The Sugar Regulatory Administration (SRA) said in a statement yesterday that sugar production for crop year 2009-2010 will reach only 1.97 million MT, against an initial estimate of 2.18 million MT, due to the drier-than-usual weather caused by the El Niño weather pattern in the Pacific.
The government said last January it would seek 150,000 MT of sugar, its first return to the global market since 2006, as it sought enough stocks to meet local demand and continue preferential exports of the sweetener to the United States.
"The initial volume of 150,000 MT imported may not be sufficient to tide the country over during the off-milling months, because El Niño canes [sic] are weak and low in sucrose, which discourages early milling," SRA said.
"Compounding the situation is the increase in consumption by around 23% than the previous crop year which adds pressure to sugar stocks," it added.
"There is, therefore, a need to augment the buffer supply during this lean, off-milling months."
The bulk of the extra sugar to be imported, which can be either raw or whites, is likely to be sourced from neighboring Thailand, the world's second biggest exporter behind Brazil, so it can arrive before Aug. 30, the end of the current crop year, Aida F. Ignacio, SRA deputy administrator, said yesterday. "We can meet the Aug. 30 deadline if the sugar comes from Thailand," Ms. Ignacio told Reuters.
The Philippines usually builds a buffer stock of at least 300,000 tons of the sweetener by the end of each crop year.
Traders said on Wednesday that the Philippines was buying Thai white sugar at record premiums of $120/MT over the London market for nearby shipment, showing domestic stocks may not be enough to meet demand.
But Ms. Ignacio said the country's stocks of both refined and raw sugar currently stand at 600,000 MT, equivalent to about four months of consumption. "According to our statistics, there is a comfortable supply of sugar at present. The additional importation is to ensure that local supply will last at the end of the year," she said.
The government would probably allocate the additional volume to accredited companies, with each importer limited to import up to 10,000 MT, instead of auctioning off the import rights, Ms. Ignacio said.
The Philippines consumes around 2 million tons of sugar annually. It expects to get the 150,000 tons sugar it purchased earlier this year by end-July, Ms. Ignacio said. The country also exports 136,000-137,000 MT of sugar to the United States under an annual quota, which was increased this year after other countries failed to fill their quota volume.
"We'll have an estimated buffer stock of 300,000-330,000 MT if the additional imports come in," said Ms. Ignacio, adding there may be no need for further imports with supply expected to improve when milling starts in October-November
For around twenty to thirty years, buffer stock scheme have been used by national governments or collectives of producers. The price of agricultural products like sugar tends to rise and fall more than the prices of manufactured products and services. The constant change in the prices is due to the volatility in the market supply of agricultural products along with the inelastic price of demand and supply this means that the market has an inability to quickly adjust supply or demand despite changes in market conditions. One way that the government tries and helps the unstable supply is to implement buffer stock schemes. Buffer stock schemes are used to provide stable prices in an entire economy or an individual market by using commodity storage. What this means is that governments will seek to buy up agricultural products when there is a good harvest and a surplus in supply and in return sell stocks when the supply of the product is low during a bad harvest. Since the Philippines consumes around a hundred and sixty seven thousand tonnes with a twenty three percent increase in consumption, it is vital that the government should sell their buffer stocks or try and import more from other countries like Thailand.
In paragraph 7 "The Philippines usually builds a buffer stock of at least 300,000 tons of the sweetener by the end of each crop year." If the producers can't harvest enough crops for the government to buy and store, in the event that there is a bad harvest, and there will be a surplus in demand, the government will need to release the nonexistent buffer stock. Therefore, by importing stock from Thailand, the Philippines would be able to meet the demands of its citizens. If the government establishes the optimal price, the intervention price at P2, which is the guaranteed minimum price, set by a government, for agricultural produce. If the price of the produce falls below the intervention price, the government or buffer stock agency buys the commodity at that price. This means that the government will have a store of sugar; so that when the price is too high, the government will release their store of sugar and drive the price down to the intervention price. Because the Philippines is suffering from a shortage of sugar, as mentioned before, the government will have to purchase buffer stock from another country. This allows the Philippines to stabilize prices for when the supply of the sugar gets too low. If the production of sugar is only at 1.97 million MT of sugar, the price of sugar will be at P1 which is above the intervention price, the government would want to bring the price back down to intervention price, therefore they must buy the stock from another country in order to get supply at S2 and therefore the price back down to the optimal level.
Theoretically, buffer stock schemes should be profit making due to the buying of the stocks of product when price is low and selling when the price is high. Conversely, buffer stock schemes tend to not work well when put into play. Some of the fall downs include the fact that these agricultural products cannot be stored for a long time because they are perishable goods. Another problem is that creating a buffer stock scheme needs a considerable amount of start up capital, due to the fact that money is needed to but up the product when prices are low. Other factors that impact the buffer stock schemes is that administrative and storage costs will be high. One more thing to consider when talking about buffer stock schemes is that in order for a buffer stock to succeed, the government needs to correctly estimate the average price of the product over a period of time. The estimation of the scheme's target price will determine the maximum and minimum price boundaries. Also, if the target price is too low, than the government will end up selling more than how much they have and they will run out of stock. However, the advantages that come from buffer stock schemes is that they allow sudden changes in demand for a product, there is less chance of loss of production due to stock outs and that there could be an advantage of bulk buying from the economies of scale.
