· Strong Peso Hurts Food Exports · Price Control Rejected |
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Introduction
Philippines economy nowadays portraits a good start for, as we are lifting our country from the previous economic situation. Not including the whole world economy, we are experiencing a smaller amount of problems in our economy than the recent. The rate of exchange between our Peso against the Dollar is going stronger from now and as some bank company said that it could reach as high as ₱37.50 in the next year. This is worthy for our country that it could raise the percentage to lessen the financial crisis and issues of our economy here in the Philippines. However, this could also mean that some other Filipinos, who are contributing a lot in our economic growth, will be at an edge of helping themselves to this “firmer peso”.
Food producers and exporters alone, from the ₱37.50-to-the-dollar exchange rate could cost them around $30 million to $40 million this year, which are exporter loss around $100 million. This is the case that food exporters and local food producers worrying about the stronger peso against the dollar. They will also lose their competitiveness against the other Asian country that may cause severe unemployment, closures of factories, flooding of cheaper imported goods in the local market and other social problems and unrest. Besides, the appreciation of the peso may harm also the overseas Filipino workers (OFWs) and their families, business-process outsourcing (BPOs) firms and foreign investment in general. These segments are the prime carrier of growth in our economy which contributes for as much as 70 percent of gross domestic product (GDP).
Strong peso plus the high sugar price, makes local food producers and exporters come to haste to restore the D-Sugar allocation of 2 percent. This will be considered as hedge for the on-going raise of the peso coupled with high sugar price, which cost around ₱40 to ₱44 per kilo without duties and taxes. The D-Sugar allocation is the use of food producers and exporters for local consumption and export of their products. However, the D-Sugar allocation of 2 percent is too small to make a depression on the profits of sugar producers, but its closure will cause a huge percentage on the production costs of food exporters.
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One of the factors that affects the Philippine economic growth is price control. Price control defines as governmental imposition on the prices changed for goods and services in a market. It is usually intended to maintain the affordability of staple foods and goods and to prevent price gouging during shortage, or alternately, to insure an income for providers of certain goods. These are two primary form of price control, a “price ceiling”, the maximum price that can be changed and a “price floor”, the minimum price that can be changed. The Philippines is one of main product that commonly buy in markets, groceries stores, etc. The government wants to change its minimum price, which rejected by the administrator of Sugar Regulatory Authority.
Maria Regina Martin, administrator of Sugar Regulatory Authority (SRA) said “No for price control”. National Price Coordinating Council (NPCC) wants to change the minimum price of sugar. Martin said that there is no need to change the price because ther is no manipulation in the price and supply of sugar. she also said that sugar trading from the traders “has been transparent”. The stock of sugar is in percent higher than the previous year’s stock. On January 30, 2011 the retail price of sugar only ranged in ₱2,032 to ₱3,000 per bag. Retail price in Metro Manila markets by the 4th week of February should be in the ranged of ₱58 to ₱64 per kilo. Also in Binondo and Divisoria, the price ranged in ₱2,700 to ₱2,950 per bag, which retail price hover between ₱59 to ₱64, only ₱1.00 difference. Therefore, there is no need to change its price.
Strong peso hurts food exports
By Cai U. Ordinario, Business Mirror
Posted at 02/22/2011 7:52 AM | Updated as of 02/22/2011 6:02 PM
MANILA, Philippines - The appreciation of the peso has been cited among the main reasons for the steady loss in competitiveness of local food exporters in the global market, the Philippine Food Processors & Exporters Organization Inc. (PhilFoodex Inc.) said on Monday.
PhilFoodex Inc. president Roberto Amores told reporters at the sidelines of the briefing on the 10th Philippine Food Expo that with expectations of the peso-dollar exchange rate reaching P37.50 to the dollar, exporters in general could lose around $100 million this year.
For food producers and exporters alone, Amores said a P37.50-to-the-dollar exchange rate could cost them around $30 million to $40 million this year.
“Definitely, we will again lose competitiveness vis-a-vis our Asian neighbors. This will cause massive unemployment, factory shutdown and serious displacement as cheaper imports flood the local market,” Amores said in a statement.
“We call on the government to come to our rescue immediately to avoid huge and numerous social problems and unrest,” he stressed.
