Sugar industry of the Philippines

In 2005, the Philippines is the ninth largest sugar producer in the world and second largest sugar producer among the Association of Southeast Asian Nations (ASEAN) countries, after Thailand, according to Food and Agriculture Organization. At least seventeen provinces of the Philippines have grown sugarcane, of which the two on Negros Island Region account for half of the nation’s total production. As of crop year 2009-2010, 29 sugar mills are operational divided as follows: thirteen mills on Negros, six mills on Luzon, four mills on Panay, three mills in Eastern Visayas and three mills on Mindanao.

Sugarcane is not a sensitive crop and can be grown in almost all types of soil, from sandy to clay loams and from acidic volcanic soils to calcareous sedimentary deposits. The harvest period is from October to December and ends in May.

In 2015, the National Commission for Culture and the Arts of the Philippines announced that they will include the Industrial Sugar Central Sites of the Philippines and related properties to the UNESCO World Heritage List.

The history of the sugar industry in the Philippines pre-dates pre-Spanish colonization. Early Arab traders brought from the Celebes cuttings of sugarcane and planted them in Mindanao. Later sugar were shipped north and planted in the Visayas and Luzon. By 1521, beginning of the Spanish Era in the Philippines, sugarcane farming were already extensive on many islands, particularly in the Visayas.

Sugarcane farming however only became an industry only after 1856 when Nicholas Loney, a British Vice-Consul, was sent to Iloilo City and convinced the American house of Russell and Sturgis (also known as Russell & Co.) to open a branch in Iloilo for the purpose of giving crop loans to sugar planters. Loney through his firm, Loney and Kee Company, facilitated the fast development of sugar industry by importing sugar cuttings from Sumatra and machinery from England and Scotland to Iloilo, which the sugar planters can buy on easy installment loans. Loney also built sailing boats called lorchas, patterned after Brixham Trawlers of Downshire used for deep-sea fishing in the English channel, at Buenavista on Guimaras Island to transport sugar from Negros. Envisioning the prosperity of sugar industry in Visayas in the near future, Loney initiated the development of industry in Negros and offered liberal terms to few Negrense planters similar to those he had given the Ilonggo sugarcane growers. Consequently, some prominent families of sugarcane planters from Iloilo like Ledesma, Lacson, Hilado, Cosculluela, Perez, Alvarez, Sotamayor and Escanilla moved to Negros in 1857 due to its promising development of sugar industry. The raw sugar which the island of Visayas’ main product was exported to the United States, England and Australia. Crystal grain sugar was the product of Manila which was exported primarily to Spain.

The Philippines main agricultural export commodity (Late 1700s-1970s)
Sugar became the most important agricultural export of the Philippines between the late eighteenth century and the mid-1970s basically because of two reasons: 1) foreign exchange earned and 2) it was the basis of wealth accumulation of some Filipino elite at that time. To ensure the continuous growth and development of sugar industry under the Commonwealth government, Philippine Sugar Administration (PSA) was established in 1937 to oversee the industry.

After the Second World War the Sugar Quota Administration (SQA) replaced PSA in 1951 vis-à-vis with Philippine Sugar Institute (PHILSUGIN), a research agency. During the 1950s and 60s, more than 20 percent income of Philippine exports came from the sugar industry. It declined in the 70s and plunged further in the first half of the 80s to roughly 7 percent. It was during this period when the government acknowledged the existence of crisis in the industry. One of the factors that contributed to the worsening situation of the industry during that time was the depressed market for sugar.

In 1974, there was a dramatic escalation in the world price that peaked at around US$0.67 per pound of sugar. In succeeding two consecutive years, world prices of sugar fell to less than US$0.10 and remain in that situation for few years until it moved upward before the decade ends. During the early 80s, world sugar prices fell again with US$0.03 per pound as the bottommost. Prices recovered to US$0.14 cents per pound then fell again between US$0.08 to US$0.09 per pound at the beginning of the early 1990s.

Free Trade with the U.S. and the Quota System
The transfer of Philippines as a colony from Spanish regime to American occupation was not easy due to strong resistance from Filipino leaders like Emilio Aguinaldo and Gregorio del Pilar. Soon after the death of del Pilar in the Battle of Tirad Pass and seizure of Aguinaldo in Palanan, Isabela, Philippines was completely under the American rule. The Americans, unlike their predecessors, provided partial liberty to the Filipinos by preparing the latter to achieve independence and run its own government through a Commonwealth form of state.

The initial resistance turned into market cooperation that emanated from trust and good will of Filipino people towards the American colonizers and vice versa. United States’ colonization of the Philippines protected the country from vicissitudes of world sugar prices due to its free access to a protected and subsidized U.S. market, which started in 1913, when the U.S. established free trade with its Philippine colony.

