The United States is no longer the premium sugar market
“The Ministry of Agriculture should stop obsessing over sugar. “
The US sugar import system is a smart economic arrangement. Designed by economists at the United States Department of Agriculture, it aims to achieve two desirable goals. One of the objectives is to establish and maintain order in the flow of sugar exports to the United States from a multitude of participants in one of the largest segments of the world commodity trade; this is important from a geopolitical point of view as most of the major sugar producers are third world countries which depend on sugar exports for their foreign exchange needs. The second goal of the USDA sugar import system – one that is not obvious to non-economists – is to protect the United States sugar industry from foreign sugar producers able to operate on the basis lower production costs, eg lower wages. The California sugarcane grower and Montana sugar beet grower are unable to compete with lower-cost sugar producers in Brazil, Thailand and Kenya. The United States sugar import system is a quota plus mark-up system. Each year, the USDA establishes a world total for United States sugar imports after deducting estimated domestic production from estimated domestic consumption. The estimate of total sugar import requirements is then distributed among countries wishing to export sugar to the United States. Obviously, countries that have large sugar industries – for example, Brazil and Mexico – are candidates for large shares of total world imports, but other criteria are observed by the USDA to decide the size. on the one hand, or a quota, from a particular foreign country. The state of a country’s relationship with the United States is a very important consideration, as is a country’s track record as a supplier. The beauty of the US sugar import system is that a foreign country is guaranteed a share of the US sugar market, and its sugar sales to the US are paid at a fixed price considerably higher than the going prices. the world market. This large premium is in fact the price the United States is prepared to pay foreign sugar exporters for refraining from competing with American sugar producers. When the Laurel-Langley Agreement was in effect, that is, the 20-year period beginning July 4, 1954, this country enjoyed one of the largest shares of the annual United States sugar import pie. . Upon expiration of the agreement, the Philippines lost its preferential status under the annual United States Sugar Act and its share of total US high-priced sugar imports declined as a result. Most of this country’s sugar production has ceased to be classified as “A” sugar (for export to the United States). Today the export tonnage that is paid at the US premium price is now much smaller. The US market has ceased to be the primary market for domestically produced sugar. Thanks to the constant rise in prices in the domestic market due to the recurring balance between production and consumption – the population of this country is said to have exceeded 110 million – the domestic market has become the primary market for Filipino sugar producers. However, the Ministry of Agriculture should stop obsessing over ‘A’ sugar and instead pay more attention to the state of the national sugar supply. It is no longer “A” sugar that commands higher prices; such prices are now found on the domestic market. This is the new standard of the Philippine sugar industry. That the Secretary of Agriculture and his collaborators find it difficult to adapt – or are not inclined to adapt – to the fact that the domestic market is now the premium market is indicated by the decree of the DA assigning 7 for percent of the 2020-2021 crop production to be exported to the United States. Although the order has since been canceled for domestic sourcing reasons, rumors are circulating that DA is still considering classifying 74,000 metric tonnes (MT) as “A” sugar. It does not mean anything. The 74,000 tonnes are expected to be reclassified as “D” sugar and shipped to the domestic market, where they will be paid at higher prices.
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