Required Report - public distribution

**Date:** 4/10/2006

**GAIN Report Number:** RP6012

RP6012

**Philippines**

**Sugar**

**Annual**

**2006**

**Approved by:**

![](media/image1.wmf)Jude Akhidenor

FAS Manila

**Prepared by:**

Pia Abuel-Ang

**Report Highlights:**

Sugar production in crop year 2005/06 is projected to drop to 2.02 MMT
from 2.15 MMT the previous year, mainly as a result of excessive
rainfall in many of the main sugar producing areas in the country.
Consumption of sugar in CY 2005/06 is expected to contract slightly due
to a slowdown in the economy and a sharp increase in sugar prices. As a
result of rising sugar prices, which is expected to continue into the
near future, output is projected to rebound to about 2.20 MMT in the
next crop year.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Manila \[RP1\]

\[RP\]

# Executive Summary

Sugar production in crop year 2005/06 is projected to drop to 2.02 MMT
from 2.24 MMT the previous year, mainly as a result of excessive
rainfall in many of the main sugar producing areas in the country.
Consumption of sugar in CY 2005/06 is seen to contract slightly due to
slowdown in the economy and a sharp increase in sugar prices. As a
result of rising sugar prices, which is expected to continue in the near
furture, output is projected to rebound to about 2.20 MMT in the next
crop year.

## Production

According to the Philippine Sugar Regulatory Administration (SRA), total
Philippine CY 2005/06 raw sugar output is projected to reach 2.02
million metric tons (MMT), lower than the 2.10 MMT projected by Post
last year mainly as a result of the lower sucrose content of the cane
caused by excessive rainfall in many of the main sugarcane producing
areas. Continuing labor problems in several large milling districts in
the main island of Luzon also contributed to the decline in production.
SRA forecasts production in CY 2006/07 to expand to 2.20 MMT due to
expected high prices for the next several years.

In CY 2004/05 year, the island of Negros continued to account for most
(57%) of the total sugar production in the country. Luzon produced 15
percent; Mindanao, 18 percent; Panay, 6 percent; and Eastern Visayas, 4
percent.

+----------------------------+---------------------+-------------------+
| **PRODUCTION PER MILL      |                     |                   |
| DISTRICT**                 |                     |                   |
|                            |                     |                   |
| **CY 2004/05**             |                     |                   |
+----------------------------+---------------------+-------------------+
| **Mill District**          | **MT**              | **Percent**       |
+----------------------------+---------------------+-------------------+
| Luzon                      | 322,954             | 15%               |
+----------------------------+---------------------+-------------------+
| Negros                     | 1,222,047           | 57%               |
+----------------------------+---------------------+-------------------+
| Panay                      | 133,787             | 6%                |
+----------------------------+---------------------+-------------------+
| Eastern Visayas            | 86,227              | 4%                |
+----------------------------+---------------------+-------------------+
| Mindanao                   | 385,731             | 18%               |
+----------------------------+---------------------+-------------------+
| Total                      | 2,150,746           | 100%              |
+----------------------------+---------------------+-------------------+

> Source: Sugar Regulatory Administration

Total area devoted to sugarcane production was 378,000 hectares in CY
2005/06 down from 391,000 hectares planted the previous crop year. The
decline in production area in 2005/06 is partly a result of the shift
from sugarcane to other fruit crops like bananas and pineapples,
particularly in Mindanao. However, there are reports that farmers in
some areas have begun to shift from corn back to sugarcane due to
favorable prices.

+--------------------------------+-----------------+------------------+
| # RAW SUGAR PROD               |                 |                  |
| UCTION BY MONTH, AREA PLANTED  |                 |                  |
|                                |                 |                  |
| **AND YIELD PER HECTARE (IN    |                 |                  |
| MT)**                          |                 |                  |
+--------------------------------+-----------------+------------------+
| MONTH                          | 2004/05         | 2005/06          |
+--------------------------------+-----------------+------------------+
| September                      | 9,845           | 21,086           |
+--------------------------------+-----------------+------------------+
| October                        | 150,605         | 134,511          |
+--------------------------------+-----------------+------------------+
| November                       | 237,766         | 198,103          |
+--------------------------------+-----------------+------------------+
| December                       | 299,717         | 303,295          |
+--------------------------------+-----------------+------------------+
| January                        | 397,931         | 396,110          |
+--------------------------------+-----------------+------------------+
| February                       | 369,699         | 359,139          |
+--------------------------------+-----------------+------------------+
| March                          | 309,321         | 173,492          |
+--------------------------------+-----------------+------------------+
| April                          | 268,751         | -                |
+--------------------------------+-----------------+------------------+
| May                            | 93,176          | -                |
+--------------------------------+-----------------+------------------+
| June                           | 10,927          | -                |
+--------------------------------+-----------------+------------------+
| July                           | -               | -                |
+--------------------------------+-----------------+------------------+
| August                         | 3,008           | -                |
+--------------------------------+-----------------+------------------+
| TOTAL PRODUCTION               | 2,150,746       | 1,585,736[^1]    |
+--------------------------------+-----------------+------------------+
| TOTAL AREA PLANTED             | 391,712         | 378,000          |
+--------------------------------+-----------------+------------------+
| YIELD/HECTARE                  | 109.81          | \-               |
+--------------------------------+-----------------+------------------+

Source: Sugar Regulatory Administration

Total domestic sugar production comes primarily from four major sugar
planter federations and three major miller associations. Producers who
belong to these organized federations account for 90 percent of total
domestic sugar production. Planters and millers not affiliated with the
major federations produce the remaining 10 percent.