The U.S. treated the Philippines like one of its American states that resulted to state protection of the Philippine sugar market. Twenty-one years later in 1934, U.S. enacted a quota system on sugar that remained enforced until early 70s. In 1965, U.S. Sugar Act was amended to provide the following terms in Quota system:

A basic quota of 1,050,000 short tons plus 10.86% of any U.S. consumption increase from 9.7 million to 10.4 million tons or a total basic quota of 1,126,000 short tons for the Philippines;
47.22% of the deficits of U.S. domestic producers and other foreign country suppliers which conservatively is estimated to be about 200,000 tons, shall be allotted to the Philippines;
The encouragement, if not a requirement that the Philippines maintain in reserve the equivalent of 15% of her U.S. quotas or roughly 180,000 tons;
The premium recapture fee and a quarterly system of allocation during the first semester of each calendar year.
Despite restrictions on sugar trading, exports of Philippine sugar to the U.S. remained in a relatively privileged position especially during the 70s. Philippine quotas for the U.S. ranged between 25 and 30 percent, a rate that is higher than other sugar suppliers like the Dominican Republic, Mexico and Brazil.

Early Declination
Philippines exported sugar on the world market, generally to unrestricted locations, after U.S. quota law on sugar reached its expiration in 1974. Consequently, sugar shipments to the U.S. declined during this period. A quota system for the sugar importation was renewed by the United States on May 5, 1982. However sugar allocations were based on a country’s share in sugar trade with the U.S. in 1975 to 1981, the periods when exports of Philippine sugar to U.S. decreased; during this period, allocations of Philippine sugar was only 13.5 percent about half compared to its allocations in the early 1970s.

Efforts to make allocations raised to 25 percent were failed. The imposition of new quota system for sugar compounded by remarkable drop of 40 percent in total U.S. imports of sugar in the mid-1980s resulted to huge loss of sales to the Philippines. The negative effect was greatly felt in the island of Negros, where sugar industry is directly responsible for 25 percent of employment of local farm workers.

Government Monopolization (1970s)
During the 70s, former President Ferdinand Edralin Marcos and his economic advisers deemed that the declination of sugar industry is due to pervasive market failures. Therefore, to rescue the industry central coordination was crucial. Marcos administration then followed diffusionist argument that in order to stimulate market development of sugar industry government should replace the market.

In response to precipitous decline in sugar prices, former President Marcos ordered the establishment of Philippine Sugar Commission (PHILSUCOM) in 1976 by virtue of Presidential Decree No. 388 and amended by Presidential Decree Nos. 775 and 1192. PHILSUCOM assumed the functions of SQA and PHILSUGIN. The said Commission was given the sole power to buy and sell sugar, to set prices paid to planters and millers, and to purchase companies connected to the sugar industry. In May 1978, the Republic Planters Bank was established to provide adequate and timely financing to the sugar industry.

To minimize the impact of world sugar prices fluctuations during those periods, PHILSUCOM then established a protective pricing policy and entered into a four-year-long terms contracts to sell 50 percent of exported sugar at an average price of US$23.5 cents per pound although the prevailing world prices were then above 30 cents per pound. What happened next was government monopolization of the sugar industry.

Government substitution on the role of the market apparently did not work out favorably to the industry but rather worsened the declination of the industry. PHILSUCOM and its trading subsidiary, the National Sugar Trading Corporation (NASUTRA), were tainted with controversies. According to the findings of a study conducted by a group of economists in the University of the Philippines (U.P.), during the periods between 1974 and 1983 sugar producers’ losses have reached to estimate value between 11 billion pesos and 14 billion pesos.

Establishment of Sugar Regulatory Administration (SRA)
After the 1986 Revolution, which ousted the former dictator, President Corazon Cojuangco Aquino immediately appointed Mr. Fred J. Elizalde as Officer-in-Charge (OIC) of the institutions that will regulate the sugar industry since the administration that time was technically in revolutionary form of government. On May 28, 1986, Executive Order No. 18 was issued by Malacañang that established the current Sugar Regulatory Administration. SRA is mandated to carry out the following functions:

To institute an orderly system in sugarcane production for the stable, sufficient and balanced production of sugar for local consumption, exportation and strategic reserve;
To establish and maintain such balanced relation between production and requirement of sugar and such marketing conditions as will insure stabilized prices at a level reasonably profitable to producer and fair to consumers;
To promote the effective merchandising of sugar and its products in the domestic and foreign markets so that those engaged in the sugar industry will be placed on a basis of economic viability;
To undertake such relevant studies as may be needed in the formulation of policies and in the planning and implementation of action programs required in attaining the purposes and objectives set forth under Executive Order No. 18.
Sugar Industry and the Philippine Economy
The sugar industry provides substantial socio-economic contribution to the Philippines. This include but may not be limited to employment, gross domestic product (GDP), investments, social amelioration, Research & Development (R&D), and energy development.

