said to have comparative advantage if the domestic cost it incurs (expressed in
shadow prices) to earn or save a unit of foreign exchange is less than or equal to the shadow price of
foreign exchange. A decline in the DRC/SER ratio implies an improvement in an activitys comparative
advantage position. The criteria for efficiency used in Tecson (1996) was used to determine degree of
efficiency.
The effective protection rate (EPR) is defined as the percentage excess of domestic value added over
world market value added due to the imposition of tariffs and other protective measures on a product.
The higher the EPR of an industry or activity, the greater the protection enjoyed from tariffs and similar
measures.
26
continuously. Further, over this longer period, domestic prices have increased at
a faster rate of 10% annually on average, as compared to an average annual
growth rate of 1% for world prices.
volatile.10
The gap between world and domestic prices has widened from P6.93/kilogram in
1993 to P9.66/kilogram in 1998 (see Table 13). The widest disparity occurred in
1996 when the domestic price was 93% greater than the world price or almost
double. The gap, although smaller, remained significant in 1998 with domestic
prices higher by more than 50%.
The local price of refined sugar has exceeded the world price by more than 100%
on average over the 1981 to 1998 period. Moreover, during the sugar crisis in
the latter semester of 1998, the domestic price of sugar was increasing rapidly
even though the world price was stable or on a downtrend.11
Table 13. Price of Refined Sugar (P/kg.)
Year
1993
1994
1995
1996
1997
1998
World
Price
9.49
10.32
12.03
11.78
12.09
17.17
Domestic Wholesale
Price
16.42
18.67
22.92
22.75
20.75
26.83
In producing a 50-kilo bag of refined sugar, more than 90% of the cost comes
from raw sugar. The other expenses (e.g. labor, overhead expenses, steam
generating fuel, process material, container) contribute less than 10%.
10
Tolentino (1999).
27
Year
1991
1992
1993
1994
1995
1996
1997*
1998**
World
273.28
255.12
306.65
345.30
315.04
307.73
365.64
412.34
Price
Domestic
568.85
527.03
476.15
635.03
833.34
770.69
700.01
832.56
Philippine domestic price should be compared with the domestic prices in other
sugar-producing countries. The following figures were provided (indicative for
the month of June 1999): Australia P30/kg, European Union P51.48/kg,
Thailand P11.15/kg, U.S.A. P36.89/kg, and Japan P62.63/kg. Compared
11
Ibid.
28
with a Philippine domestic price of P25.23/kg, then the Philippines would actually
have the cheapest sugar.
!
The high cost of refined sugar ultimately affects its users the food
processors for whom refined sugar constitutes the bulk of production
cost. For instance, sugar contributes 32.58% to the total cost to produce a
piece of candy.
Percent Share
32.58
2.64
3.07
24.60
0.44
8.05
28.62
100%
The relatively expensive local refined sugar has put processed food
exporters at a disadvantage. Exports of sugar-bearing products generally
slumped between 1996 and 1997 (see Table 16). The high price and low
quality of local refined sugar have driven food exporters to appeal to the
government to support their industry and allow them access to cheaper
imported refined sugar.
29
Commodity
Sugar
Confectioneries
(000 nk)
E
I
T
1991
3,250
843
2,407
1992
3,734
1,163
2,571
1993
3,124
1,643
1,481
1994
3,099
3,940
-841
1995
4,561
5,331
-770
1996
5,325
3,730
1,595
1997
5,098
5,386
-288
Sugar
Preparations
(000 nk)
E
I
T
89
2,983
-2,894
179
6,298
-6,119
162
7,900
-6,136
256
8,070
-7,814
509
8,391
-7,882
1,474
8,838
-7,364
1,366
14,715
-13,349
Pastry, Cakes,
Biscuits & Other
Bakers Wares
(000 nk)
E
I
T
2,361
1,860
501
2,064
2,491
204
2,325
3,671
-1,346
2,780
4,707
-1,927
2,780
6,715
-3,935
3,665
6,402
-2,737
7,072
5,132
1,940
Preserved Fruits
and Nuts
(000 nk)
E
I
T
231,353
5,622
225,731
236,768
8,625
228,143
251,837
9,224
242,613
274,781
10,966
263,815
247,593
10,244
237,349
263,307
10,738
252,569
249,526
13,503
236,023
E
6,890
3,994
3,938
5,183
I
1,788
3,452
4,487
4,533
T
5,102
542
-549
650
Note: E - exports; I - imports; T - trade balance (exports imports)
Source: Philippine Foreign Trade Statistics (various years)
4,952
10,728
-5,776
2,567
12,492
-9,925
3,489
21,632
-18,143
Beverages
(000 l)
products, the RCA figures indicate a lack of comparative advantage to export the
same (see Table 17).
