Substitution of sugar from the Philippines by High Fructose Corn Syrup (HFCS) in the USA has become one of the most well known examples of the negative social and economic impact of biotechnology. In many publications, substitution by HFCS has been considered as the primary cause of the 1983­84 sugar crisis in Negros, the 'sugar bowl' of the Philippines. This article deals with the deeper causes of the crisis, and looks at the prospects of the island's sugar industry.

Substitution of traditional commodities as a result of the application of biotechnology is most advanced in the case of sugar. High Fructose Corn Syrup (HFCS), the product of an enzymatic transformation of corn starch, is the most important sugar substitute in the USA. In the past 2 decades, HFCS has gradually increased its share in the total US domestic sweetener consumption. Between 1975 and 1985 this share grew from 5 to 34 per cent.
HFCS has a number of advantages from which especially soft drink producers benefit:

• Its price tends to be more stable than that of sugar, since its production is based on corn, but consumes only 10 per cent of the corn harvested in the USA.
• Production can continue throughout the year, instead of concentrating on a three to five month period as in the case of sugar cane, since corn can easily be stored.
• Given HFCS's liquid form it is especially suited for industrial applications, because it requires less labour for handling than sugar which is usually sold in bags.

Philippine sugar crisis
At about the same time the Philippines was hit by the severest sugar crisis in its history. Although in the early 1980s the Philippines belonged to the top four world exporters of raw sugar, the country currently is not mentioned among the top ten. Before the crisis, the Philippine sugar industry was responsible for 8 per cent of the Country's total foreign exchange earnings. This percentage decreased to 1.4 per cent in 1984.
The sugar crisis of 1983/84 especially had an impact in Negros, an island producing about 70 per cent of The Philippine's sugar. Careful estimates reveal that the crisis caused the displacement of about 250,000 sugar workers in Negros alone. In 1985, about 85 per cent of the families in Negros earned less than the poverty threshold. Ever since, Negros has become one of the country's most politically unstable regions. Still today the national army, often in co­operation with private armies financed by planters, frequently clash with insurgent groups, many of them recruited from ex­sugar workers.

Causes of the crisis
In many publications (see also Monitor no. 2, March 1990) Negros' faith has been presented as closely related to the switch of the US beverage industry to HFCS and the subsequent drop in the quota allocations for the Philippines. The case of Negros has become a standard example showing the possible effects of substitution of export commodities through the application of biotechnology.
However, data reveal that export of Philippine sugar under the US quota system during the 1970s and early 1980s fluctuated between 7 and 15 per cent of total production. Although prices of this quota sugar were 2 to 3 times higher than the actual world market and domestic prices, there has been a relatively limited dependence on export income from the US quota. This suggests that the crisis of 1983/84 cannot be ascribed to the increased use of HFCS in the USA only, but should be treated in the light of existing structural weaknesses of the Philippine sugar industry.

Structural problems
The crisis of 1983/84 was not unique. In the early 1970s, before HFCS played a significant role on the US sweetener market, the Philippine sugar industry had already lost its guaranteed access to the US market. After 50 years of easy credit and profitable quotas, the Philippine sugar industry suddenly had to sell its sugar on the world market against competitive prices. High world market prices initially assured continued sales. But as prices started to drop, Philippine sugar soon appeared too expensive. The Philippines had to face three structural problems:

Processing
Better sales to the world market required lower production costs. However, under protection of US quotas since the 1930s, the industry had not had any incentive to improve its processing system and had become one of the world's least efficient. Innovation was, and still is, most badly needed in the sugar mills. In Negros only a few new mills have been built since the early 1960s. Since sugar mills have become speculation objects, the (often foreign) owners are seldom interested in improvement of the production capacity and efficiency, leading to inefficient and expensive production. These high costs were an important reason why producers, when not protected by the US quota after 1984, could not easily shift their exports to the world market, especially as world market prices had started to fall since the early 1980s.

World market
While world market prices dropped from US$ 0.285 per pound (0.453 kg) in the season 1980/81 to US$ 0.04 in 1985/86, the Philippine producers in 1986 were not able to produce cheaper sugar than US$ 0.14 per pound. Consequently, whereas in crop year 1980/81 the Philippine export to the world market was almost 1.54 million metric tonnes, this amount dramatically decreased to 146 thousand tonnes in crop year 1985/86. In 1990, the Philippine farmers still produced 20 to 40 per cent less sugar out of one ha. than, for example, Indonesia, Taiwan and India.
Attempts to produce more sugar for the world market met very strong competition from the EU as well as from other countries with a more efficient processing industry such as Thailand, Brazil and Australia (respectively the world's 3rd, 4th and 7th biggest producers).
Furthermore, the Philippines suffered from protectionism, especially by the EU. Subsidies in the 1980s allowed European sugar beet farmers to change the EU into one of the world's largest exporters. Today, the EU covers a 26 per cent share of world exports, France taking a second position after Cuba. The Philippines are not able to extend their export to the EU, because the EU imports its sugar from a group of selected African, Caribbean and Pacific (ACP) countries of which the Philippines is not a part. The situation for the Philippines, and many other sugar producing developing countries outside the ACP group, has become even worse, since the EU has started to dump the sugar from the ACP countries on the world market. In 1982, the Philippines, among 10 other countries that signed the General Agreement on Tariffs and Trade (GATT), unsuccessfully filed complaints against the EU for harming their sugar exports through its subsidy system.

