Lessons for Malaysia from the Philippines' bitter sugar crisis

The recent visit by Philippine President Ferdinand Marcos Jr (also called "Bombong") to Malaysia should serve as a reminder to us about our own sugar industry.

Of late, there has been a debate in the news about the price and supply of sugar in Malaysia, particularly the shortages of the commodity some months back. May I humbly contribute to the discussion by pointing out the experiences of our Asean neighbour, the Philippines.

Like Malaysia, the Philippines used to be one of the world's sugar exporters but has now turned into an importer.

The prices of sugar, onions, eggs, vegetables, and chicken skyrocketed after President Marcos Jr came into power. This can mainly be attributed to the higher cost of fuel and transportation due to the ongoing Ukraine-Russia war and food supply issues.

Hence, President Marcos Jr, in an unusual move, appointed himself as the republic's agriculture secretary in June 2022. The move gives the president direct involvement in the republic’s food production output as inflationary pressures challenge his administration.

But it has not all been smooth sailing. One of "Bongbong" Marcos’ ideas to tackle the staple price crisis has generated huge controversy, namely, to revive the Philippine Sugar Corporation (PhilSuCor), a financial institution established in 1983 to boost sugar production at that time.

The proposal has triggered negative flashbacks to the darker years of the martial law period under the late President Ferdinand E Marcos, who is also the current president's father.

A monopoly that crashed the Philippine sugar industry

President Marcos Sr's government had intervened actively in the sugar industry by creating a monopoly in sugar trading in the 1970s. At one point in time, sugar was seen as "white gold". The crop was reported to be worth US$737.7 million globally in 1974.

The then-government had earlier set up the Philippine Exchange Company (Philex), a subsidiary of the Philippine National Bank (PNB), to stabilise domestic sugar prices and handle all sugar exports.

Marcos Sr had tasked his classmate Roberto Benedicto to lead Philex and the subsequent agencies – i.e., the abovementioned Philsucom and the National Sugar Trading Corporation (Nasutra).

Dubbed the country's "sugar czar", Benedicto was originally a media baron who owned the Banahaw Broadcasting Corporation, which took over ABS-CBN. He had also served as an ambassador to Japan as well as the chairman of PNB.

Philex had been stockpiling its sugar supplies in warehouses, betting that global prices would increase further. The move backfired when they instead plunged, saddling the exchange with a debt of 1 billion pesos and causing it to go defunct.

This was a blow to the overall industry because Philex had also acted as a "single agency" for the government, which controlled the sugar supply, marketing, and external interactions with countries and companies.

Marcos Sr then established Philsucom and Nasutra, the latter of which was supposed to act as the trading arm of the former. However, none of the agencies headed by Benedicto managed to address the country's sugar problems, which further led to the collapse of the sugar industry. Undeterred, the government expanded the functions of Philuscom and Nastura in acquiring transport enterprises and storage in order to facilitate sugar exports.

However, Benedicto was alleged to have been involved in sugar smuggling and price manipulation by buying sugar at cheap prices from local farmers and selling it at a higher price to foreign buyers.

It has been alleged that only certain businesses were favoured for the government programmes, and this malaise spread to other sectors. It was also claimed that sugar players were forced to give away five hectares each due to so-called "land reform" programmes under Marcos Sr.

Sugar: A sunset industry for the Philippines?

All of this was needless drama for the Philippine sugar industry and, indeed, caused it to lose its competitive edge. It has arguably never really recovered from the Marcos years.

Even after the fall of Marcos Sr in 1986, the centralised, but clearly wrong, approach to sugar continued.

Low farm productivity and rising local consumption resulted in a drop in sugar exports. Moreover, Philippine protectionist measures have kept sugar prices elevated, while agricultural practices have seen limited enhancements.

Sugar imports in the republic are tightly controlled by the Sugar Regulatory Administration (SRA). The increasing domestic demand for sugar and low production have caused prices in the Philippines to soar to one of the most expensive in the region – which is perverse when you consider they actually grow the stuff.

This has forced Marcos Jr to consider sugar imports to offset the rising domestic demand and prices.

Is it any wonder, therefore, that industry players have, at best, been hesitant in regards to Bongbong’s idea of reviving PhilSuCor?

When it comes to agriculture and business, centralisation – and this includes the creation of monopolies, no matter how noble the intention or fastidious the government oversight is – is rarely a good idea.

Malaysia should take note of the Philippines' travails. Yes, more needs to be done for our sugar industry to help it regain its glory days as a producer and exporter. But monopolies are simply not the way.

The views expressed in this article are those of the author(s) and do not necessarily reflect the position of MalaysiaNow.