30
SITC
048
062
058
098
073
111
DESCRIPTION
Cereal
preparations
Sugar candy,
non-chocolate
Fruits,
preserved,
prepared
Edible products,
preparations,
n.e.s.
Chocolate and
products
Non-alcoholic
beverages
1992
1993
RCA
1994 1995
1.46
1.50
1.62
0.14
0.13
1.59
1.08
8.42
0.96
1.06
4.92
5.47
4.42
3.13
2.89
4.78
4.52
3.55
2.49
2.43
0.02
0.02
0.03
0.04
0.14
0.33
0.24
0.29
0.23
0.10
1996
Source of basic data: United Nations International Trade Statistics (various years)
VI
(a)
Conclusions
Market Concentration
While there are no legal barriers to entry and exit, exit is constrained by the huge
investments that have already been made. Entry, too, is constrained by the
prevailing environment of excess capacity in mills and refineries caused by the
fragmentation of sugar lands under the CARL (Republic Act No. 6657) and
31
declining sugar productivity in terms of hectarage and piculs per tons cane or
sugar yields.
!
Anti-Competitive Behavior
13
14
The mechanism of using bonded warehouses to take advantage of reduced tariffs on imported inputs is
generally limited to those with the capability and resources to utilize such and process all the required
paperwork in Manila (Tolentino, 1999).
Philippine Daily Inquirer, 1999.
32
to
be
the
case
in
the
sugar
industry.
Sugar
scattered, the awareness level with respect to the burden from high local
sugar prices is low, so an effective counterforce to the sugar-producing
group that can influence policy does not exist.
Essentially, the
This liberalization
Thus, the
determined, producers/mills need not compete with each other for a share
of the market.
The quota allocation and quedaning system has clearly dulled any
competitive edge that the refined sugar industry may have developed had
it been allowed to face competition. When asked what steps the sugar
producers are taking or have taken with respect to the probable reduction
of the U.S. sugar quota allocation to Mexico (under the North American
33
Free Trade Accord), an industry source merely said that they (sugar
planters and millers) are watching with concern and that the reduction is
farfetched yet anyway.
(b)
Recommendations
It is apparent that government policy that has led to the suppression of market
forces and the low level of competition within the refined sugar industry.
!
The
industry has not been encouraged to shape up and work towards greater
efficiency and competitiveness. Indeed, where is the incentive for restructuring
when the industry is protected from competition from lower-priced imports,
access to the high-priced U.S. market is assured, and market destination is predetermined.
productivity and low sugar mill efficiency relative to world standards as well as
high sugar prices.15
behind domestic demand. The DRC/SER ratios indicate a shift from efficiency to
inefficiency as effective protection to the industry increased. Moreover, it has
been claimed that the plight of the sacadas16 has not really improved.
The
industrys contribution to GVA has been falling along with the hectarage devoted
to sugar cane, which means that scarce resources continue to be diverted to a
shrinking sector.
15
16
Tolentino, 1999.
Sacada is the local term for sugar tenant farmer.
34
direction in freeing the market and allowing the interplay of market forces.
Permitting competition among the industry players and allowing further
competitive pressure from imports would provide the incentive for striving
towards higher efficiency levels and world competitiveness.17
With a
national competition policy in place, the role of the SRA would have to be
assessed within the framework of encouraging greater competition within
the market. What is required in these times is a responsive bureaucracy.
The government should apply competition policy to its own activities and
17
Competition policy would have to be supported by an integrated package of reforms. Industry sources
cite the following problems, among others: poor infrastructure leading to high transport costs,
inadequate irrigation, insufficient funds for research and development, outdated production sharing
system, lack of countryside credit, the adverse effects of CARL.
35
domestic industrial users of refined sugar. Both the refined sugar and
domestic food processing industries can utilize competition policy to
improve their respective sectors. An efficient sugar industry can support a
highly developed food processing industry. Instead of working against
each other, both industries should work together in lobbying the
government for reforms to make the sugar industry competitive.