It is estimated that as of 2012, the industry provides direct employment to 700,000 sugarcane workers spread across 19 sugar producing provinces.

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Gross Domestic Product (GDP)
On annual basis, production of sugar contributes about 69.7 billion pesos to the national GDP with Value Added Tax (VAT) collection for the sale of refined sugar reaching over 1.92 billion pesos yearly. Sugar is primarily produced in the whole Negros Island Region, as well as in Central Luzon, Western Visayas and some parts of Mindanao. As of Crop Year 2007-2008, the province of Negros Occidental accounted for 54% of sugar produced and accounted for 18 billion pesos of Negros’ GDP.

In 1998 alone, investments to sugar industry have amounted to 20 billion pesos, according to the Board of Investments. These investments are private sector secured, sourced and funded, without cost or security from government.

Social amelioration
Sugar industry has a social component, benefiting sugarcane workers. Through the Social Amelioration Fund (SAF), a lien is imposed on the volume of sugar produced. This fund is shouldered by sugar planters and millers and collected by the Bureau of Rural Workers. The benefits for the sugarcane workers under the lien include cash bonus, death benefit, maternity benefit, educational grant and livelihood projects.

Research & Development (R&D)
The sugar industry funds its own research, development and extension programs through the Philippine Sugar Research Institute Foundation, Inc. (PHILSURIN) with aim to develop high yielding cane varieties. The Philippine government, through SRA, provides the extension efforts in partnerships with the Mill District Development Councils (MDDC). PHILSURIN assists this initiative through the hiring of Mill District Coordinators and financial support to many programs of the MDDC.

Energy Development
The sugar industry is now among the forefront of alternative and renewable energy sources which include biofuel through bioethanol production and co-generation activities.

The sugar industry has two major sub-sectors: the farming sub-sector and the milling sub-sector.

Farming Sub-sector
There are at least 11 regions/19 provinces that produce sugarcane in the nation. A range from 360,000 to 390,000 hectares are devoted to sugarcane production. The largest sugarcane areas are found in the Negros Island Region, which accounts for 51% of sugarcane areas planted. This is followed by Mindanao which accounts for 20%; Luzon by 17%; Panay by 07%; and Eastern Visayas by 04%. It is estimated that as of 2012, the industry provides direct employment to 700,000 sugarcane workers spread across 19 sugar-producing provinces.

Milling Sub-sector
As of Crop Year 2012-2013, 29 mills are operational divided as follows: 13 mills in Negros, 6 mills in Luzon, 4 mills in Panay, 3 mills in Eastern Visayas and 3 mills in Mindanao.

Negros (13 mills)

CAB -Bais
First Farmers
La Carlota
Ragasa F.C.
Tolong (Teves)

Luzon (6 mills)
Cagayan Sugar Mill Company (Piat, Cagayan)
Sweet Crystals Integrated Sugar Mills (Pampanga)
Central Azucarera de Tarlac (Tarlac)
Batangas Sugar Central Incorporated (Balayan, Batangas)
Central Azucarera Don Pedro (Nasugbu, Batangas)
Peñafrancia Sugar Mill (Peñafrancia, Camarines Sur)

Panay (4 mills)

Santos Lopez
Capiz Sugar Central, Inc. (President Roxas, Capiz)
Eastern Visayas (3 mills)

Kananga Sugar Mill (Ormoc, Leyte)
Mindanao (4 mills)

Bukidnon Sugar Company
Crystal (Maramag, Bukidnon)
Davao Sugar Central Company (Hagonoy, Davao del Sur)
Cotabato Sugar Central Company (Matalam, North Cotabato)

Sugar Alliance of the Philippines
The Sugar Alliance of the Philippines is a non-profit, industry association of the sugar industry of the Philippines. It is the biggest group of sugar planters and millers in the Philippines. Bloomberg says the alliance “works to promote better relations between sugar planters and millers, addressing industry problems, and other issues concerning the sugar industry.” Its headquarters is located in Makati City, Metro Manila, Philippines.

The Sugar Anti-Smuggling Organization is part of the alliance.

Members of the alliance include National Federation of Sugarcane Planters, the Unifed, the Panay Fed and Confed.

The Philippine Sugar Millers Association is a separate organization.

Source from Wikipedia