According to industry sources, each metric ton of sugarcane is estimated
at P1,700. For CY 2004/05, average millsite price of raw sugar per 50-kg
bag was P866.58 for \"A\" sugar, P809.67 for \"B\". Wholesale and retail
prices of raw and refined sugar in Metro Manila follow:

+-------------+---------------+----------+---------------+----------+
| **RAW AND   |               |          |               |          |
| REFINED     |               |          |               |          |
| SUGAR       |               |          |               |          |
| PRICES,     |               |          |               |          |
| Crop Year   |               |          |               |          |
| 2004-06**   |               |          |               |          |
+-------------+---------------+----------+---------------+----------+
| #           | **Raw Sugar** |          | **Refined     |          |
|  CY 2004/05 |               |          | Sugar**       |          |
+-------------+---------------+----------+---------------+----------+
|             | Wholesale     | Retail   | Wholesale     | Retail   |
|             | Price         | Price    | Price         | Price    |
|             |               |          |               |          |
|             | (             | (Pesos/  | (Pesos/per    | (Pesos/  |
|             | Pesos[^2]/per |          |               |          |
|             |               | per Kg.) | 50 Kg. Bag)   | per Kg.) |
|             | 50 Kg. Bag)   |          |               |          |
+-------------+---------------+----------+---------------+----------+
| September   | 832.00        | 22.03    | 1,153.65      | 26.54    |
+-------------+---------------+----------+---------------+----------+
| October     | 846.49        | 22.01    | 1,156.47      | 26.50    |
+-------------+---------------+----------+---------------+----------+
| November    | 814.79        | 22.04    | 1,168.92      | 26.58    |
+-------------+---------------+----------+---------------+----------+
| December    | 802.00        | 22.12    | 1,182.33      | 26.83    |
+-------------+---------------+----------+---------------+----------+
| January     | 810.43        | 21.77    | 1,197.93      | 26.73    |
+-------------+---------------+----------+---------------+----------+
| February    | 856.93        | 22.06    | 1,228.03      | 26.64    |
+-------------+---------------+----------+---------------+----------+
| March       | 894.58        | 22.16    | 1,296.19      | 26.98    |
+-------------+---------------+----------+---------------+----------+
| April       | 913.72        | 23.14    | 1,314.47      | 29.09    |
+-------------+---------------+----------+---------------+----------+
| May         | 967.57        | 23.30    | 1,324.26      | 29.27    |
+-------------+---------------+----------+---------------+----------+
| June        | 996.67        | 23.03    | 1,355.42      | 29.17    |
+-------------+---------------+----------+---------------+----------+
| July        | 1,030.42      | 23.87    | 1,387.62      | 30.25    |
+-------------+---------------+----------+---------------+----------+
| August      | 1,001.14      | 23.88    | 1,343.86      | 30.64    |
+-------------+---------------+----------+---------------+----------+
| *Average*   | 897.23        | 22.62    | 1259.10       | 27.94    |
+-------------+---------------+----------+---------------+----------+
| #           |               |          |               |          |
|  CY 2005/06 |               |          |               |          |
+-------------+---------------+----------+---------------+----------+
| September   | 999.11        | 24.01    | 1,380.95      | 30.63    |
+-------------+---------------+----------+---------------+----------+
| October     | 1,056.43      | 24.18    | 1,406.74      | 30.63    |
+-------------+---------------+----------+---------------+----------+
| November    | 1,021.00      |   24.77  |  1,386.30     |   31.26  |
+-------------+---------------+----------+---------------+----------+
| December    | 1,060.39      |   25.02  |  1,438.72     |   31.38  |
+-------------+---------------+----------+---------------+----------+
| January     | 1,298.88      |   27.18  |  1,743.47     |   34.49  |
+-------------+---------------+----------+---------------+----------+
| February    |  1,354.86     |  31.97   |  1,817.14     | 39.51    |
+-------------+---------------+----------+---------------+----------+
| March       |  1,366.26     | 31.86    |  1,708.99     |  39.30   |
+-------------+---------------+----------+---------------+----------+

Source: Sugar Regulatory Administration

The wholesale price of raw sugar has been steadily increasing and
reached P1,366/50-kg bag in March 2006 from P894.58/50-kg bag the
previous year. While the decline in total production may have
contributed in part to high sugar prices, rising world sugar prices, the
increase in U.S. sugar quota as well increased fertilizer and other
input costs also added upward pressure to local prices. Moreover,
speculative action of some sugar traders is also suspected to have
further contributed to the rise in prices.