The
The effects of competition policy will not necessarily be immediate. Pending the
same, temporary and/or additional measures may be taken:
is also for the domestic market but may be withdrawn from storage only
after 120 days, are available for the use of food processors and other
industrial domestic consumers.
problem on the supply side is that the millers/traders do not have the
resources to deliver the individual orders of each industrial consumer.
Industrial consumers should therefore organize their own centralized
distribution network where their sugar orders may be placed and
consolidated with other orders.
distribution network office, which will then make the deliveries to the
individual industrial consumer or groups of industrial consumers.
sugar cane residue, can be made into paper and boards of various
grades, including fine writing and printing papers. The paper industry is
looking for other sources of fiber for making paper. Selling bagasse to the
paper industry can be a major source of funds for financing the
modernization of the sugar industry as well as an economical and
environmentally sound way to dispose of milling waste products.
In fine, the urgency for the sugar industry to gain even domestic competitiveness is
highlighted by the reduction and probable disappearance of the U.S. sugar quota with
the implementation of the NAFTA. Without a sure source of income, the sugar industry
must look closer to home to sustain and develop itself. The most logical and profitable
way is to supply the domestic market at competitive prices. To charge uncompetitive
prices would undoubtedly be self-destructive, for to bleed to death the domestic food
processing industry is to ultimately kill the sugar industry as well.
Competition policy could play a key role in ensuring that not only this objective is
realized but also the national goal of attaining sustainable economic development
through the strengthening of exports.
37
SUGAR CANE
(1212.92 00)
MFN
20% (1998)
15% (1999)
10% (2000)
CEPT
15%
Cattle for
Slaughter
(0102.90 00)
MFN
3%
ASEAN
Excluded
CANE MOLASSES
(1703.10 00)
MFN
10% (1998-1999)
7% (2000)
CEPT
10%
(1701.99)
MFN
50% (In-Quota)
80% (1998 Out-Quota)
65% (1999-2000)
ASEAN
65%
Sugar Preparations
(18.06)
MFN
3/20/10% (1998-1999)
3/10/15/7% (2000)
CEPT
3/15/10%
ASEAN
10%
Sugar
Confectioneries
(17.04)
MFN
20/10% (1998-1999)
15/7% (2000)
CEPT
15%
Source: Tariff Commission
Liquor
(22.08)
MFN
20% (1998-1999)
15% (2000)
CEPT
15%
MSG
(2922.42 10)
MFN
20% (1998)
15% (1999)
10% (2000)
ASEAN
20%
Preserved Fruits
and Nuts
(20.06/ 20.07/ 20.08)
MFN
3/20/10% (1998)
20/15/10/3% (1999)
15/10/7/3% (2000)
CEPT
15/10%/Excluded
ASEAN
20%
Pastry, Cakes,
Biscuits & Other
Bakers Wares
(19.05)
MFN
20% (1998-1999)
15% (2000)
ASEAN
20% 1905.10 00
Beverages
(22.02)
MFN
20% (1998)
20/15/10% (1999)
15/10% (2000)
CEPT
10%
38
July 1999
1.
Sugar Mills
LUZON
BASECOM, INC.
Batangas Sugar Central, Inc.
Cagayan Robina Sugar Milling, Co.
Central Azucarera Don Pedro
Hind Sugar Company
Peafrancia Sugar Mill
Central Azucarera de Tarlac
Western Agri-Ventures Corporation
VISAYAS / MINDANAO
Central Azucarera de Bais
Bogo-Medellin Milling Co., Inc.
Busco Sugar Milling Company, Inc.
Crystal Sugar Company, Inc.
Davao Sugar Central Company, Inc.
Durano III & Sons, Inc.
Hideco Sugar Milling Co., Inc.
Ormoc Sugar Co., Inc.
Universal Robina Sugar
South East Asia Sugar Mill Corp.
Herminio Teves & Co., Inc.
PANAY
Capiz Sugar Central, Inc.
Monomer Sugar Central, Inc.
New Frontier Sugar Corp.
Passi (Iloilo) Sugar Central, Inc.
NEGROS
Binalbagan-Isabela Sugar Co., Inc.
