Required Report - public distribution

**Date:** 4/10/2005

**GAIN Report Number:** RP5011

RP5011

**Philippines**

**Sugar**

**Annual**

**2005**

**Approved by:**

![](media/image1.wmf)David C. Miller

FAS Manila

**Prepared by:**

Pia Abuel-Ang

**Report Highlights:**

Philippine raw sugar production is likely to drop over the next two
years due primarily to a weak demand for sugar and current low millgate
prices. Demand for sugar, particularly by industrial users, has been
sluggish partly as a result of the relocation of the manufacturing
operations of a few multinational companies to other countries in the
region, as well as the growing demand for imported sugar-containing food
and beverage products.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Manila \[RP1\]

\[RP\]

**Executive Summary**

Philippine raw sugar production is likely to drop over the next two
years due primarily to a weak demand for sugar and low millgate prices.
Demand for sugar, particularly by industrial users, has been sluggish as
a result of the relocation of the manufacturing operations of a few
multinational companies to other countries in the region, as well as the
growing demand for imported sugar-containing food and beverage products.

The Philippines is expected to export about 146,000 MT of raw sugar in
2005 to countries other than the United States in an effort to manage
the excess sugar supply in the past two years. The Philippine
government, through the National Food Authority (NFA), has had to
intervene for the second consecutive year by purchasing "reserve" sugar
in order to arrest the decline in sugar prices.

**Production**

Total sugar production in CY 2004/05 is expected to be significantly
lower than the record-high sugar output achieved in CY 2003/04. This
drop in sugar output is mainly due to decreased sugarcane plantings as
cane farmers reportedly shifted from sugarcane to other crops as a
result of low millgate prices. Domestic production for CY 2005/06 will
likely not surpass the current year's output of 2.18 MMT.

Also, labor problems that beset two major sugar mills in the Luzon and
Negros areas are expected to have a substantial impact on projected
total raw sugar output in this current crop year. It is reported that
sugar production in Tarlac alone is expected to drop by as much as 86
percent.

Sugar production on a per hectare basis increased in crop year 2003/04
which the Sugar Regulatory Administration (SRA) attributed to the
collaborative effort between the government and the private sector.
According to the SRA, total raw sugar production for crop year 2003/04
reached 2.34 MMT exceeding the 2.16-2.27 MMT official target set by the
Philippine government. Productivity of the last crop year also improved
from 61.70 to 66.70 MT/hectare as a result of wide scale adoption of
high-yield cane varieties.

Sugarcane is grown in 17 provinces located in eight regions of the
country. In the last crop year, the island of Negros accounted for about
55 percent of total sugar production. Luzon produced 16 percent;
Mindanao, 20 percent; Panay, 6 percent; and Eastern Visayas, 4 percent.

+-----------------------------------+---------------+------------------+
| **PRODUCTION PER MILL DISTRICT**  |               |                  |
|                                   |               |                  |
| **CY 2003/04**                    |               |                  |
+-----------------------------------+---------------+------------------+
| **Mill District**                 | **MT**        | **Percent**      |
+-----------------------------------+---------------+------------------+
| Luzon                             | 369,331       | 16               |
+-----------------------------------+---------------+------------------+
| Negros                            | 1,274,580     | 55               |
+-----------------------------------+---------------+------------------+
| Panay                             | 132,746       | 6                |
+-----------------------------------+---------------+------------------+
| Eastern Visayas                   | 92,592        | 4                |
+-----------------------------------+---------------+------------------+
| Mindanao                          | 469,325       | 20               |
+-----------------------------------+---------------+------------------+
| Total                             | 2,338,574     | 100              |
+-----------------------------------+---------------+------------------+

Source: Sugar Regulatory Administration

Total domestic sugar production comes primarily from the members of four
major sugar planter federations and three major miller associations. The
total area planted in CY 2003/04 was 396,135 hectares. 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 other 10 percent of total production.