# 

# Consumption 

The GRP recently announced that GDP grew 5.1 percent in 2005, slower
than it's projected target of 5.3 to 6.3 percent. The slower growth has
been attributed to weaker farm output and slow export demand. Philippine
GNP, however, rose by 5.7 percent last year, buoyed by remittances from
overseas workers, although still lower than the 6.2 percent GNP growth
in 2004. Surprisingly, the significant increase in overseas remittances
(which have fueled personal consumption in recent years) did not boost
personal consumption to expected levels. The weak growth in consumption
spending has been attributed by many analysts to the prevailing
political uncertainty in the country. Average inflation was in the 7.7
to 7.9 percent range in 2005, and is projected at 8.0 to 8.5 percent
this year. This year's GDP growth target is between 5.7 to 6.3 percent,
lower than the previous GRP estimate of 6.3 to 7.3 percent. Some private
analysts, however, predict a flat 2006 Philippine GDP growth rate
compared to the previous year's level. Rising consumer and oil prices,
as well as the imposition of new and additional taxes, are expected to
produce shifts in the food consumption pattern of the average Filipino.

Sugar consumption for CY 2005/06 is projected to drop slightly to 1.95
MMT from 2.0 MMT the previous year. The projected slowdown in the
economy and low purchasing power of Filipinos contributed to this weak
demand for sugar and sugar containing products. According to industry
sources, the growing use of an artificial sweetener-sucrose blend by
some domestic beverage companies in their soft drinks may also be
contributing to the sluggish industrial demand for sugar.

The growing availability of low-priced imported food and beverage
products in the market may also be affecting industrial demand for
sugar. Industry sources suspect that although total demand for sugar has
been stagnant, total per capita consumption of sugar and
sugar-containing products may have in fact increased (see Marketing
Section).

According to a study by the University of Asia and the Pacific, the
users of sugar are local consumers and the export market. Local
consumers consist of household users, which account for 57 percent of
domestic consumption; industrial users, 39 percent; and institutions
(e.g., restaurants, bakeshops, hospital etc.), 4.6 percent. The export
market is mainly the United States, which pays a premium price (i.e.,
higher than the world market price).

The SRA believes that a pending bill in Congress mandating the use of
ethanol in the production of automobile fuel, given the current high
world price of oil, will stimulate the Philippine sugar industry. In
fact, rising domestic and world prices for molasses, a raw material in
ethanol production, is an indication of the growing demand for ethanol
and bio-based fuels (See Policy Section).

+---------------------------+------------------------------------------+
| # MOLASSES                |                                          |
| PRICES, Crop Year 2004-06 |                                          |
+---------------------------+------------------------------------------+
| # CY 2004/05              | **Average Price (Pesos/MT)**             |
+---------------------------+------------------------------------------+
| September                 | 2,719.66                                 |
+---------------------------+------------------------------------------+
| October                   | 2,777.25                                 |
+---------------------------+------------------------------------------+
| November                  | 2,592.13                                 |
+---------------------------+------------------------------------------+
| December                  | 2,988.68                                 |
+---------------------------+------------------------------------------+
| January                   | 3,127.67                                 |
+---------------------------+------------------------------------------+
| February                  | 3,898.79                                 |
+---------------------------+------------------------------------------+
| March                     | 4,063.64                                 |
+---------------------------+------------------------------------------+
| April                     | 4,346.00                                 |
+---------------------------+------------------------------------------+
| May                       | 4,475.14                                 |
+---------------------------+------------------------------------------+
| June                      | 4,470.17                                 |
+---------------------------+------------------------------------------+
| July                      | 4,206.71                                 |
+---------------------------+------------------------------------------+
| August                    | 4,367.66                                 |
+---------------------------+------------------------------------------+
| *Average*                 | 3,669.46                                 |
+---------------------------+------------------------------------------+
| **CY 2005/06**            |                                          |
+---------------------------+------------------------------------------+
| September                 | 4,682.52                                 |
+---------------------------+------------------------------------------+
| October                   | 4,865.90                                 |
+---------------------------+------------------------------------------+
| November                  | 4,724.73                                 |
+---------------------------+------------------------------------------+
| December                  | 4,638.95                                 |
+---------------------------+------------------------------------------+
| January                   | 4,998.46                                 |
+---------------------------+------------------------------------------+
| February                  | 5,372.17                                 |
+---------------------------+------------------------------------------+

Source: Sugar Regulatory Administration

# Marketing

The marketing system in the Philippine sugar industry is already well
established. It starts with the delivery of the cane to the mill where,
under the present sharing system, the sugarcane planter agrees to
allocate a percentage of the output of his sugar to the mill in payment
for the processing of the cane.

As soon as the sugar is processed, the planter is issued a warehouse
receipt, called a *quedan,* by the mill representing his share of the
sugar. After milling, the sugar is stored in the mill warehouse and the
warehouse receipt attests to the physical presence of the sugar in the
facility. Because it is a negotiable instrument, the bearer may withdraw
the stocks at any time. There are five different types of *quedans*:

> "A" Sugar allocated for the US market in compliance with US quota
>
> requirements;
>
> "B" Sugar for the domestic market;
>
> "B-1" Sugar for Food Processors/Exporters;
>
> "C" Sugar classified as reserve, which may subsequently be converted
> to either
>
> A or B as the need arises;
>
> "D" Sugar allocated for the world market

(Source: Action Plan for the Philippine Sugar Industry 2000, Philippine
Department of Agriculture)

SRA determines the proportion of sugar that is designated for different
types of *quedan*. With the present volumes of production, only A & B
*quedans* are assigned to producers. The "A" sugar is based on the
percentage of production determined by SRA from the volume of the quota
allocated to the Philippines by the U.S. government and the estimated
volume of production for the crop year. This is less than 10 percent of
total domestic output. The rest of the output is subsequently classified
as B sugar.