Rated Capacity
(50k-bags/day)
Plant Site
4,000
5,500
4,000
10,000
500
4,000
7,080
1,200
8,000
2,800
10,000
4,500
4,000
2,000
5,000
2,000
8,000
4,000
3,000
3,500
2,500
4,200
5,000
10,000
Date: July1999
Dacongcogon Producers' Coop. Mktg.,
Inc.
Danao Development Corp.
First Farmers Holding Corp.
Hawaiian-Philippine Co.
Central Azucarera de La Carlota
Lopez Sugar Corp.
Ma-ao Sugar Central
Sagay Central, Inc.
San Carlos Milling Co., Inc.
Southern Negros Development Corp.
Sunnix Management Corp.
Victorias Milling Co.
Source: Sugar Regulatory Administration
2,200
3,000
5,000
6,500
10,000
6,000
5,000
3,000
4,800
4,000
4,000
12,000
! 5 sugar mills in the top 1,000 corporations (1995 to 1997): Central Azucarera
Don Pedro, Universal Robina Sugar Milling Corporation, Central Azucarera De
Tarlac, BUSCO Sugar Milling Company, Inc., and Central Azucarera de Bais,
Inc. (1996 and 1997).
2.
3.
1995
32.9
12.3
9.7
12.2
4.3
9.1
5.2
2.9
2.8
2.9
1.2
3.1
Nil
0.5
0.5
0.2
1996
29.3
16.4
10.3
8.3
7.4
6.7
6.1
3.2
2.5
2.3
1.1
1.0
0.4
4.1
0.6
0.5
Level of Concentration
! Limitation: Calculation is based on the revenue shares of the 16 market players
identified in Table 2, assuming that other mills/refineries are insignificant
players.
Date: July1999
Year
1990
1991
1992
1993
1994
1995
1996
Sugarcane
235.3
271.5
267.0
384.0
401.6
302.0
375.1
Area
(000 hectares)
All Agricultural Crops
13,096.3
12,983.7
12,520.4
12,549.4
12,786.9
12,574.8
12,937.1
Percent Share of
Sugarcane to All
Agricultural Crops
1.80
2.09
2.13
3.06
3.14
2.40
2.90
! Supply: Imports - grew at an average rate of 77% from 1991 to 1997 and
accounted for an average 0.09% of the countrys total imports during the same
Date: July1999
period (see Table 5). As of January to September 1998, refined sugar imports
amounted to 23,928 metric tons which is already greater than the 1997 level.
Table 5. Value of Imports of Refined Sugar*
Year
1991
1992
1993
1994
1995
1996
1997
Value of Imports
(CIF US$)
5,356,989
6,739,889
5,466,859
11,699,401
56,953,660
81,182,850
9,635,609
% Share to
Total Philippine Imports
0.04
0.04
0.03
0.05
0.20
0.23
0.02
Year
1991
1992
1993
1994
1995
1996
1997
Production
(in MT)
802,450
861,250
817,800
834,250
754,050
888,600
793,350
Imports
(in MT)
12,195
15,640
12,159
26,604
129,783
192,321
21,682
Domestic
Demand
(in MT)
814,645
876,890
829,959
860,854
883,833
1,080,921
815,032
Imports as a Percentage of
Local Production
1.52
1.82
1.49
3.19
17.21
21.64
2.73
Apparent
Consumption
(in MT)
814,465
876,890
829,659
857,745
882,333
1,080,921
815,032
Sources of basic data: Philippine Foreign Trade Statistics and Sugar Regulatory Authority
Excess of domestic demand for refined sugar over local supply traceable to
rising demand by the downstream exporting industries the food processors,
which use refined sugar as a major input to food processing (see Table 7):
Table 7. Sugar Content
Finished chocolate and chocolate products
Other sugar and chocolate confectioneries
Citrus fruit juices
Confectioneries
Preserved fruits
Candied fruits
Ready-to-drink juices
Beverages
Sauces
40%
50%
25%
80%
30%
65%
10%
80%
30%
- 50%
- 75%
- 70%
- 90%
- 65%
- 70%
- 90%
- 35%
Source: Philippine Chamber of Food Processors and Exporters Organization Inc. (Philfoodex) and Dy and
Macabasco, 1998
Date: July1999
According to the Philippine Chamber of Food Manufacturers, Inc., about
200,000 metric tons of sugar are used yearly for various food products. The
Beverage Industry Association of the Philippines (BIAP) for its part, consumes
37% of the countrys production of refined sugar.
