Study suggests gradual sugar trade liberalization

Opening up sugar trade to imports has to be gradual to ensure that the anticipated cheaper prices, which may hurt local producers, will benefit all consumers—not only the rich who buy more of the product, but also the poor, according to a study commissioned by state planning agency National Economic and Development Authority (Neda).“The case for sugar trade liberalization appears weak at this time. Should it be pursued nonetheless, it would be best done gradually and only partially, especially in the face of severe distortions in the world sugar market,” Neda consultant Brain Trust Inc. said in its report titled “An Assessment of Reform Directions for the Philippine Sugar Industry.”

After rice tariffication, economic managers had set their sights on dismantling the protection of the domestic sugar industry.

Balancing act

Brain Trust said its simulations showed that “if inter-industry effects are ignored, fully liberalizing trade in sugar would predictably hurt planters and millers, both of whose profits are projected to decline by 57 percent, while consumers gain in welfare (consumer surplus) by up to 65 percent.”

“There is a modest net gain to the overall society of P2 billion, but this must be weighed against the implementation costs of mechanisms for the winners (consumers) to compensate the losers (planters and millers), which could well offset the gains to be redistributed,” the report released on Friday read.

Taking into account impacts across all sectors to be affected by liberalized sugar trade, the report said investments and productivity could gain P7 billion to P9 billion a year.

The 11-percent or so projected drop in the prices of sugar and other goods, which use it as raw material could nonetheless slash employment in sugar manufacturing by 7 percent and in sugarcane production by 16 percent, on top of a 6.8-percent decline in output.

“Food manufacturing industries including those using sugar would see increased output (by 1 percent) and employment (1.1 percent) with reduced prices (0.24-0.41 percent), while imports for these commodities would decline over time (by just under 1 percent),” the report said.

“The industry sector as a whole would see incremental growth with sugar trade liberalization, albeit small (0.08 percent by 2030),” it added.

The report said every Filipino consumer of sugar stood to benefit from liberalization even as “higher-income groups tend to gain more than lower-income groups do” as richer Filipinos consume more of the commodity.

“The lowest income decile gains P262 million, progressing up to P1.6 billion for the richest income decile, reflecting higher consumption levels of the affected products by the better endowed. All told, liberalization would benefit consumers but would favor the rich more than the poor,” it said.

No to immediate opening up

Unlike in the case of rice, whose liberalized importation helped ease prices and redound to big consumers, especially poor families, the study noted that sugar took a smaller portion of average Filipino households’ budgets.

“Given now widespread dietary health concerns, [sugar] is even subject to moves to reduce consumption, including additional excise taxation. Thus, even as liberalization would lead to a net overall welfare gain for society, the net gains to be achieved may not be substantial enough to offset the downsides in terms of adverse distributional impacts and non-economic costs in the social and political realms,” the study said, referring to the negative impact on sugar industry stakeholders.

“Should the government wish to pursue sugar trade liberalization, it must be through a gradual easing of controls over sugar trade to ensure that gains therefrom are equitable and will not unduly penalize the groups directly dependent on the sugar industry,” the study said. INQ