There is a thriving secondary market in the trade for *quedans.* Upon
receipt of their *quedans*, planters usually sell them immediately to
local traders who in turn sell them to larger traders. The major traders
accumulate the *quedans* and subsequently sell them in volume to either
wholesalers, distributors, or processors. The processors use the sugar
as input for processing while the wholesalers and distributors sell
their sugar to major retailers. From the retailers, the sugar eventually
reaches consumers through supermarkets, wet markets and sari-sari stores
(mom-and-pop stores).

**NEW CONFECTIONERY PRODUCTS:** According to Euromonitor, overall
confectionery product sales in 2005 showed steady volume growth of
almost 3 percent. Confectionery product lines in the Philippines in 2005
were dominated by new products from other Asian countries, namely China,
Malaysia and Thailand. Most of these products are relatively cheap
because of their poor quality and close expiration dates due to
transport delays and long-period stocking. Although most of these
products are not likely to remain in the Philippines for long, a few of
them have already managed to carve a niche for themselves already.

The emergence of new confectionery products does not necessarily lead to
an increase in mass consumption. Although sales of confectionery have
been growing because of these new products, they have not been growing
as fast as expected. This is mainly due to the economic strain faced by
majority of Filipino consumers, which has led to the prioritizing of
their spending on necessary food items, such as bread, rice, noodles,
and other daily essential items. Volume growth in 2005 improved somewhat
as cheaper products became more widely available at low-priced outlets.

**NEW ETHANOL PLANTS:** According to media reports, Bronzeoak
Philippines will begin construction of the Philippines' second ethanol
plant by June 2006 in Bukidnon. The plant at an estimated cost of P1.5
billion is expected to have a production capacity of 150,000 liters a
day. The plant will need to tap 8,000 hectares of sugarcane plantation
to sustain its production with majority of the sugar-cane requirement to
be sourced from the towns of Dancagan, Kitaotao, Kadingilan and Damulog.

The Bukidnon's facility will be the second ethanol plant of Bronzeoak in
the Philippines. It will have a majority stake in the 100,000-liter
daily plant in Negros Occidental to be operated by the San Carlos
Biotechnology Corp. San Carlos is a joint venture of Bronzeoak and the
National Development Corp. Unlike the first plant, the Bukidnon plant
will not be a cogeneration plant and will not produce its own
electricity need. With 1,500 tons of sugar cane per day, this plant is
expected to be able to produce 25 million liters of bio-ethanol fuel
yearly capable of generating nine megawatts of power.

# Trade

In response to a continuing tight sugar market largely as a result of
disastrous weather condition in the United States, the raw cane sugar
TRQ allocation for the Philippines was increased twice from initial
quota of 156,975 MTRV to 224,012 MTRV. The GRP has repeatedly expressed
its desire to fill the U.S. TRQ for 2006, although some industry sources
have reservation about the country's capacity to ship the entire volume.
Other than to the United States, the Philippines will not be exporting
sugar to any other countries this year.

In CY 2005/06, the Philippine SRA will allow sugar exporters to import
50,000 MT of refined sugar duty-free starting in June 2006. The
importation of refined sugar will be coursed through the Philippine
International Trading Corporation (PITC). According to the SRA, the
refined sugar imports would be used as an incentive for exporters to
fill the U.S. quota for raw sugar. The SRA will base each exporter's
import allocation on their historical share in the U.S. quota export
program. However, the current high price of imported sugar may limit the
effectiveness of the program to bring down the domestic sugar prices.
The landed cost of imported refined sugar at \$428/ton, which translates
to around P1,530/50-kg bag, only slightly below the current wholesale
price of P1,600/50-kg bag.

No imports are forecast for CY 2006/07 due to a projected increase in
sugar production for next year as well as a return of U.S. sugar TRQ
volume to the usual level. In the WTO, the Philippines committed to a
final 10-year Minimum Access Volume (MAV) of 64,050 MT of raw sugar,
with a tariff rate of up to 50 percent. All importation in excess of the
MAV is subject to a tariff rate of 65 percent. Tariff rates for 2006
follow:

