TED Case Studies

Philippine Sugar and Environment



     CASE NUMBER:        250
     CASE MNEMONIC:      PHILSUG
     CASE NAME:          Philippines Sugar

A.   IDENTIFICATION

1.   The issue

Since 1844, sugar has been the Philippines' leading export crop. 
Most of its sugar production has been exported to the United
States.  However, due to the U.S. quota reduction in late 1980',
the Philippines has had to sell its sugar to the world market at
a price below the production costs.  The low price of sugar was
due to the ineffective world pricing controlling mechanism of the
International Sugar Agreements (ISA).  Meanwhile, the owners of
sugar plantations decided to leave unharvested a large area of
their sugar cane field.  Thus, landless cane workers were forced
to migrate to the uplands.  This, coupled with already situated
sugar cane field converted by forests, added another cause of
deforestation and soil erosion.  With human settlement expanding,
forests have been cleared to grow crops, wetlands have been
drained, and grasslands have been irrigated.  The net effect has
exacted a heavy environmental toll in the Philippines.

2.   Description

The underlying issue in this paper is to illustrate 1) how third
world producers of primary commodities dependent on exports to
developed countries market, 2) how they have been hit by
fluctuating prices as a result of Northern agricultural policies,
3) how the trade mechanism controlled by developed countries
contribute to environmental degradation in the third world.

The history of sugar production is inextricably mixed with that
of colonialism and slavery.  The european settlers who planted
cane and built sugar mills on the Eastern Caribbean depended on
the slave trade for workforce of sugar plantation.  As a result,
the Caribbean became Africanised.  Between 1450 and 1900, 11.7
million captured West Africans were imported to the Caribbean. 
They were one leg of a profitable triangular trade, which cloth,
firearms, and salt to be traded for Africans destined to the
Caribbean plantation, who in turn were exchanged for raw sugar
and run destined for the small refineries in England.  The
triangular trade brought fortune and stimulated industrial
development in Britain.

When sugar was first introduced into England in the 14th century,
it was classified as a spice, but used mostly for medicinal
purposes.  By the 16th century, it had started to be used as a
preservative.  It was also being used in some recipes, but mainly
for decoration.  The introduction of tea, coffee, and chocolate
into Europe boosted demand for sugar and greatly encouraged the
expansion of the Caribbean industry.  Then, sugar was eventually
established as a common food in England in the 1800s when the
temperance movement advocated sugared tea as a alternative to
alcohol and dessert became an accepted part of the mid day or
evening meal.  Sugar was rapidly becoming the quickest, cheapest,
most palatable source of energy available and was the single most
important addition to the British diet during 19th century.

While consumption was increasing, the way in which sugar was
being produced began to cause concern which gave rise to the
anti-slavery movement.  The sugar industry could not survive
without slavery.  In 1838 a quarter of the world's sugar supplies
came from the British Caribbean colonies.  However, the decline
of the industry in the second half of the 19th century was as
much due to the increased production of European sugar beet as to
the abolition of slavery.  

Satisfying the European and North American sweet tooth involved
the creation of massive industry throughout the tropical or sub-
tropical regions around the world.  When independence came to
many Third World countries in the 20th century their position in
the world economic system had already been set.  They remain
dependent on sugar as a source of foreign exchange.

As to the Philippines, sugar was grown as a subsistence crop long
before it was grown for export.  It was a British colonizer,
Nicholas Loney, who saw its potential as an export crop and
brought in a shipment of machinery for sugar production in the
1850s.  Shortly afterwards, the industry entered the world market
and sugar became a leading export earning crop.        

The Philippines has produced and exported sugar to the United
States and the world market.  As to the US market, the quota
system was established in 1934 by the Jones-Costigan Act. 
However, as the U.S. domestic sugar production increased and the
switch from sugar to High Fructose Corn Syrup in many U.S.
manufactured products proceeded, the overall size of the quota
has been dramatically reduced.  Thus, the Philippines has had to
sell sugar to the world market, which is a 'dump' market for
highly subsidized sugar, such as the European Community's.

In the world market, sugar came producing countries are in direct
competition with sugar beet producing countries in the world's
temperate zones such as Europe and North America.  In these
countries, production is highly mechanized and farmers are
generally well paid for their crop.  Although the series of the
International Sugar Agreements have been established to control
the world market prices, it remains ineffective allowing the
sugar price to fluctuate.  The world price sunk from more than 60
U.S. cents per pound in 1974 and more than 40 cents in 1980 to
the bottom of less than 3 cents in 1985.  Therefore, the
Philippines suffered from a 'sugar crisis' in late 1985.  