! Exports: The industry managed to export minimal levels between 1993 and
1995. Exports totally disappeared from 1996 onwards.
! Price Competitiveness: The world price of refined sugar increased by an
average of 13.6% from 1993 to 1998. The domestic price of refined sugar
has consistently been higher than the world price (see Table 8).
Table 8. Price of Refined Sugar (P/kg.)
Year
1993
1994
1995
1996
1997
1998
World
Price
9.49
10.32
12.03
11.78
12.09
17.17
Domestic Wholesale
Price
16.42
18.67
22.92
22.75
20.75
26.83
To produce a 50-kilo bag of refined sugar, more than 90% of the cost comes
from raw sugar. Other expenses (e.g. labor, overhead expenses, steam
generating fuel, process material, container) contribute less than 10%. World
prices of raw sugar is much lower than domestic prices (see Table 9).
Table 9. Price of Raw Sugar (P/50-kg. bag)
Year
1991
1992
1993
1994
1995
1996
1997*
1998**
World
273.28
255.12
306.65
345.30
315.04
307.73
365.64
412.34
Price
Domestic
568.85
527.03
476.15
635.03
833.34
770.69
700.01
832.56
Date: July1999
5.
Entry Analysis
! Financial Considerations: Huge capital outlay required to enter the industry.
Based on SRA estimates, current market players have invested approximately
P160 billion: P80 billion on sugar farms, P50 billion on mills, and P30 billion
on refineries.
! Excess Milling and Refining Capacity: Caused by the fragmentation of
sugarlands under the Comprehensive Agrarian Reform Law (R.A. 6657) and
declining sugar productivity in terms of hectarage and piculs per tons cane or
sugar yields.
!
According to the SRA, there were 36 importers of raw and refined sugar in 1998. Majority of these were
traders.
Date: July1999
likely exercise the flexibility option and sugar will be phased into the Scheme
by 2003 at a CEPT rate of 5%; (e) WTO - To reach the 50% target by 2004,
reductions must be implemented in 1997 and 2000. Thus, from 100% in 1996,
the out-quota rate of duty on refined sugar was reduced to 80% in 1997 and
further to 65% in 1999 and 2000; and (f) Asia Pacific Economic Cooperation
(APEC), the goal is zero tariffs in 2010 and 2020 for developed and developing
countries, respectively.
!
6.
Percent Share
of Sugarcane
to Total
Agriculture
2.98
3.68
3.84
4.02
3.94
2.29
2.69
e.g. Sugar Order No. 8, s. 1995-1996, as amended by Sugar Order No. 10, s. 1998-1999.
among these are: monitoring fee of P10.00/50 kg. and a clearance fee imposed on exporters of
sugar-based products; P50.00/50 kg. added to the world price for B1 sugar used by food processors and
exporters; clearance fee of P0.45/50 kg. imposed on sugar exporters to the U.S.; import fee of P13.60/50
kg.; PhilSURIN lien of P2.00/50 kg.; SIFI of P4.75/50 kg.; SMDF of P0.70/50 kg.; PASUDECO of P1.00/50
kg.; and P0.40/50 kg. (Tolentino, 1999).
Date: July1999
Table 12. Indicators of Exposure to Foreign Competition
Share of Exports to
Productionb (%)
----*
*
*
-----
Import Penetration
Ratioa (%)
1.50
1.78
1.46
3.09
14.68
17.79
2.40
Year
1991
1992
1993
1994
1995
1996
1997
* Less than 1%
a
Import Penetration Ratio = [Imports/(Output+Imports-Exports)] x 100
b
Percentage of Exports to Total Production
DRC/SER
0.76
0.64
1.79
Table 14. Volume of Imports and Exports of Various Food Products and Beverages
Commodity
Sugar
Confectioneries
(000 nk)
E
I
T
1991
3,250
843
2,407
1992
3,734
1,163
2,571
1993
3,124
1,643
1,481
1994
3,099
3,940
-841
1995
4,561
5,331
-770
1996
5,325
3,730
1,595
1997
5,098
5,386
-288
Sugar
Preparations
(000 nk)
E
I
T
89
2,983
-2,894
179
6,298
-6,119
162
7,900
-6,136
256
8,070
-7,814
509
8,391
-7,882
1,474
8,838
-7,364
1,366
14,715
-13,349
Pastry, Cakes,
Biscuits & Other
Bakers Wares
E
I
T
2,361
1,860
501
2,064
2,491
204
2,325
3,671
-1,346
2,780
4,707
-1,927
2,780
6,715
-3,935
3,665
6,402
-2,737
7,072
5,132
1,940
The effective protection rate (EPR) is defined as the percentage excess of domestic value added over
world market value added due to the imposition of tariffs and other protective measures on a product. The
higher the EPR of an industry or activity, the greater the protection enjoyed from tariffs and similar measures.