In CY 2003/04, SRA reports that 89.5 percent of the country\'s sugar
production was classified as \"B\" or domestic sugar for local
consumption. Six percent was classified as \"A\" sugar and allocated as
sugar quota for the United States, four percent as \"D\" world market
sugar and 0.50 percent was classified \"B-1\" and allocated as Food
Processors/Exporters sugar.

For CY 2003/04, average mill site price of raw sugar per 50 kg. bag was
P888.18 for \"A\" sugar, P745.88 for \"B\", P700.00 for \"B-1\" and
P375.20 for \"D\". The composite price for sugar was P744.41 per 50 kg.

+-------------+---------------+-----------+---------------+-----------+
| **RAW AND   |               |           |               |           |
| REFINED     |               |           |               |           |
| SUGAR       |               |           |               |           |
| PRICES,     |               |           |               |           |
| Crop Year   |               |           |               |           |
| 2003-05**   |               |           |               |           |
+-------------+---------------+-----------+---------------+-----------+
| #           | **Raw Sugar** |           | **Refined     |           |
|  CY 2003-04 |               |           | Sugar**       |           |
+-------------+---------------+-----------+---------------+-----------+
|             | Wholesale     | Retail    | Wholesale     | Retail    |
|             | Price         | Price     | Price         | Price     |
|             |               |           |               |           |
|             | (             | (Pesos/   | (Pesos/per    | (Pesos/   |
|             | Pesos[^1]/per |           |               |           |
|             |               | per Kg.)  | 50 kg. Bag)   | per Kg.)  |
|             | 50 kg. Bag)   |           |               |           |
+-------------+---------------+-----------+---------------+-----------+
| September   | 927.25        | 22.90     | 1223.61       | 27.26     |
+-------------+---------------+-----------+---------------+-----------+
| October     | 928.60        | 22.91     | 1241.57       | 27.21     |
+-------------+---------------+-----------+---------------+-----------+
| November    | 933.80        | 22.87     | 1240.64       | 27.26     |
+-------------+---------------+-----------+---------------+-----------+
| December    | 839.28        | 22.84     | 1140.28       | 27.30     |
+-------------+---------------+-----------+---------------+-----------+
| January     | 797.25        | 22.84     | 1145.63       | 27.30     |
+-------------+---------------+-----------+---------------+-----------+
| February    | 798.78        | 22.51     | 1147.88       | 26.98     |
+-------------+---------------+-----------+---------------+-----------+
| March       | 806.13        | 22.30     | 1153.00       | 26.72     |
+-------------+---------------+-----------+---------------+-----------+
| April       | 806.60        | 22.29     | 1154.88       | 26.66     |
+-------------+---------------+-----------+---------------+-----------+
| May         | 806.75        | 21.96     | 1153.75       | 26.69     |
+-------------+---------------+-----------+---------------+-----------+
| June        | 806.75        | 22.15     | 1152.25       | 26.58     |
+-------------+---------------+-----------+---------------+-----------+
| July        | 808.80        | 22.01     | 1153.00       | 26.49     |
+-------------+---------------+-----------+---------------+-----------+
| August      | 818.50        | 22.01     | 1153.05       | 26.49     |
+-------------+---------------+-----------+---------------+-----------+
| *Average*   | 839.87        | 22.47     | 1171.63       | 26.91     |
+-------------+---------------+-----------+---------------+-----------+
| #           |               |           |               |           |
|  CY 2004-05 |               |           |               |           |
+-------------+---------------+-----------+---------------+-----------+
| September   | 832.00        | 22.03     | 1153.65       | 26.54     |
+-------------+---------------+-----------+---------------+-----------+
| October     | 846.49        | 22.01     | 1156.47       | 26.50     |
+-------------+---------------+-----------+---------------+-----------+
| November    | 814.79        | 22.04     | 1168.92       | 26.58     |
+-------------+---------------+-----------+---------------+-----------+
| December    | 802.00        | 22.12     | 1182.33       | 26.83     |
+-------------+---------------+-----------+---------------+-----------+
| January     | 810.43        | 21.77     | 1197.93       | 26.73     |
+-------------+---------------+-----------+---------------+-----------+
| February    | 856.93        | 22.06     | 1228.03       | 26.64     |
+-------------+---------------+-----------+---------------+-----------+
| March       | 887.06        | 22.16     | 1285.87       | 26.98     |
+-------------+---------------+-----------+---------------+-----------+