The relationship between sugar production and environmental
damage is found in deforestation, soil erosion, and consequent
bio-diversity loss caused by forest conversion to sugar cane
field.  Forest clearing caused widespread soil erosion and had a
devastating effect on the ecology, wiping out a third to a half
of the known species of snail and birds in the Philippines. 

An example of Ormoc deluge which caused over 5000 people to die
in November 1992 illustrated the seriousness of deforestation. 
Since the 1950s, the watershed area around Ormoc had been planted
with sugar which do not absorb flood waters.  Only 10 percent of
the mountain range was still forested.  Also, floods at Nueve
Ecija in a northern province of the Philippines in July 1992 were
caused by massive deforestation.  Only 11.7 percent of the 14000
hectare in the area remains covered with forest; much of the
watershed has been converted into sugar plantations.   

Moreover, the collapse of the sugar industry as a result of
falling commodity prices contributed to the widespread poverty
and malnutrition.  In Negros island, where 60 percent of total
sugar in the Philippines produced, a survey conducted by the
National Secretariat of Social Action showed that in 1985 40
percent of children under the age of 14 were malnourished and one
year later, 73 percent of children became malnourished.  Thus,
many of landless cane workers have migrated to the upland
sites.  As migration and upland cultivation proceed, forested
area has been reduced.  In the overall Philippines, cultivated
upland areas increased from 582,000 hectares in 1960 to over 3.9
million hectares in 1987.  Soil erosion was estimated at about
122 to 210 tons per hectare annually for newly established
pasture, compared to less than 2 tons per hectare for land under
forest cover.  Forest cover declined from 50 percent of the
national territory in 1970 to less than 21 percent in 1987. 

3.   Related Cases

     CUBA case
     BANANA case
     COFFEE case
     COCOA case

     Keyword Clusters    
     (1): Forum                    = PHILippines
     (2): Bio-geography            = TROPical
     (3): Environmental Problem    = DEFORestation

4.   Draft Author:  Yuri Honda

B.   LEGAL Filters

5.   Discourse and Status: Agreement and INPROGress
     
In 1937, the first International Sugar Agreements (ISA) was
established to control the sugar price.  The traditional
mechanism of ISA are export quotas.  Additionally, exporting
countries were expected to hold stocks of uncommitted sugar,
which are to be released onto the market when prices rose above a
certain level.  Importing countries agreed to limit imports from
non-members of the ISA.  The present ISA commenced in January
1987, when it was signed by 53 sugar exporting and importing
countries, but is purely an administrative agreement.  

6.   Forum and Scope: Philippines and UNILATeral

Related legislation includes the U.S. Sugar Act and the Sugar
Protocol of the Lome Convention.  The Lome Convention was first
signed in February 1975 between the European Community and 64
African Caribbean and Pacific (ACP) countries.  The Convention
includes a wide range of provisions on aid and trade cooperation
for promoting the development for the ACP countries.  Its trade
provision was designed to give ACP exports -- which are mostly
primary products and raw materials -- unrestricted access to the
Community market.

The Sugar Protocol of the Lome Convention was implemented to
protect those ACP countries that had traditionally exported sugar
to Britain under the Commonwealth Sugar Agreement (CSA).  The
CSA, which was first established in 1951, was the most formal of
a long series of preferences granted by Britain to sugar imports
form its colonies.  When Britain joined the EC the CSA was
terminated and replaced by the 1975 Sugar Protocol of the Lome
Convention.  This is similar to the Commonwealth Sugar Agreement
in that a number of ACP producer countries agree to provide the
Community with a specific quantity of sugar each year, which the
Community agrees to purchase from them at a guaranteed price.

In 1975, the United States failed to renew its Sugar Act, which
had been in existence since 1948.  The expiration of the Act
transformed the US sugar market from conditions of strict
regulation to a relatively free market.  These related
legislation encouraged to renew ISA. 
     
7.   Decision Breadth: 1
     
     The following countries were members of ISA in 1985.
There were 42 exporting members: Argentina, Australia, Barbados,
Belize, Bolivia, Brazil, Ecuador, El Salvador, Hungary, India,
Ivory Coast, Jamaica, Madagascar, Malawi, Mauritus, Mexico,
Nicaragua, Pakistan, Panama, Papua New Guinea, Paraguay, Peru,
Philippines, St Christopher, South Africa, Swaziland, Thailand,
Trinidad, Tobago, and Uganda.  There were 11 importing countries:
Canada, Egypt, Finland, Germany, Iraq, Japan, South Korea,
Norway, Sweden, former USSR, and USA. 

