Bernardo M. Villegas
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Addressing the Sugar Crisis Long Term (Part 2)

             The fourth reason why the Philippine sugar industry has not caught up with countries like Thailand in farm productivity is the paradox that, as we are aspiring to join the whole world in having our own Industrial Revolution 4.0 (IR 4), we have not even completed the Industrial Revolution 1.0 that happened in England more than two centuries ago, when human labor was replaced by machines.  The industry still depends on too many workers in the farm (including the so-called sacadas) that rising labor costs are making farming operations unprofitable.  There are less and less young people who want to stay in the farms as they become more educated and opt to work in non-agricultural jobs, especially in services in the urban areas.  These alternative jobs are less strenuous and provide higher compensations.  To make matters worse, the average age of a Filipino farmer is now approaching 60 years.  This labor shortage could have been solved by increased mechanization but farm equipment and more advanced technology are beyond the reach of farmers who own ridiculously small farms which are not economically viable for the cultivation of sugar. As mentioned above, the ideal size of a sugar farm so that it can adopt more modern means of cultivation is 50 hectares.  As we will discuss below, this ideal size can be achieved—without taking away the ownership of land from the beneficiaries of agrarian reform—by what is known as “block farming.”

            Finally, the sugar industry suffered the same fate as many sectors of the Philippine economy that had long been managed by leaders with a protectionist, inward-looking and anti-market mindset.  As Dr. Adriano wrote in his column: “Too much government regulation and protection of the sector has the effect of shielding it from competition and inducing efficiency in its operation.  It was much easier to impose higher tariffs against imported sugar (50 % for in-quota MAV or minimum access volume of 64,050 metric tons per year, and 65 % in excess of the MAV) and strictly regulate entry of imports through issuances of import permits than doing our homework of making the sector efficient.  But their long-term result is the gradual decline and decay of the sector we are now witnessing.”  These words are perfectly applicable to so many other  sectors of the economy in agriculture, industry and services that never became globally competitive and that nurtured domestic monopolies or oligopolies because of overprotection, many times in the name of nationalism or the so-called Filipino First policy. Fortunately, the recent amendment of the Public Service Act, allowing 100% ownership by foreigners of telecom, transport and other public services, has dealt a significant blow against this mentality.  We can thank the Duterte Administration for this game changer.

            To make matters worse, because of the strong political clout of our sugar barons, they have gotten away with the highest tariff protection among agricultural products.  Under the World Trade Organization (WTO), we agreed on the 50-percent tariff quota for MAV and the 65-percent in excess of MAV for sugar imports.  These tariff rates are higher even than rice, a more important commodity for the population.  The tariff on rice is only 15% and for meat at around 40 %.  Another vital information provided by Dr. Adriano could eventually lead to the abolition of the Sugar Regulatory Authority by the Administration of President Marcos Jr.  Under the Association of Southeast Asian Nations (ASEAN), the bound rate is only 5%, meaning that sugar imports coming from ASEAN countries (like Thailand and Vietnam) will be imposed a 5-percent tariff duty.  Because of the tariffication of sugar, the requirement of securing import permit should no longer be necessary because it is violative of our trade agreements with the WTO and our ASEAN partners.  Curiously, no one seems to be challenging the current system of SRA issuing import licensing permits (the bone of contention in the current sugar import crisis) even if it is obviously a redundant system given sugar tariffication.  It seems that the sugar industry is still the “nino bonito” of agriculture since no import licensing permits are needed for rice, corn, pork, poultry and other liberalized agricultural products outside of the required sanitary and phytosanitary clearances when importing.  This first governance crisis under the newly installed Administration may be very providential:  it may lead to a total revamp if not abolition of the SRA.

            In fact, President Marcos Jr. may want to look into the possibility of abolishing both the SRA and the Department of Agrarian Reform (DAR) and transfer to the Department of Agriculture the task of sustaining what these two institutions started some years back to reconsolidate the small sugar farms that resulted from the Comprehensive Agrarian Reform Program that was unwisely applied to sugar, in contrast with the way the Taiwanese exempted sugar from the fragmentation process.  I am referring to the block farming that showed promise in increasing the productivity of sugar farming, especially in regions like Western Visayas and Central Luzon where sugar farming, with the appropriate economies of scale, can still be profitable.  In contrast, I see sugar farming as a dying industry in CALABARZON.  As a Batangueno, I see sugar planting as being replaced by higher-value food products like vegetables and fruits as well as livestock in Batangas because of the very high real estate prices that are now prevailing in this rapidly urbanizing part of CALABARZON.  In contrast, the greatest promise of improving the productivity of sugar farms is in Mindanao, especially Bukidnon, where the farms are still reasonably large enough to adopt the most advanced forms of mechanization and modern technology, very much following the examples of the banana and pineapple sectors that are globally competitive and contribute  the most to our agricultural exports. 

            In a report of the Peace & Equity Foundation, block farming was described as a variation of the nucleus estate model that worked very well for the Malaysians in the growing of palm oil.  Reference was made in the report to farmer Ernesto Obtinalla who registered his two-hectare sugar farm to block farming through Crossing Ibos Farmers Credit Cooperative  (CIFCC).  After a year, his production increased from fifty (50) tons per hectare to seventy-three (73) tons per hectare.  His tonnage increased by 56% and his net income by 93%.   CIFCC was just one of the cooperatives/ associations which joined the Diversified Sugarcane Block Farming Enterprise Program of Multi-Sectoral Alliance for Development—Negros (MUAD—Negros).  In sugarcane block farming, small sugar farmers enroll their two to three hectares of farmlands with their cooperatives/associations.  Once the total number of hectares reach the size in which economies of scale can be achieved (about 50 hectares), a “block farm” is formed.  Each block farm has twenty to twenty-five farmer participants.  They sign an agreement with their cooperative, giving it full authority to co-manage the farmer’s enrolled land for three years. 

            Participating farmers were paid wages but were also considered part-time owners of the enterprise, sharing in the enterprise’s risk and rewards.  They became agri-preneurs and were upskilled and reskilled to learn how to manage bigger farms.  The Peace and Equity Foundation (PEF) collaborated with the MUAD farmers’ organization members and provided production capital for the 55 hectares per farmer organization and offered incentives to the farmers with the highest tonnage of sugarcane.  PEF also funded the business development services given by MUAD.  PEF can serve as a role model for other Nongovernment Organizations (NGOs) or Social Enterprises that are devoted to uplifting the lot of small farmers.  The goal is to reconsolidate the farms that were fragmented by CARP to reach an ideal size in which mechanization and other more advanced methods of farming become economical, such as having the right plant population, the planting of high-yielding varieties, proper nutrient management and cultivation.  The larger hectarage being farmed makes it possible to obtain credit at lower rates of interest and to have access to heavy equipment like tractors for land preparation and dump trucks for hauling.  All these can be promoted by the Department of Agriculture in close partnership with private business enterprises and civil society.  The SRA and DAR would be superfluous organizations.  For comments, my email address is bernardo.villegas@uap.asia.