Amores added that while the Philippines is an import-dependent country, the appreciation of the peso will not be beneficial to overseas Filipino workers (OFWs) and their families, business-process outsourcing (BPOs) firms and foreign investment in general.
These sectors, based on recent estimates of economic growth, are among the major drivers. BPOs, for example, are among the major drivers of growth in the services sector, while OFW remittances are among the main drivers of consumer spending, which account for as much as 70 percent of gross domestic product (GDP).
In 2010 private services under the services sector, where BPO firms are included, posted growth of 10.6 percent, the highest since the 10.7-percent growth posted in the fourth quarter of 2004.
Data, meanwhile, showed that personal-consumption expenditure grew 7 percent, the highest since the 8.4-percent growth recorded in the third quarter of 1988, from 5 percent in the same period last year.
“A strong Philippine peso aids in the country’s payment crisis but the low per-capita growth would lead to de-industrialization, increased import dependence and massive job losses. Forecasts from major banks show that [the] peso could still surge at a high of 37.50 against the dollar in 2011, and further in the next couple of years. This worries several sectors because even though it is posited to be good for the country, they view the appreciation as more bothersome than beneficial,” PhilFoodex Inc. said in a statement.
The strong peso, coupled with high sugar prices, prompted local food producers and exporters to call for the restoration of the 2-percent “D” sugar allocation as early as last year.
The “D” sugar allocation was revoked with the issuance of the Sugar Regulatory Administration (SRA) Sugar Order 1-A, series of 2009-2010, dated November 3, 2009. The “D” sugar allocation is allotted for the use of food producers and exporters for local consumption and export of their products.
Instead of reinstating the “D” allocation, the SRA issued Sugar Order 4, series of 2009-2010, converting “C” sugar, or the country’s reserve sugar, produced as of November 8, 2009 of crop year 2009-2010 to “B” sugar, or the allocation for the use of the domestic market. The SRA terminated the “D” sugar allocation to provide a boost to the “C” sugar allocation in view of the tightness in domestic-market supply.
While this expanded the buffer stock for the domestic and US markets, which already have allocations of 90 percent and 4 percent, respectively, it denied sugar-based food exporters access to competitively priced sugar.
Amores, however, said the “D” sugar allocation of 2 percent is too small to make a dent on the profits of sugar producers, but its termination will cause a heavy toll on the production costs of food exporters.
Access to the competitively priced “D” sugar is critical to food processors as sugar imports are levied a duty of 38 percent. Without the “D” sugar, food exporters will be immensely disadvantaged, as sugar accounts for 30 percent to 40 percent of their production cost.
A peso appreciation is good in terms of importation and import related industries. However for export, a firmer peso affect exports as always the misconception. When you export a product or a service, you are dealing in US Dollars as the international currency of trade, not in Peso. The world buyer transacts and pay you in US Dollars as well. Your competitiveness is not in the dollar you receive for the trade, but a competitive price is what makes you win the business. The difference in here will be the margin or profit for the business owner, because you are paying your employee in peso not in dollars, a weaker peso means you get more value for the dollar you collect from your buyer, while a firmer peso will translate the opposite.
Q: Who are affected with this Philippine peso exchange rate? How does they affected?
The appreciation of the Philippine peso exchange affects the whole economic society of the Philippines. Especially those overseas Filipino workers (OFWs) and their families, business-process outsourcing (BPOs) firms, foreign investments and food exporters, this ₱37.50-to-the-dollar rate is not very beneficial. They are just some factors that may affect because of peso appreciation or firm peso, going strong against dollar. Food exporters, under sugar industry, worried about this peso exchange rate, as they knew that there will be a big lost this year in their income. With this exchange rate plus the high sugar prices, without any hedge for their business, or with the termination of the “D” Sugar restoration, the sugar industry will soon be a big problem in our economy.
Q: What does sugar industry do to reduce the effect of ₱37.50-to-the-dollar exchange rate coupled with the high sugar prices?
To cope with a strong peso, food processors and exporters want the government to restore a sugar allocation that will allow them to buy the commodity at prevailing global prices, minus the tax burden. Sugar traders have requested the Sugar Regulatory Administration (SRA) to restore the Class-D Sugar, but there is no response yet from this appeal. The D-Sugar is one of four classifications the SRA traditionally uses to divide the sugar output in a year. “A" refers to the United States quota, “B" is sugar for domestic consumption, and “C" is reserve sugar. D-sugar is one of four classifications the SRA traditionally uses to divide the sugar output in a year. “A" refers to the United States quota, “B" is sugar for domestic consumption, and “C" is reserve sugar. “D" is primarily sugar traded in the world market, as well as for local food processors and exporters.