Source: Sugar Regulatory Administration

Philippine sugar production is seasonal with the highest levels being
attained during the months of January, February and March. Withdrawals
from the mills are fairly stable and consistent throughout the year with
slight increases during the months of July and August. The higher demand
in the summer months are attributed primarily to the preparation of the
food processors and beverage manufacturers for the anticipated increase
in demand during the holiday months of November and December.

This situation has a direct impact on the prices of sugar. During the
milling season, when the supply is abundant and the inventory level of
domestic sugar is high, prices move lower. Similarly, prices start
picking up again in the months of May when almost all the mills have
finished milling and peak in the months of September and October.

![](media/image2.wmf)

Although there is practically no trade in sugarcane due to the unique
"quedan" system in the Philippines (see Marketing section), the price of
cane is estimated to be around P1,120/MT[^2] .

+--------------------+-----------+-----------+-----------+-----------+
| # RAW SUGA         |           |           |           |           |
| R PRODUCTION BY MO |           |           |           |           |
| NTH, AREA PLANTED  |           |           |           |           |
|                    |           |           |           |           |
| **AND YIELD PER    |           |           |           |           |
| HECTARE (IN MT)**  |           |           |           |           |
+--------------------+-----------+-----------+-----------+-----------+
| MONTH              | CY        | CY        | CY        | CY        |
|                    | 2001/02   | 2002/03   | 2003/04   | 2004/05   |
+--------------------+-----------+-----------+-----------+-----------+
| September          | 47,458    | 31,741    | 24,270    | 9,845     |
+--------------------+-----------+-----------+-----------+-----------+
| October            | 133,094   | 114,549   | 106,583   | 150,605   |
+--------------------+-----------+-----------+-----------+-----------+
| November           | 176,859   | 190,775   | 271,463   | 237,766   |
+--------------------+-----------+-----------+-----------+-----------+
| December           | 307,663   | 350,027   | 292,687   | 299,717   |
+--------------------+-----------+-----------+-----------+-----------+
| January            | 292,477   | 325,627   | 331,065   | 397,931   |
+--------------------+-----------+-----------+-----------+-----------+
| February           | 325,903   | 358,371   | 466,258   | 369,699   |
+--------------------+-----------+-----------+-----------+-----------+
| March              | 302,231   | 410,854   | 328,510   | 183,543   |
+--------------------+-----------+-----------+-----------+-----------+
| April              | 163,816   | 190,467   | 237,683   | \-        |
+--------------------+-----------+-----------+-----------+-----------+
| May                | 98,5774   | 112,580   | 185,466   | \-        |
+--------------------+-----------+-----------+-----------+-----------+
| June               | 40,760    | 67,322    | 76,380    | \-        |
+--------------------+-----------+-----------+-----------+-----------+
| June               | 618       | 6,071     | 18,209    | \-        |
+--------------------+-----------+-----------+-----------+-----------+
| August             | 9,048     | 3,141     | \-        | \-        |
+--------------------+-----------+-----------+-----------+-----------+
| TOTAL PRODUCTION   | 1,898,501 | 2,161,525 | 2,338,574 | 1,64      |
|                    |           |           |           | 9,106[^3] |
+--------------------+-----------+-----------+-----------+-----------+
| TOTAL AREA PLANTED | 367.569   | 379,608   | 396,135   | \-        |
+--------------------+-----------+-----------+-----------+-----------+
| YIELD/HECTARE      | 103.30    | 113.88    | 118.07    | \-        |
+--------------------+-----------+-----------+-----------+-----------+

