NEDA shoots down myths

Study indicated that the case for sugar trade liberalization appears weak at this time.

A study conducted by the National Economic and Development Authority last year debunked many of the arguments by manipulative forces that led to the crafting of the controversial Sugar Order 4 and the subsequent changes that would lead to a liberalized importation by large-scale users, including soft drinks makers.

Liberalization is not needed, according to the NEDA study, and so is the tariff rate quota scheme, which the study indicated had “outlived its usefulness” and had introduced unwanted distortions in the market.

The study indicated that the case for sugar trade liberalization “appears weak at this time.”

Should it be pursued, the economic agency said it would be best to be done “gradually and only partially, especially in the face of severe distortions in the world sugar market.”

NEDA referred to simulations, which it said indicated that “if inter-industry effects are ignored,” fully liberalizing trade in sugar would predictably hurt planters and millers.

Both sectors will be affected to the extent of a 57 percent profit decline, while consumers gain in terms of lower prices.

The advantages of lower prices “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,” according to the study.

“All told, liberalization would benefit consumers, but would favor the rich more than the poor. All this would be at a clear cost to the sugar industry stakeholders,” according to the NEDA study.

It went that while industrial users of sugar would benefit, the impact on them appears relatively modest.

“It may be noted that the case for reducing prices for consumers at the expense of industry stakeholders is not as compelling as it has been for rice.”

NEDA dichotomized rice and sugar, saying the former is a food staple that takes a substantial portion of the average family’s consumption basket, especially of the poor, while the latter takes a much smaller part of the average family budget, and given the widespread dietary health concerns, 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,” NEDA explained.

Regarding the colonial-period US quota scheme, the study held that the allocation of quedans for sugar exports has outlived its usefulness, and introduced unwanted distortions in the market.

Continued issuance of “A” quedans for export sugar to the US where prices are lower, according to the study, appears incongruous in a situation where demand already equals or exceeds domestic production.

Distortion happens since the scheme is suspected to yield substantial economic rents or unwarranted profits to certain unscrupulous elements in the industry.

There were allegations in the industry that “A” sugar quedans, which fetch lower prices given the market segmentation, have somehow found their way in the higher-priced domestic market.

It dismissed the argument of the Sugar Regulatory Administration, which justified the maintenance of the “A” quedan allocation on the desirability of continued access to the preferential US sugar market, where the Philippines has enjoyed a quota allocation for decades.

“The reasoning is that the US quota would be useful in the event of a bumper harvest that leads to a substantial surplus, as the US price tends to be higher than world prices. However, in recent years, domestic production barely met requirements.”

To satisfy the quota, the study indicated that there were instances when traders needed to import to fulfill the commitment.

The country has also been unable to meet its US sugar quota allocation lately, and exports to the US are being effectively supported by imports from the world market, “introducing yet another alleged opportunity for abuse and fraud,” NEDA said.

All told, “the contingent incremental benefit that hinges on the uncertain prospect of bumper harvests must be weighed against the certain tangible and non-tangible costs already incurred from the distortions arising from the issuance of ‘A’ quedans,” the study said.

The views in the study were aligned with the aims of local producers to give priority to the local market in terms of supply and enhancing the competitiveness of the local industry toward self-sufficiency.

It concluded that should sugar trade liberalization be pursued, “even as the findings suggest that the case for it is weak at this time,” it must be done through the gradual easing of controls.

Such a process must ensure that gains derived from policies are equitable, and not unduly penalize the groups directly dependent on the sugar industry, it added.
Sweet harmony must be achieved in gist.


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