Price Control for Sugar Rejected
BY MARVYN N. BENANING
No price control.
This was stated by Ma. Regina Martin, administrator of the Sugar Regulatory Authority (SRA), when asked if price control is needed for the commodity.
As the country’s gatekeeper for sugar, Martin insisted nothing could replace market forces as determinants of prices.
“Price control is counterproductive and must only be imposed only during times of calamities, emergencies and when there is rock-solid proof that there is price or supply manipulation,” she stressed.
Arguing sternly against price control, Martin said sugar trading from the farm to the traders “has been transparent”.
She added that building for sugar is done at the mill site.
Moreover, sugar stocks have started to build up, and this should stabilize prices for the first quarter.
Based on the production data for January 30, refined sugar stocks were 174,733 metric tons (MT), 19 percent higher than the previous year’s stock level as of the same date.
With the current world market price level at around 30 centavos per pound, the retail price of imported sugar at 38 percent tariff would be more or less, the same level as locally-produced sugar, which would make it hard for smugglers to make hay.
Unlike any other commodity, sugar is not heavily subsidized by the government and price increases at the millsite benefits sugarcane farmers, especially small ones, directly.
Martin told members of the National Price Coordinating Council (NPCC) in their February 11 meeting that the mill site price of sugar has started to stabilize and even softened compared to November, 2010 prices.
She revealed that mill site prices should be reflected in retail prices after three weeks. With mill site prices ranging from ₱2,032 to ₱3,000 per 50-kilo bag as of January 30, 2011, retail prices in Metro Manila markets by the fourth week of February should be in the range of ₱58 to ₱64 per kilo of refined sugar.
Wholesale prices in Binondo and Divisoria as of February 15 ranged from ₱2,700 to ₱2,950 per bag, which would make retail prices hover between ₱59 and ₱64 per kilo.
Q: What is the essence of controlling the price for sugar?
Imposing price control is helpful during times of calamities, emergencies and when there is rock-solid proof that there is price or supply manipulation. It gives necessary price limit to certain commodity and limits the burden of the buyers to attain such price for a kilo of sugar. It involves reaction and appeal from the main producers of sugar as they may lose or gain profit and margins from this issue.
Q: How does the government reacted to this kind of issue?
According to the administrator of Sugar Regulatory Authority (SRA), there will be no control over sugar as they excluded appeal of “price control in sugar”. Price control is counterproductive as it prohibiting the desire of the domestic producers of sugar to create a supply for the sugar. The government knew already the possibility of disregarding the price control over sugar that it may affect the whole production of sugar including the market and the producer.
Q: What will be the effects of the supply of sugar if there are overpricing?
Administrator Ma. Regina Martin stressed that “price control is counterproductive”. This means that if there is overpricing to the products, there will be a massive shutdown of sugar factories and a lot of unemployment due to closures of sugar company producers and a higher price for other products which uses sugar. From that, it will grow another crisis about the sugar. If some sugar sellers overprice there product, they will lose buyers as they limit them to buy their product in a such price which is, in fact, other buyers can’t afford them. Then, if there is no buyer, the supply of sugar will decrease at a rate though sugar is one of the main ingredients in other foods.
Reaction
The Philippine Food Processors and Exporters Organization Inc. (PhilFoodEx) is a great factor in the Philippine economic society. About its appeal of restoring of D-Sugar, which is not yet responded by the Sugar Regulatory Administration (SRA), will be the hedge for the food exporters to the firmer peso that their expectations of the peso-dollar exchange rates will reach ₱37.50 against the dollar. Exporters, in general, in this case could lose around $100 million from this year as they are dependent of the dollar as the international trading currency. The landed cost of imported sugar is now about ₱40 to ₱44 per kilo before duties and value-added tax. Local sugar, on the other hand, sells these sugars for about ₱54 to ₱70 per kilo. As the dollar continues to appreciate, food exporters carry the burden of absorbing the increasing ratio of loss to margins, and that leaves domestic manufacturers at the losing end.