Source: Sugar Regulatory Administration

In the last five years, raw sugar production increased nearly 50 percent
from 1.62 MMT in CY 1999/2000 to 2.34 MMT last year, due to the wide
scale adoption of new high-yielding sugarcane varieties. According to
SRA, as much as 40 percent of all Philippine sugarcane produced are the
new varieties which are being actively promoted and disseminated by the
SRA. Working in tandem with SRA, the Philippine Sugar Research Institute
(Philsurin) developed these new disease-resistant high-yield sugarcane
varieties. Funded by contributions from sugar farmers and millers,
Philsurin undertakes research and development activities that benefit
the sugar industry.

**Consumption**

Sugar consumption for CY 2004/05 and beyond is forecast to remain flat
due in part to the decision of some food and beverage companies to move
their manufacturing operations out of the Philippines to other
lower-cost sugar producing countries in the region. 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.

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 is confident 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.

+---------------------------+------------------------------------------+
| # MOLASSES                |                                          |
| PRICES, Crop Year 2003-05 |                                          |
+---------------------------+------------------------------------------+
| # CY 2003/04              | **Average Price (Pesos/MT)**             |
+---------------------------+------------------------------------------+
| September                 | 2,884.34                                 |
+---------------------------+------------------------------------------+
| October                   | 2,560.05                                 |
+---------------------------+------------------------------------------+
| November                  | 2,483.57                                 |
+---------------------------+------------------------------------------+
| December                  | 2,443.36                                 |
+---------------------------+------------------------------------------+
| January                   | 2,436.29                                 |
+---------------------------+------------------------------------------+
| February                  | 2,317.32                                 |
+---------------------------+------------------------------------------+
| March                     | 2,241.96                                 |
+---------------------------+------------------------------------------+
| April                     | 2,144.18                                 |
+---------------------------+------------------------------------------+
| May                       | 2,192.31                                 |
+---------------------------+------------------------------------------+
| June                      | 2,378.49                                 |
+---------------------------+------------------------------------------+
| July                      | 2,371.42                                 |
+---------------------------+------------------------------------------+
| August                    | 2,480.46                                 |
+---------------------------+------------------------------------------+
| *Average*                 | *2,411.15*                               |
+---------------------------+------------------------------------------+
| **CY 2004-05**            |                                          |
+---------------------------+------------------------------------------+
| September                 | 2,719.66                                 |
+---------------------------+------------------------------------------+
| October                   | 2,777.25                                 |
+---------------------------+------------------------------------------+
| November                  | 2,592.13                                 |
+---------------------------+------------------------------------------+
| December                  | 2,988.68                                 |
+---------------------------+------------------------------------------+
| January                   | 3,127.67                                 |
+---------------------------+------------------------------------------+
| February                  | 3,898.79                                 |
+---------------------------+------------------------------------------+

Source: Sugar Regulatory Administration

**Stocks**

Due to increased sugar production in CY 2003/04, the country\'s starting
inventory of raw and refined sugar similarly increased significantly in
CY 2004/05. Efforts to sell sugar on the world market and initiatives to
scale down current sugar production, however, are expected to bring down
stocks of raw and refined sugar to more normal levels.

**Trade**

The Philippines did not import sugar during CY 2003/04 and is not
expected to import any sugar in the current crop year due to adequate
domestic production. In the WTO, the Philippines has committed to a
Minimum Access Volume (MAV) of 32,023 MT (2005) which is subject to a
tariff rate of 50 percent. All importation in excess of 32,023 MT is
subject to a tariff rate of 65 percent.

