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The Philippines’ sugar industry is a relative bright spot in the country’s economy; sugarcane is the Philippines’ fourth-largest crop (after coconuts, corn, and rice), provides direct employment to about 500,000 people, and is a one of the country’s reasonably robust export commodities. Unfortunately, sugar is not at all a unique product. The industry already faces stiff export market competition from regional neighbors like Thailand, and there is significant worry among sugarcane farmers and processors about the impacts of the full implementation of the Asean Free Trade Area (AFTA) in 2015.
Just as with the Philippines’ small- and medium-business sector (see Tuesday’s column, “Why You Should Worry about 2015”), the general consensus among sugar industry interests is that the sector is largely unprepared for a new market environment. Unlike the SME sector, however, the sugar industry, working together with the Sugar Regulatory Administration (SRA), has developed a clear assessment of its shortcomings and a basic plan framework to address them.
The major problem for the Philippines’ sugar industry is yield inefficiency. About 90% of the country’s cane farms are small farms of 10 hectares or less, which have a per-hectare yield that is roughly half that of larger farms or 30 hectares or more (50 metric tons of cane/hectare versus 100 MT/hectare). The system of mills to process cane into sugar is likewise burdened by a large number of small, inefficient operations. There are 23 sugar mills and nine sugar refineries in the country, which operate at an average capacity of 60%; the typical Philippine sugar mill processes 6,000 MT of cane per day. By contrast, sugar mills in Thailand operate at 85% of their capacity, and can process about 15,000 MT per day.
Two factors account for the lack of milling productivity in the Philippines. First, the overpopulation of mills has left many in poor operating condition; competition for cane supplies, particularly in Negros where much of the sugar industry is concentrated, leads to higher overhead and prevents capital investment in better equipment and facilities. Second, the sugar industry in the Philippines developed organically, without much of an overall plan; the suppliers (farms) and consumers (mills) are not coordinated in terms of capacity or geographic location.
On top of the handicaps to productivity, Philippine sugar is restricted to a very narrow market. Of the roughly 2.2 million MT of sugar produced each year, no less than 90% of it is sold for domestic consumption with the small remainder going to the US, the Philippines’ only export customer. By comparison Thailand, with roughly the same size domestic sugar market, produces about 8 million MT per year and exports about 5.5 million MT, primarily to China, the US, Europe, and the rest of Southeast Asia.
To address these problems, the SRA’s “Sugarcane Industry Roadmap 2011-2016” proposes a number of sound solutions. For starters, the roadmap sets clear productivity targets: An increase in cultivated area from 400,000 to 465,000 hectares, an increase in average yield from 63 MT/hectare to 75 MT/hectare, and an increase in finished product yield from 95 to 105 kilos per MT of cane. In order to reach these targets, the roadmap makes several bold proposals, including:
*Condensing small farms of 10 hectares or less into “block farms” with a minimum size of 30-50 hectares. The individual farmers would retain their land ownership through joint venture, leasing, or partnership arrangements, with management of the block farm put in the hands of professional farm operations managers. The program has already been started in a few areas, although it is still too early to tell if the anticipated gains in productivity have been realized, according to the Philippine Sugar Millers Association.
*Creation of Mill District Development Committees, which will have a number of critical responsibilities: Management of block farming programs in local areas, formation of “mill districts” through closing small inefficient mills, and identifying expansion areas for cane farming.
*Aggressively developing sugarcane as a biofuel source, both to create an alternative revenue stream for the sugar industry, and to eliminate ethanol imports, which amount to approximately 380 million liters per year.
*Upgrade and expand the irrigation infrastructure, but source projects directly through the Bureau of Soils and Water Management (BSWM) rather than private investments.
These broad initiatives are exactly the sort of approach that is needed to prepare the sector for 2015, and while the specifics are obviously unique, it serves as a good framework example for other industries. But will the Sugar Industry Roadmap actually work? It probably would, given enough time and political support. Unfortunately, the sensible ideas of the roadmap are contrary to several cherished notions that special interests will not easily surrender. The idea of block-farming opposes the concept of land reform; the sugar farming sector is perhaps less enthusiastic about land reform than others, but block farming is still likely to meet with resistance. Likewise with the ideas of shutting down small mills and placing farms under independent management; any perceived threat to “livelihood”, no matter how unproductive that livelihood may be, will certainly be challenged. And finally, tapping the BSWM rather than private development for any sort of infrastructure is very likely to be rejected out of hand by the Aquino Administration, which has an almost pathological distaste for government-managed projects.
These hurdles might be overcome, but even under the best of circumstances the process would take years. And time is simply not a luxury that the sugar industry or any other economic sector has. Even so, getting a late start would be better than never starting at all; some in the industry are already doing what they can. Whether they receive the firm institutional support they need will determine if they will ultimately be successful.