It is very unfair for the food exporters, sugar exporters, without any hedge to cancel the D-Sugar restoration and is now coupling with the strong peso exchange rate with the dollar. Sugar producers will be at risk to have another pricing system to regain the loss form their margins and profits. Sugar Regulatory Administration (SRA) issued Sugar Order 4, series of 2009-2010, converting C-Sugar, or the country’s reserve sugar to B-Sugar for the use of the domestic market. They now abolish the D-Sugar to provide an improvement in the C-Sugar in the domestic supply. It is an aid for the domestic sugar producers as they lucky that they are being supported by the government. However, eliminating D-Sugar plus the increasing value of Peso, is a disease for the food exporters as they may lose not only their margins and profits, but their competition on other countries. Philippine economic growth rate may decrease in such a gap as the sugar which is the main exports for the food exporters which has a greater percentage in contributing to our economic growth. Many domestic food producers may increases their product prices as the economy of food industry will tend to do the same, minus the taxes that are allotted form each products. There will be a massive unemployment in some food companies as this problem may tend to be fatal in the next years without any hedge or solution to the abolishment of the D-Sugar. Lots of domestic food producers may shutdown for this reason and a serious displacement as cheaper imports flood the local market.
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As the currency of peso goes stronger against the dollar, it affects a lot of factors in the Philippine economy. There are lot of appeals concerning sugar because of its continuous increase of price. Ma. Regina Martin, administrator of Sugar Regulatory Authority (SRA), again rejected an appeal but now, she insisted the overpricing of sugar. Local market hurts from the appreciation of peso and comes with a solution of an appeal to aid their problems. But is SRA insisted, they explain why they can’t just take a control over the price of sugar. Moreover, there should be a manipulation in sugar or unstable value of supply and price over the sugar. There is a big increase of percentage in the stocks of sugar so there is no current manipulation.
Conclusion
The continuous improvement in the rate of peso to the dollar exchange will cause great number of crisis that will affect the whole economic society here in the Philippines. This may cause huge number of unemployment under food industry, factory cessation which is the prime producers of sugar in our country. With the aggravating price of sugar, around ₱70, without the D-Sugar Allocation, many sugar exporters will lose competitiveness and margins, and the price of sugar in the local market will become in height. We believed that if there will no end from this problem, Philippine economic society will depressed its progression in its lowest ever. There will be more crisis than we had ever had before in our economy. Massive unemployment, factory shutdown, these are just some factors that may happen in the future without any action. Government shall see the other side of the coin to help these food exporters lift themself from the burden of abolishing D-Sugar and increasing rate of Peso against the Dollar. In the case of the economy with a firmer Peso, that would be a good news from a lot of workers, but for the exporters, this will be a bad luck for them as they will lose a big margin this year.
Our government is just taking its way to lift itself from the previous government situation. This may be the reason why there are lot of issues today that remain unsolved. The government can’t supply an aid for the companies that are near its closure because there are more important things to do than this. Without the abolishment of the D-Sugar, there will be a huge loss in the reserve sugar and that will add the burden in the crisis of Sugar in our economy. If food exporters worry about the profit they may lose, we may say that our government worries about the Filipino people. There may be a great decrease in the production and employment but if we work as one nation, crisis like this will never be existed.
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As the appeal for the price of sugar be increase, Ma. Regina Martin still insisted that there is no need to overprice the cost of sugars. She revealed that mill site prices should be reflected in retail prices after three weeks starting this end of February until the half of March. She explained that mill site prices around ₱3,000 per 50-kilo as the first month of this year, retail prices in NCS markets by the fourth week of February should be around ₱60 per kilo of refined sugar. Besides, wholes sale prices in some local markets around Metro Manila as of the second week of February cost around ₱2,950 per 50-kilo bag which would make retail prices ranged from ₱59 to ₱64 per kilo. There is only a small amount of difference from the wholesale and mill site prices. Why is there a need to control the price of sugar?
Sugar is one of the affordable ingredients that is available in the local market. Price control only occurs when there are calamities and emergencies and a solid-proof that there is a manipulation of price and supply. There is no manipulation of price and supply in sugar and this justifies the stock of refined sugar was 19 percent higher than the previous year.
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