+------+---------+------------------------------------------+---+----+
| **H  | **      | # DESCRIPTION                            | * |    |
| EADI | ASEAN** |                                          | * |    |
| NG** |         |                                          | 2 |    |
|      | **HARMO |                                          | 0 |    |
|      | NIZED** |                                          | 0 |    |
|      |         |                                          | 5 |    |
|      | *       |                                          | * |    |
|      | *TARIFF |                                          | * |    |
|      | CODE**  |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      |         |                                          | * | *  |
|      |         |                                          | * | *C |
|      |         |                                          | M | E  |
|      |         |                                          | F | P  |
|      |         |                                          | N | T  |
|      |         |                                          | * | ** |
|      |         |                                          | * | [^ |
|      |         |                                          |   | 4] |
+------+---------+------------------------------------------+---+----+
| 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 | 48 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- Out-of-quota                       | 6 | 48 |
|      |         |                                          | 5 |    |
+------+---------+------------------------------------------+---+----+
|      | 1701.12 | \-- Beet sugar                           |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- In-quota                           | 5 | 48 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-- Out-of-quota                       | 5 | 48 |
|      |         |                                          | 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 | 48 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Out-of-quota                   | 6 | 48 |
|      |         |                                          | 5 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Other, In-quota                | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Other, Out-of-quota            | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      | 170     | \-\-\-- Other                            |   |    |
|      | 1.99.19 |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- In-quota                       | 5 | 48 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Out-of-quota                   | 6 | 48 |
|      |         |                                          | 5 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Other, In-quota                | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Other, Out-of-quota            | 1 | 0  |
+------+---------+------------------------------------------+---+----+
|      | 170     | \-\-\-- Other                            |   |    |
|      | 1.99.90 |                                          |   |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- In-quota                       | 5 | 48 |
|      |         |                                          | 0 |    |
+------+---------+------------------------------------------+---+----+
|      |         | \-\-\-\-- Out-of-quota                   | 6 | 48 |
|      |         |                                          | 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: Tariff & Customs Code of the Philippines, January 2004

In an effort to manage the oversupply situation in the country, the
local sugar industry is expected to export about 288,000 MT of sugar to
the world market this year, primarily to Indonesia, Republic of Korea
and Japan to prevent a drop in domestic sugar prices. This volume
includes a quota of 142,160 MT to the United States, which is sold at a
premium price.

According to the Philippine Sugar Millers Association, its member mills
have exported a total volume of 127,000 MT to date since August 2004 to
countries other than the United States. However, sugar exports to
countries other than the United States, are priced lower at P550/50 kg
(approximately \$0.09/lb). In the previous crop year, the Philippines
shipped 60,000 MT of sugar to the Republic of Korea and Japan.

**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 with 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
warehouse. 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).

**Policy**

In December 2004, NFA was instructed by President Gloria Macapagal
Arroyo to intervene in the sugar market to stabilize the price and
supply of the commodity. Executive Order 386 was issued authorizing the
NFA to undertake sugar procurement for CY 2004/05. This is the second
consecutive year that the Philippine government has moved to stabilize
domestic sugar prices.

Under this program, the NFA has set aside around P100 million for the
purchase of excess reserve "C" sugar from planters associations and
cooperatives at the price of P680 per 50 kg bag based on the target per
mill as provided by the SRA. From November 2004 to January 2005, NFA
procured consolidated \"C\" *quedans* from planters
associations/cooperatives. Sugar planters who are not members of any
association may also avail of this program by requesting SRA to
consolidate their "C" *quedans* with those of other associations.
Associations have the option to buy back their sugar from NFA.

In October 2005, SRA issued a new regulation strictly requiring all
sugar traders to obtain a shipping permit (SP) for sugar regardless of
the quantity, source or type. According to the SRA directive the
following requirements must be observed:

1.  An SP is required regardless of the quantity of sugar that is due to
    onetime shipment;

2.  If only a machine copy is presented, the SP issued by other SRA
    stations shall be authenticated upon demand by the Bureau of Customs
    (BOC), Philippine Coast Guard and Philippine Ports Authority;

3.  In case the SP has expired and no shipment was made within the
    15-day requisite period, traders must apply for a new one, and;

4.  To avoid rush and violation, traders are advised to secure an SP
    earlier or several days before the scheduled shipment.