+------+---------+------------------------------------------+---+----+
| **H  | **      | # DESCRIPTION                            | * |    |
| EADI | ASEAN** |                                          | * |    |
| NG** |         |                                          | 2 |    |
|      | **HARMO |                                          | 0 |    |
|      | NIZED** |                                          | 0 |    |
|      |         |                                          | 6 |    |
|      | *       |                                          | * |    |
|      | *TARIFF |                                          | * |    |
|      | CODE**  |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      |         |                                          | * | *  |
|      |         |                                          | * | *C |
|      |         |                                          | M | E  |
|      |         |                                          | F | P  |
|      |         |                                          | N | T  |
|      |         |                                          | * | ** |
|      |         |                                          | * | [^ |
|      |         |                                          |   | 3] |
+------+---------+------------------------------------------+---+----+
| 1    |         | Cane or beet sugar and chemically pure   |   |    |
| 7.01 |         | sucrose, in solid form                   |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \- Raw sugar not containing added        |   |    |
|      |         | flavoring or coloring matter             |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1701.11 | \-- Cane sugar                           |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- In-quota                           | 5 | 38 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- Out-of-quota                       | 6 | 38 |
|      |         |                                          | 5 |    |
+------+---------+------------------------------------------+---+----+
|      | 1701.12 | \-- Beet sugar                           |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- In-quota                           | 5 | 38 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- Out-of-quota                       | 5 | 38 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \- Other:                                |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1701.91 | \--Containing added flavoring or         |   |    |
|      |         | coloring matter:                         |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- In-quota                           | 5 | 5  |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- Out-of-quota                       | 5 | 5  |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- Other, In-quota                    | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- Other, Out-of-quota                | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      | 1701.99 | \-- Other:                               |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- Refined sugar                      |   |    |
+------+---------+------------------------------------------+---+----+
|      | 170     | \-\-\-- White                            |   |    |
|      | 1.99.11 |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-- In-quota                         | 5 | 38 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Out-of-quota                   | 6 | 38 |
|      |         |                                          | 5 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Other, In-quota                | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Other, Out-of-quota            | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      | 170     | \-\-\-- Other                            |   |    |
|      | 1.99.19 |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- In-quota                       | 5 | 38 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Out-of-quota                   | 6 | 38 |
|      |         |                                          | 5 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Other, In-quota                | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Other, Out-of-quota            | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      | 170     | \-\-\-- Other                            |   |    |
|      | 1.99.90 |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- In-quota                       | 5 | 38 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Out-of-quota                   | 6 | 38 |
|      |         |                                          | 5 |    |
+------+---------+------------------------------------------+---+----+
| 1    |         | Other sugars, including chemically pure  |   |    |
| 7.02 |         | lactose, maltose,                        |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | glucose and fructose in solid form;      |   |    |
|      |         | sugar syrups not                         |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | containing added flavoring or coloring   |   |    |
|      |         | matter; artificial                       |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | honey, whether or not mixed with natural |   |    |
|      |         | honey; caramel                           |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \- Lactose and lactose syrup:            |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1702.11 | \-- Containing by weight 99% or more     | 1 | 0  |
|      | 00      | lactose, expressed as                    |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | anhydrous lactose, calculated on the dry |   |    |
|      |         | matter                                   |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1702.19 | \-- Other                                | 3 | 0  |
|      | 00      |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1702.20 | \- Maple sugar and maple syrup           | 7 | 0  |
|      | 00      |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1702.30 | \- Glucose and glucose syrup, not        | 3 | 0  |
|      | 00      | containing fructose or                   |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | Containing in the dry state less than    |   |    |
|      |         | 20% by weight of fructose                |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1702.40 | \- Glucose or glucose syrup, containing  | 3 | 0  |
|      | 00      | in the dry state at least                |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | 20% but less than 50% by weight of       |   |    |
|      |         | fructose, excluding invert               |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | Sugar                                    |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1702.50 | \- Chemically pure fructose              | 3 | 0  |
|      | 00      |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1702.60 | \- Other fructose and fructose syrup,    | 7 | 3  |
|      | 00      | containing in the dry state              |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | more than 50% by weight of fructose,     |   |    |
|      |         | excluding invert sugar                   |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1702.90 | \- Other, including invert sugar and     | 3 | 0  |
|      | 00      | other sugar and sugar syrup              |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | blends containing in the dry state 50%   |   |    |
|      |         | by weight of fructose                    |   |    |
+------+---------+------------------------------------------+---+----+
| 1    |         | Molasses resulting from the extraction   |   |    |
| 7.03 |         | of refining sugar                        |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1703.10 | \- Cane molasses                         | 1 | 3  |
|      | 00      |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      | 1703.90 | \- Other                                 | 7 | 3  |
|      | 00      |                                          |   |    |
+------+---------+------------------------------------------+---+----+
| 1    |         | Sugar confectionery (including white     |   |    |
| 7.04 |         | chocolate), not                          |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | containing cocoa                         |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1704.10 | \- Chewing gum, whether or not           | 1 | 5  |
|      | 00      | sugar-coated                             | 5 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \- Other:                                |   |    |
+------+---------+------------------------------------------+---+----+
|      | 1704.90 | \-\-- White Chocolate                    | 1 | 5  |
|      | 10      |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      | 1704.90 | \-\-- Other                              | 1 | 5  |
|      | 90      |                                          | 5 |    |
+------+---------+------------------------------------------+---+----+

# 

Source: Philippine Tariff & Customs Code, 2004

Executive Order No. 484 (2005) for AFTA-CEPT Tariff Rates

# Policy

**ENVIRONMENTAL POLICIES:** According to SRA, the local sugar-milling
sector is likely to experience further consolidation in the wake of
tougher environmental laws (i.e., Clean Air Act) being enforced. More
consolidations in the sugar milling business are expected to take place.
The uncompetitive ones are likely to fold-up, especially those who do
not have enough resources to comply with the new laws.

The new environmental laws require huge investments by sugar millers. An
average mill will require a minimum investment of about P1 billion to
replace smokestacks and boilers with new equipment that are considered
more environmental-friendly and meets the new acceptable air
particulates emissions and water effluents. According to industry
players, consolidation is inevitable.

The sugar-milling sector has gone through major consolidations in the
last 20 years, and more are likely to follow. The industry contracted
over the years, from 43 sugar mills in 1984 to just 29 sugar mills
today, as a result of sharp fluctuations in global prices of sugar.