The Philippines has made efforts to stabilize world market prices through the International Sugar Agreement (ISA), without, however, being successful. In 1977, then still the world's fourth largest sugar exporter, the Philippines played an important role in the conclusion of an ISA by giving up a share of its quota in favour of Cuba. The ISA, however, only became operational two years later because the US government refused to ratify the agreement. The US Congress had made ratification contingent upon the approval of domestic sugar legislation, which was also based on subsidized production and on increased duties on sugar imports. Most opposition, however, came from Europe. In spite of an increasing number of ratifications including the Philippines themselves, the Dominican Republic, China and Iran, the ISA still has not gained momentum.

Monopolization
Since the crisis in the early 1970s, the Marcos government had successfully created a monopoly on sugar production and trading. Newly constituted policy­making bodies (Philsucom for the sugar industry, and Nasutra for trade) were to control supply to influence both domestic and world prices. The government monopoly was said to increase the country's bargaining position in the export trade, and would offer producers and consumers more protection from exploitation by private middlemen. But most of all, Philsucom and Nasutra formed a powerful tool for the Marcos government to control (rather than reduce) the financial and political power of the sugar producers.
Nasutra remained saddled with large domestic stocks, as well as the obligation to repay loans made previously to producers. Even during 1979 and 1980, when world market prices were high, Nasutra's profits were halved because of these loan repayments. Corruption gradually became an essential tool to fill financial gaps and to turn the increasing pressure from the sugar producers. Especially Philsucom is suspected of having embezzled millions of pesos. Also Marcos has been accused of transferring much of the sugar profits into personal bank accounts in Switzerland and the USA.
The debt failures and corruption created a slow­down in production operations, especially by planters who relied heavily on periodical payments. Consequently, many producers were unable to replant. In Negros, much sugar land was taken out of production, abandoned or foreclosed by the government and the banks. In the early 1980s the situation was worsened by a general economic crisis and intensified by the political crisis after the assassination of Benigno Aquino in 1983.

Prospects
Abandoned quota in combination with outdated sugar mills, low world market prices, protectionism and dumping practices, and failing governmental policies, have left no other option than to explore the domestic sugar market. The Governments' Sugar Regulatory Administration (SRA) expects that by the year 2000, the domestic market with a consumption increase of around 4 per cent per year, will have become the sole market for the Country's total sugar production.
Indeed, in 1990, the number of hectares planted to sugar in the Philippines rose to 341,000 hectares (compared to 269,000 hectares in 1987). 1992 witnessed a record harvest of 1.94 million tonnes. According to the SRA, especially small­scale farmers have been moving back to sugar planting, mainly due to a higher return of investment on sugar compared to their other crops. A generation of alternative sources of income have not been successful. The often mentioned prawn industry of Negros, for example, almost entirely depends on the Japanese market, and increasingly meets competition from other South East Asian countries and China. On addition, the planters appear to have successfully withstood land reforms implemented by the Aquino administration, resulting in a continuation of the unequal division of land and exploitation of sugar workers. This consolidates the choice for sugar as an "easy cash crop" instead of food crops which are badly needed to feed the local population.
It remains unclear to what extent the Philippine sugar industry can rely on the domestic market alone. The industry might even receive fierce foreign competition within the Country's borders since the Ramos government is on the brink of ratifying the free trade agreements under GATT. In order to stop small shipments already imported from (or via) South Korea and Singapore, the planters' lobby in Manila has called for a levy of 75 per cent on imported sugar. Whether their call will be heard by the Ramos government is likely to depend on (a) the outcome of the political battle between the planters' lobby and the representatives of the sugar processing industry, notably the beverage companies, and on (b) the international pressure to accept a free trade agreement..
Robin Pistorius

This article is based on: R. Pistorius (1993) Causes and Consequences of the Philippine Sugar Crisis of the Mid­1980s: A case study on the impact of sugar substitution through High Fructose Corn Syrup. Report prepared for the Directorate General International Cooperation of the Ministry of Foreign Affairs, The Netherlands. 59 p..

For more information:
Robin Pistorius
University of Amsterdam
Department of International Relations and Public International Law
Oudezijds Achterburgwal 237
1012 DL Amsterdam, The Netherlands
Phone (+31) 20 525 4587
Fax (+31) 20 525 2086