In August 2004, President Gloria Macapagal Arroyo ordered the BOC to
step up efforts to curb smuggling of sugar. She ordered the BOC to stop
the illegal entry of sugar that was allegedly putting downward pressure
on domestic sugar prices. She also directed the Tariff Commission to
review its classification system for sugar-based food items to ensure
that loopholes in the existing directive do not allow circumvention.

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

  **Country**          **Philippines**                                                          

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

                       Revised           2004       Estimate   2005       Forecast   2006       UOM

                       Old               New        Old        New        Old        \[New\]    

  **Market Year                          09/2003               09/2004               09/2005    MM/YYYY
  Begin**                                                                                       

  Beginning Stocks     277               277        225        405        175        287        (1000 MT)

  Beet Sugar           0                 0          0          0          0          0          (1000 MT)
  Production                                                                                    

  Cane Sugar           2160              2340       2160       2180       0          2100       (1000 MT)
  Production                                                                                    

  TOTAL Sugar          2160              2340       2160       2180       0          2100       (1000 MT)
  Production                                                                                    

  Raw Imports          0                 0          0          0          0          0          (1000 MT)

  Refined Imp.(Raw     0                 0          0          0          0          0          (1000 MT)
  Val)                                                                                          

  TOTAL Imports        0                 0          0          0          0          0          (1000 MT)

  **TOTAL SUPPLY**     **2437**          **2617**   **2385**   **2585**   **175**    **2387**   (1000 MT)

  Raw Exports          202               202        200        288        0          142        (1000 MT)

  Refined Exp.(Raw     0                 0          0          0          0          0          (1000 MT)
  Val)                                                                                          

  TOTAL EXPORTS        202               202        200        288        0          142        (1000 MT)

  Human Dom.           2010              2010       2010       2010       0          2010       (1000 MT)
  Consumption                                                                                   

  Other Disappearance  0                 0          0          0          0          0          (1000 MT)

  Total Disappearance  2010              2010       2010       2010       0          2010       (1000 MT)

  Ending Stocks        225               405        175        287        0          235        (1000 MT)

  **TOTAL              **2437**          **2617**   **2385**   **2585**   **0**      **2387**   (1000 MT)
  DISTRIBUTION**                                                                                
  -------------------- ----------------- ---------- ---------- ---------- ---------- ---------- ---------

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

  **Country**     **Philippines**                                                             

  **Commodity**   **Sugar Cane for                                     (1000                  
                  Centrifugal**                                        HA)(1000               
                                                                       MT)                    

                  Revised           2004        Estimate   2005        Forecast   2006        UOM

                  Old               New         Old        New         Old        \[New\]     

  **Market Year                     09/2003                09/2004                09/2005     MM/YYYY
  Begin**                                                                                     

  Area Planted    395               395         0          380         0          380         (1000 HA)

  Area Harvested  390               390         0          375         0          375         (1000 HA)

  Production      26100             27000       0          26000       0          26000       (1000 MT)

  **TOTAL         **26100**         **27000**   **0**      **26000**   **0**      **26000**   (1000 MT)
  SUPPLY**                                                                                    

  Utilization for 26100             27000       0          26000       0          26000       (1000 MT)
  Sugar                                                                                       

  Utilizatn for   0                 0           0          0           0          0           (1000 MT)
  Alcohol                                                                                     

  **TOTAL         **26100**         **27000**   **0**      **26000**   **0**      **26000**   (1000 MT)
  UTILIZATION**                                                                               
  --------------- ----------------- ----------- ---------- ----------- ---------- ----------- ---------

[^1]: US\$1=P54.816 as of April 5, 2005

[^2]: Computed using an average wholesale price of P800/50 kg; average
    industry recovery rate of 2.0 50 kg bags raw sugar/MT of sugarcane;
    and a 70-30 percent cost-sharing between farmers and millers.

[^3]: As of March 13, 2005.

[^4]: ASEAN Common Effective Preferential Tariff