In response to rising?domestic?demand and a fall in production due to last year?s?extreme weatherconditions, the Philippines has scaled back sugar exports this year, but longer-term prospects foroverseas sales?as well as expansion in the local market could drive growth in the sector.

unnamedIn mid-February, the industry?s governing agency, the?Sugar?Regulatory Administration (SRA), announced it was reducing the allocation for export to all markets except for the US. Instead of the 14% of national production that had been intended for export, just 8% of output would be shipped in the current crop year, which ends in August. Of this, the 2% that had been allocated for the US market would remain unchanged, the SRA said.

The?decision?was made after it became apparent production would not be sufficient to cover all commitments, said SRA administrator Regina Bautista-Martin.

?While production for the current crop year is on a?downward?trend, records show that local demand or consumption of sugar is increasing,? she said in a statement issued on February 11, adding that if the allocations had not been adjusted the country?s domestic sugar?buffer stockwould hit a critical level.

According to SRA data, production for the 2013/14 season is now forecast to be around 2.35m tonnes, down from earlier projections of 2.45m tonnes. This was in line with Bautista-Martin?s comments in November, when she told Reuters that between 50,000 tonnes and 100,000 tonnes of?raw sugar?were lost to Typhoon Haiyan.

The current season marks a slight decline from 2012/13, when?output?hit 2.46m tonnes, although it is still higher than the 2.24m tonnes recorded in 2011/12.

Looking abroad

While?exports?may be limited this year, the longer-term outlook indicates that sugar producers in the Philippines could soon be looking abroad for further expansion. Forecasts from theInternational Sugar?Organisation (ISO) show the gap between?supply and demand?is gradually narrowing, with the market in Asia set to soak up much of surplus production.

According to?ISO data?released in December, global consumption this crop year will reach 176.7m tonnes, compared to production of 181.5m tonnes. This surplus of 4.8m tonnes will be lower than that posted in the previous year, and the excess may be reduced further in 2014/15, the industry association said. The ISO has forecast that demand will continue to rise, particularly in Asia, where higher urbanisation is pushing up usage, while production will remain steady.

Roxas Holdings, one of the Philippines? largest sugar millers, has said it is hoping to capture a slice of the Asian?market, with Indonesia being the target of choice, followed by?Vietnam and Cambodia, respectively.

?ASEAN is growing,? Pedro E Roxas,?chairman?for Roxas?Holding, told a shareholders meeting on February 19. ?The upward potential of a growth in demand is there. In the medium to long term, demand will continue to grow and?prices?will be moving north.?

End of ASEAN tariffs could be a challenge

Though producers are looking to?Asian markets?as a source of expanded sales, there are concerns the domestic market could be hit hard when the ASEAN Economic Community comes into effect in 2015. In 2010 the Philippines signed an agreement promising to steadily reduce tariffs on sugar imports, from 38% in 2011 to 5% in 2015.

With the cost of production lower in certain neighbouring countries, the challenge for some local suppliers will be to remain competitive, both at home and abroad.

Draft legislation has been proposed that would require the government to create a sugar development fund and establish special economic zones for sugarcane cultivation, measures the industry?s supporters say will help it expand and keep ahead of the international competition. The Sugarcane Law calls for the government to allocate funds from a value-added tax levied on raw sugar to be used to develop the industry and sustain growth.

The SRA has warned that, without financial assistance from the government, the industry and the whole sugarcane value chain will shrink, leading to the displacement of workers and declining economic growth of major sugarcane-producing provinces.

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