Date: July1999
(000 nk)
Preserved Fruits
And Nuts
(000 nk)
E
I
T
231,353
5,622
225,731
236,768
8,625
228,143
251,837
9,224
242,613
Beverages
(000 l)
E
6,890
3,994
3,938
I
1,788
3,452
4,487
T
5,102
542
-549
Note: E - exports; I - imports; T - trade balance (exports imports)
Source: Philippine Foreign Trade Statistics (various years)
274,781
10,966
263,815
247,593
10,244
237,349
263,307
10,738
252,569
249,526
13,503
236,023
5,183
4,533
650
4,952
10,728
-5,776
2,567
12,492
-9,925
3,489
21,632
-18,143
DESCRIPTION
048
Cereal preparations
062
058
098
RCA
1992
1993
1994
1995
1996
1.46
1.50
1.62
0.14
0.13
1.59
1.08
8.42
0.96
1.06
4.92
5.47
4.42
3.13
2.89
Edible products,
preparations, n.e.s.
2.43
2.49
3.55
4.52
4.78
Chocolate and
products
0.02
0.02
0.03
0.04
0.14
111
Non-alcoholic
beverages
0.33
0.24
0.29
0.23
0.10
Source of basic data: United Nations International Trade Statistics (various years)
073
7.
Date: July1999
conversion from C to B, a new tax on imports has effectively been imposed.
According to some sources, the conversion fee paid by the bidders during the 4
May auction would add P8/kilo to the price of sugar currently pegged at
P21/kilo (Philippine Daily Inquirer, 1999); (c) Tariffs and import restrictions
allow incumbents to entrench themselves; (d) hey can also discourage entry if
they Sugar producers/millers/refiners form a well-organized group willing to
pay the costs of ensuring that their interests remain protected and the
government incentives they have long enjoyed stay. In contrast, consumers are
scattered, the awareness level with respect to the burden from high local sugar
prices is low, so an effective counterforce to the sugar-producing group that can
influence policy does not exist; (e) With market quota allocation and quedaning
system., market destination is pre-determined, so producers/mills need not
compete with each other for a share of the market; (f) The inefficiencies of the
sugar industry, graphically illustrated by high domestic prices for sugar,
penalize downstream and export industries (like the food processors) and the
Filipino consumer. The high cost of food impacts on the cost of labor which, in
turn, impacts on the countrys competitiveness.
!
sugar-sum/phlxprt-taps5
10
Date: July1999
SUGAR CANE
(1212.92 00)
MFN
20% (1998)
15% (1999)
10% (2000)
CEPT
15%
CANE MOLASSES
(1703.10 00)
MFN
10% (1998-1999)
7% (2000)
CEPT
10%
Sugar Preparations
(18.06)
MFN
3/20/10% (1998-1999)
3/10/15/7% (2000)
CEPT
3/15/10%
ASEAN
10%
Sugar
Confectioneries
(17.04)
MFN
20/10% (1998-1999)
15/7% (2000)
CEPT
15%
Preserved Fruits
and Nuts
(20.06/ 20.07/ 20.08)
MFN
3/20/10% (1998)
20/15/10/3% (1999)
15/10/7/3% (2000)
CEPT
15/10%/Excluded
ASEAN
20%
Liquor
(22.08)
MFN
20% (1998-1999)
15% (2000)
CEPT
15%
MSG
(2922.42 10)
MFN
20% (1998)
15% (1999)
10% (2000)
ASEAN
20%
Beverages
(22.02)
MFN
20% (1998)
20/15/10% (1999)
15/10% (2000)
CEPT
11