**NFA:** In March 2006, the SRA began issuing a separate classification
of B2 sugar production at 0.5 percent of weekly production or a total of
100,000 50-kg bags for National Food Authority's (NFA) procurement, in
an effort to provide lower priced sugar to the market. NFA will buy the
sugar at a fixed price of P950/bag. NFA will sell the refined sugar
through its rolling store at a price below retail price of P30/kg. The
peak of production is in March/April, and inventory will reach a high of
more than 600,000 MT from an average of 458,359 MT.

**ETHANOL BILL PASSED:** In November 2005, the House of Representatives'
Committee on Energy approved a bill that encourages production and
distribution of bio-ethanol. House Bill 4629 proposes blending of
commercial motor fuels with 5 percent ethanol within two years after the
passage of the law and increasing the ethanol proportion to 10 percent
by the fourth year. The proposed law will also give incentives such as a
duty of 1 percent on all imported materials, machinery, and equipment
for ethanol production and a tax rate of not more than prevailing rate
for unleaded gasoline. Investors will enjoy these for 10 years from the
enactment of the proposed law. A similar bill is still pending in the
Senate Committee on Energy.

According to a study on the use of bio-ethanol as an alternative fuel,
the Philippines is far from being self-sufficient in indigenous energy
resources. According to the study, the country's demand for imported
petroleum products is large at 106.5 million barrels fuel oil equivalent
(MBFOE) or 39 percent of the total primary energy supply mix. This
volume translates to around US\$3.8 billion of currency outflow
annually.

The study further indicates there are domestic sources of renewable
energy such as substrate crops (i.e., sugar, cassava, corn, sweet
sorghum) for the production of ethanol. The study cites that among these
crops sugar is the most versatile because it offers a number of
substrates for ethanol production.

+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| **ES   |        |        |        |     |     |     |     |     |
| TIMATE |        |        |        |     |     |     |     |     |
| OF     |        |        |        |     |     |     |     |     |
| E      |        |        |        |     |     |     |     |     |
| THANOL |        |        |        |     |     |     |     |     |
| REQUI  |        |        |        |     |     |     |     |     |
| REMENT |        |        |        |     |     |     |     |     |
| BASED  |        |        |        |     |     |     |     |     |
| ON     |        |        |        |     |     |     |     |     |
| PR     |        |        |        |     |     |     |     |     |
| OPOSED |        |        |        |     |     |     |     |     |
| MAN    |        |        |        |     |     |     |     |     |
| DATORY |        |        |        |     |     |     |     |     |
| B      |        |        |        |     |     |     |     |     |
| LEND** |        |        |        |     |     |     |     |     |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| **Crop | **Pro  |        |        | *   |     | *   |     | **T |
| Year** | jected |        |        | *93 |     | *95 |     | ota |
|        | Na     |        |        | RO  |     | RO  |     | l** |
|        | tional |        |        | N** |     | N** |     |     |
|        | Ga     |        |        |     |     |     |     |     |
|        | soline |        |        |     |     |     |     |     |
|        | De     |        |        |     |     |     |     |     |
|        | mand** |        |        |     |     |     |     |     |
|        |        |        |        |     |     |     |     |     |
|        | **(M   |        |        |     |     |     |     |     |
|        | Lite   |        |        |     |     |     |     |     |
|        | r)\*** |        |        |     |     |     |     |     |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
|        | **9    | **9    | **T    | **5 | *   | **5 | *   |     |
|        | 3RON** | 5RON** | otal** | %** | *10 | %** | *10 |     |
|        |        |        |        |     | %** |     | %** |     |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 200    | 1,     | 1,     | 3,     | 67. |     | 92  |     | 160 |
| 7-2008 | 359.50 | 853.86 | 213.36 | 975 |     | .69 |     | .67 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 200    | 1,     | 1,     | 3,     | 71. |     | 97  |     | 169 |
| 8-2009 | 431.91 | 952.60 | 384.51 | 595 |     | .63 |     | .23 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 200    | 1,     | 2,     | 3.     | 77. |     | 102 |     | 180 |
| 9-2010 | 552.06 | 054.20 | 606.26 | 603 |     | .71 |     | .31 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 201    | 1,     | 2,     | 3,     |     | 163 |     | 216 | 379 |
| 0-2011 | 633.15 | 161.53 | 794.68 |     | .32 |     | .15 | .47 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 201    | 1,     | 2,     | 4.     |     | 176 |     | 227 | 403 |
| 1-2012 | 766.89 | 271.71 | 038.60 |     | .69 |     | .17 | .86 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 201    | 1,     | 2,     | 4,     |     | 185 |     | 238 | 424 |
| 2-2013 | 855.37 | 385.48 | 240.85 |     | .54 |     | .55 | .08 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 201    | 2,     | 2,     | 4,     |     | 200 |     | 250 | 450 |
| 3-2014 | 002.83 | 503.53 | 506.36 |     | .28 |     | .35 | .64 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 201    | 2,     | 2,     | 4,     |     | 210 |     | 262 | 472 |
| 4-2015 | 101.28 | 626.60 | 727.88 |     | .13 |     | .66 | .79 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 201    | 2,     | 2,     | 5,     |     | 226 |     | 275 | 502 |
| 5-2016 | 267.63 | 757.93 | 025.56 |     | .76 |     | .79 | .56 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| 201    | 2,     | 2,     | 5,     |     | 238 |     | 289 | 527 |
| 6-2017 | 380.67 | 895.41 | 276.08 |     | .07 |     | .54 | .61 |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+
| \*     |        |        |        |     |     |     |     |     |
| From   |        |        |        |     |     |     |     |     |
| Phil   |        |        |        |     |     |     |     |     |
| ippine |        |        |        |     |     |     |     |     |
| Energy |        |        |        |     |     |     |     |     |
| Plan   |        |        |        |     |     |     |     |     |
| (PEP); |        |        |        |     |     |     |     |     |
| Distri |        |        |        |     |     |     |     |     |
| bution |        |        |        |     |     |     |     |     |
| is     |        |        |        |     |     |     |     |     |
| based  |        |        |        |     |     |     |     |     |
| on     |        |        |        |     |     |     |     |     |
| 26%,   |        |        |        |     |     |     |     |     |
| 29% &  |        |        |        |     |     |     |     |     |
| 45%    |        |        |        |     |     |     |     |     |
| distri |        |        |        |     |     |     |     |     |
| bution |        |        |        |     |     |     |     |     |
| of     |        |        |        |     |     |     |     |     |
| 81RON, |        |        |        |     |     |     |     |     |
| 93RON  |        |        |        |     |     |     |     |     |
| and    |        |        |        |     |     |     |     |     |
| 95RON. |        |        |        |     |     |     |     |     |
+--------+--------+--------+--------+-----+-----+-----+-----+-----+

