sugar industry

[ANALYSIS] Is Marcos condoning sugar smuggling and cartels?

JC Punongbayan

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[ANALYSIS] Is Marcos condoning sugar smuggling and cartels?
At what price will the smuggled sugar be sold in Kadiwa stores? Officials say it’s P70/kilo – still higher than the wholesale price of P61/kilo.

On March 24, 2023, Sugar Regulatory Administration (SRA) chief David Thaddeus Alba resigned. He’s the second SRA chief to resign in the Marcos Jr. administration.

No wonder he did so, since the sugar industry has been experiencing newer troubles of late.

Remember the first sugar fiasco last year, when President Ferdinand Marcos Jr. himself – serving concurrently as the agriculture secretary – blocked the importation of 300,000 tons of sugar. As a result, some agriculture officials resigned. (READ: Ang mapait na politika sa importasyon ng asukal)

This year, in a bid to lower sugar prices, the Department of Agriculture issued another sugar order (Sugar Order 6) authorizing the importation of 440,000 tons of sugar effective February 15. Based on the Sugar Regulatory Administration’s (SRA) rules, importers need to apply for permits to import part of that quota.

The problem is, on February 9, some 5,000 tons of sugar allegedly imported from Thailand – and placed inside 260 20-foot containers – mysteriously arrived in Batangas Port 6 days before Sugar Order 6 became effective. More supplies of sugar entered the country after that.

Then on February 27, DA Undersecretary Domingo Panganiban issued a memo to the SRA approving the release of the recently imported sugar, including the 5,000 tons that came prematurely on February 9. Panganiban’s memo also instructed SRA to approve the allocation of the 440,000 tons in Sugar Order 6 to three specific importers:

  • All Asian Countertrade Inc. (240,000 tons)
  • Sucden Philippines Inc. (100,000 tons)
  • Edison Lee Marketing Corp. (100,000 tons).

According to Usec Panganiban, he acted upon an earlier memo of the executive secretary which he deemed a sugar order in itself.

In a Palace briefing, he elaborated: “In response to the directive of the President, to address inflation and create a buffer stock, and given that sugar is one of the component of most commodities that drive the consistently high inflation rate, I acted with haste and interpreted the memorandum issued by the Office of the Executive Secretary as an approval to proceed with the importation. With the urgency of the situation, I instructed three capable and accredited companies to proceed with the importation of the sugar, provided that they agree to reduce the prices of sugar.”

This is highly suspect since sugar imports must be authorized first by a sugar order from the SRA. A DA undersecretary cannot, by himself, authorize sugar importation. Otherwise, what is the SRA for?

Also, why the three companies specifically? It turns out that it was Usec Panganiban himself who chose those companies from a “3-page list” handed to him. Panganiban said they’re the “most capable and accredited” firms. But what criteria did he use?

In an exposé, Senator Risa Hontiveros said that based on documents signed by Usec Panganiban, the authority to import given to All Asian Countertrade was “per instructions of Executive Secretary Lucas Bersamin.”

Hontiveros added: this is “smoking gun proof” of “government-sponsored smuggling being coordinated at the highest levels of bureaucracy.”

Sugar prices

Note that the spurious importation of sugar was justified because of the urgent need to “address inflation,” which is partly stoked by sugar inflation.

We’ve known for quite some time that sugar prices in the Philippines, vis-à-vis neighboring countries, are sky-high (Figure 1). Relative to the average price in the Philippines, sugar costs about half in Malaysia and about a third in Vietnam.

Figure 1. Source: NEDA.

But the latest data show that prices are exceptionally high even by historical standards (Figure 2).

Figure 2. Source: DA Bantay Presyo.

In 2022, the President blocked sugar imports which were supposed to help bring down sugar prices. His failure to import meant that sugar stayed at high levels last year, to the detriment of consumers.

Now, in 2023, the President is finally allowing sugar imports. But the selection of importers is very questionable and reeks of favoritism, if not cronyism. Can’t we just have timely and above-board importation? Is it too much to ask for both?

The anomalies abound.

First, the amounts of sugar authorized for the three favored companies are humongous. Usually, according to Senator Hontiveros, an importer is allowed to import just 10,000-20,000 tons at a time. But two of the handpicked firms got 100,000 tons each, and the third 240,000 tons.

Second, it’s not as if the sugar sold by these three firms is cheap – contrary to the condition that Usec Panganiban set in allowing them to import (remember his phrase, “provided that they agree to reduce the prices of sugar”).

For instance, Senator Hontiveros bared that All Asian is selling sugar at P85/kilo, which allows it to earn “super profits.” The potential profits of the three favored firms could reach P14 billion.

This setup betrays the existence of a cartel, which we know from basic economics leads to higher prices than if competition is allowed.

So ironically, the Marcos administration is relying on smuggled sugar to lower prices. The Marcos administration decided to sell 12,000 tons of smuggled sugar – confiscated in Subic and Batangas (apart from the sugar imported by the three firms) – in Kadiwa stores, where cheap foodstuffs are sold.

But at what price will the smuggled sugar be sold there? Officials say it’s P70/kilo. That’s still higher than the wholesale price of P61/kilo, and certainly more that the prices in 2020 and 2021, which hovered a little over P50/kilo (Figure 2).

So even the government’s plan to sell cheap smuggled sugar may not lead to the lowest prices possible for consumers.

In the first place, who’s to say if a shipment of sugar is smuggled or not? Is it fair for government to deem some shipments smuggled, when in fact, it allowed the importation and release of sugar sans any authority from the SRA?

Maybe the best solution (as suggested by some economists) is to liberalize sugar imports and “tariffy” them just like what happened to rice with the Rice Tariffication Act of 2019. Alternatively, the import licenses for sugar can be auctioned off rather than handed out capriciously by agriculture officials.

But until such reforms in the way we import sugar are put in place, it’s clear that the sugar import quota is being used in shady ways under the leadership of the President himself. Use of the terms “government-sponsored smuggling” and “government-sponsored cartels” is quite apt.

Is it any wonder that two SRA chiefs have resigned less than nine months into the Marcos administration? – Rappler.com

JC Punongbayan, PhD is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. JC’s views are independent of his affiliations. Follow him on Twitter (@jcpunongbayan) and Usapang Econ Podcast.

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JC Punongbayan

Jan Carlo “JC” Punongbayan, PhD is an assistant professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for Rappler.com. He is also co-founder of UsapangEcon.com and co-host of Usapang Econ Podcast.