Source: Philippine Ethanol Alliance Study On the Use of Bio-ethanol As
An Alternative Fuel

It also notes that beginning 2007, the sugar industry will have some
surplus cane production, as a result of recent developments in the sugar
sector, such as increasing use of high yielding varieties (HYV)
developed by the SRA and PHILSURIN, as well as improvements in cane
growing technologies and the modernization of sugar mills. The surplus
is expected to increase to a volume of 11.4 M MT by 2017.

+------+----------------+---------+------+-------------+------------+
| **S  |                |         |      |             |            |
| ugar |                |         |      |             |            |
| cane |                |         |      |             |            |
| Pr   |                |         |      |             |            |
| oduc |                |         |      |             |            |
| tion |                |         |      |             |            |
| and  |                |         |      |             |            |
| Area |                |         |      |             |            |
| Req  |                |         |      |             |            |
| uire |                |         |      |             |            |
| ment |                |         |      |             |            |
| due  |                |         |      |             |            |
| to   |                |         |      |             |            |
| Fuel |                |         |      |             |            |
| E    |                |         |      |             |            |
| than |                |         |      |             |            |
| ol** |                |         |      |             |            |
+------+----------------+---------+------+-------------+------------+
| *    | ** **          | ######  |      |             | **         |
| * ** |                |  Equiva |      |             | Equivalent |
|      |                | lent Su |      |             | Area       |
|      |                | garcane |      |             | Needed /   |
|      |                |         |      |             | (Surplus)  |
|      |                |         |      |             | for EtOH   |
|      |                |         |      |             | Production |
|      |                |         |      |             | (Ha)**     |
+------+----------------+---------+------+-------------+------------+
| **   | **Estimated    | **Requ  | **   | **Cane      |            |
| Crop | Volume of Fuel | irement | Cane | Surplus /   |            |
| Ye   | Ethanol        | for     | Sur  | (Deficit)   |            |
| ar** | Requirement (M | Ethanol | plus | Due to Fuel |            |
|      | liters)**      | (M      | (M   | Ethanol**   |            |
|      |                | MT)**   | M    |             |            |
|      |                |         | T)** | **(M MT)**  |            |
+------+----------------+---------+------+-------------+------------+
| 200  | 160.67         | 2.263   | 0    | (1.431)     | 21,227.50  |
| 7-08 |                |         | .832 |             |            |
+------+----------------+---------+------+-------------+------------+
| 200  | 169.23         | 2.383   | 2    | 0.225       | (3,236.26) |
| 8-09 |                |         | .608 |             |            |
+------+----------------+---------+------+-------------+------------+
| 200  | 180.31         | 2.540   | 3    | 1.410       | (          |
| 9-10 |                |         | .950 |             | 19,751.44) |
+------+----------------+---------+------+-------------+------------+
| 201  | 379.47         | 5.345   | 5    | 0.203       | (2,767.11) |
| 0-11 |                |         | .548 |             |            |
+------+----------------+---------+------+-------------+------------+
| 201  | 403.86         | 5.688   | 6    | 0.818       | (          |
| 1-12 |                |         | .506 |             | 10,804.55) |
+------+----------------+---------+------+-------------+------------+
| 201  | 424.08         | 5.973   | 7    | 1.499       | (          |
| 2-13 |                |         | .472 |             | 19,238.36) |
+------+----------------+---------+------+-------------+------------+
| 201  | 450.64         | 6.347   | 8    | 2.097       | (          |
| 3-14 |                |         | .444 |             | 26,144.47) |
+------+----------------+---------+------+-------------+------------+
| 201  | 472.79         | 6.659   | 9    | 2.762       | (          |
| 4-15 |                |         | .421 |             | 33,522.02) |
+------+----------------+---------+------+-------------+------------+
| 201  | 502.56         | 7.078   | 10   | 3.325       | (          |
| 5-16 |                |         | .403 |             | 39,251.14) |
+------+----------------+---------+------+-------------+------------+
| 201  | 527.61         | 7.431   | 11   | 3.956       | (          |
| 6-17 |                |         | .387 |             | 45,438.78) |
+------+----------------+---------+------+-------------+------------+

Source: Philippine Ethanol Alliance Study on the Use of Bio-Ethanol As
An Alternative Fuel

Moreover, the domestic industry anticipates a significant surplus of
sugarcane should the U.S. sugar quota program end in 2010. This surplus
is expected to increase annually by 700,000 metric tons, if the
projected increase in production is sustained. The study therefore
concludes that the production of ethanol for motor fuel will require a
maximum of additional 21,300 hectares of sugarcane plantation in the
first year of the program.

If passed into law, the national bio-ethanol program will require the
annual production of some 500 million liters of bio-ethanol. To achieve
this the country will need at least 20 plants to produce the fuel all
over the country. Each plant will require an investment of about P1.5
billion (\$30 million) to produce an estimated 20 million liters.

  --------------------- ----------------- ---------- ---------- --------- ---------- ---------
  **PSD Table**                                                                      

  **Country**           **Philippines**                                              

  **Commodity**         **Sugar,                                          (1000 MT)  
                        Centrifugal**                                                

                        Revised           20 05      Estimate   2006      Forecast   2007

                        Old               New        Old        New       Old        \[New

  **Market Year Begin**                   09/2004               09/2005              09/2006

  Beginning Stocks      405               405        239        239       173        135

  Beet Sugar Production 0                 0          0          0         0          0

  Cane Sugar Production 2150              2150       2100       2020      0          2200

  TOTAL Sugar           2150              2150       2100       2020      0          2200
  Production                                                                         

  Raw Imports           0                 0          0          0         0          0

  Refined Imp.(Raw Val) 0                 0          0          50        0          0

  TOTAL Imports         0                 0          0          50        0          0

  TOTAL SUPPLY          2555              2555       2339       2309      173        2335

  Raw Exports           306               306        156        224       0          156

  Refined Exp.(Raw Val) 0                 0          0          0         0          0

  TOTAL EXPORTS         306               306        156        224       0          156

  Human Dom.            2010              2010       2010       1950      0          2000
  Consumption                                                                        

  Other Disappearance   0                 0          0          0         0          0

  Total Disappearance   2010              2010       2010       1950      0          2000

  Ending Stocks         239               239        173        135       0          179

  TOTAL DISTRIBUTION    2555              2555       2339       2309      0          2335
  --------------------- ----------------- ---------- ---------- --------- ---------- ---------

+----------------+---------+---------+----------+-----+-------+------+
| **PSD Table**  |         |         |          |     |       |      |
+----------------+---------+---------+----------+-----+-------+------+
| **Country**    | *       |         |          |     |       |      |
|                | *Philip |         |          |     |       |      |
|                | pines** |         |          |     |       |      |
+----------------+---------+---------+----------+-----+-------+------+
| **Commodity**  | **Sugar |         |          |     | (1000 |      |
|                | Cane    |         |          |     | HA)   |      |
|                | for     |         |          |     |       |      |
|                | Centri  |         |          |     | (1000 |      |
|                | fugal** |         |          |     | MT)   |      |
+----------------+---------+---------+----------+-----+-------+------+
|                | Revised | 20 05   | Estimate | 2   | 2007  | Fore |
|                |         |         |          | 006 |       | cast |
+----------------+---------+---------+----------+-----+-------+------+
|                | Old     | New     | Old      | New | Old   | New  |
+----------------+---------+---------+----------+-----+-------+------+
| **Market Year  |         | 09/2004 |          | 0   |       | 09/  |
| Begin**        |         |         |          | 9/2 |       | 2006 |
|                |         |         |          | 005 |       |      |
+----------------+---------+---------+----------+-----+-------+------+
| Area Planted   | 380     | 380     | 370      | 370 | 0     | 380  |
+----------------+---------+---------+----------+-----+-------+------+
| Area Harvested | 375     | 375     | 365      | 365 | 0     | 375  |
+----------------+---------+---------+----------+-----+-------+------+
| Production     | 22600   | 22600   | 22000    | 22  | 0     | 2    |
|                |         |         |          | 000 |       | 2600 |
+----------------+---------+---------+----------+-----+-------+------+
| TOTAL SUPPLY   | 22600   | 22600   | 22000    | 22  | 0     | 2    |
|                |         |         |          | 000 |       | 2600 |
+----------------+---------+---------+----------+-----+-------+------+
| Utilization    | 22600   | 22600   | 22000    | 22  | 0     | 2    |
| for Sugar      |         |         |          | 000 |       | 2600 |
+----------------+---------+---------+----------+-----+-------+------+
| Utilizatn for  | 0       | 0       | 0        | 0   | 0     | 0    |
| Alcohol        |         |         |          |     |       |      |
+----------------+---------+---------+----------+-----+-------+------+
| TOTAL          | 22600   | 22600   | 22000    | 22  | 0     | 2    |
| UTILIZATION    |         |         |          | 000 |       | 2600 |
+----------------+---------+---------+----------+-----+-------+------+

[^1]: Based on March 12, 2006 SRA Reports

[^2]: US\$1=P51.21 as of March 24

[^3]: ASEAN Common Effective Preferential Tariff