8.   Legal Standing: TREATY
     
C.   GEOGRAPHIC filters

9.   Geography

     a.   Continental Domain:           Asia   
     b.   Geographic site:              East Asia 
     c.   Geographic Impact:            Philippines 

10.  Sub-National Factors: NO
     
Protection of the U.S. domestic sugar producers affects to
decrease the share of sugar quota to the Philippines.  The U.S.
Sugar Program, under the U.S. Farm Law, guarantees its sugar
producers a minimum price of 18 cents per pound. 

11.  Type of Habitat:  TROPical

This case centers on sugar production in the Philippines and
sugar cane is grown in many developing countries.  Sugar cane
thrives in the heat and damp of tropical or semi tropical
climates as it needs strong sunlight and abundant water.  In the
Philippines, sugar was grown as a subsistence crop before it was
grown for export.  A Britain colonizer, Nicholas Loney brought
machinery and started production for export. 

On the other hand, sugar beet is a root crop which can only be
grown in the world temperate zones.  Thus, the vast majority of
the sugar beet is grown in the 'First World', whilst most of its
cane is grown in the 'Third World'.  This makes sugar one of the
few major agricultural commodities where the developed and
developing worlds are in direct competition with one another.

C. TRADE Clusters

12.  Type of Measure: QUOTA

The U.S. quota for duty free sugar was enacted by the Jones-
Costigen Act of 1934 and the Sugar Act of 1937.  After the second
world war, the Laurel Langley Trade Agreement was set and granted
the Philippines sugar a high quota for entry into the U.S.
markets up to 1974.  This led to boom years for Philippines'
sugar from 1950-1970.  The souring of the U.S. relations with
Cuba following the Cuban Revolution led to an increase in the
quota of all other sugar exporting countries.  In 1961, the
Philippines was given 15 percent of the Cuban share.

13.  Direct v. Indirect Impact:  Indirect
     
Since the issue focused in this case is deforestation caused by
forests conversion to sugar cane fields and migration of cane
workers to uplands, change in the share of the U.S. quota to the 
Philippines' sugar has been indirectly related to environmental
damages.

14.  Relation of Measure to Resource Impact
     
     a. Directly Related:          Yes Sugar
     b. Indirectly Related:        No
     c. Not Related:               No  
     d. Related to Process:        Yes Habitat Loss  

Although the environmental damages are caused indirectly by the
trade measure, change in the amount of the sugar production is
directly related to the U.S. quota measure.

15.  Trade Product Identification:  Sugar

16.  Economic Data
     
     Table 250-1

     Developed country

     sugar consumption    1974      1985
     
     EC                   45.1      38.4 
     USA                  48.0      30.5
     Japan                30.4      23.9
     Australia            57.3      48.5
     
     Developing country
     sugar consumption   

     India                 6.5      12.0 
     Jordan               19.1      43.5 
     Egypt                17.0      33.3
     Zimbabwe             20.5      27.3
     Mexico               40.3      45.3


The biggest consumers of sugar have historically been those
industrialized nations which colonized sugar producing countries
and developed their own export markets.  Now, however, in the
same way as sugar consumption shifted from the wealthy to the
poor in Britain during the 18th and 19th centuries, the bulk of
sugar consumption is gradually shifting away from the richer
nations to the poorer developing countries. 
     
17.  Degree of Competitive Impact: Low

As mentioned above, attempts to control the world market price of
sugar have been made through a succession of International Sugar
Agreements.  However, Cuba lost the U.S. market following the
Cuban Revolution and increased the amount of sugar to sell in the
world market.  This, combined with a large European beet sugar
into the world market has unabled ISA to control the prices.  The
present ISA, which was signed in 1987, has no provision for
controlling prices.  Thus, it has been merely an administrative
agreement.  Therefore, the impact of the present ISA on
controlling the price of sugar has been limited.  The immediate
need is for an Agreement that will help be effective in
controlling world market sugar prices.

Moreover, ISA failed to incorporate all alternative sweeteners. 
Considering that an increasing share of sugar market is being
taken away from cane sugar by alternative sweeteners, it remains
ineffective to stabilize the sugar price in the world market. 
One way to solve the problem is incorporating all alternative
sweeteners into the International Sugar Agreement.  The Agreement
could then provide a general and comprehensive framework in which
to plan the marketing and production of all major forms of
sweeteners.

18.  Industry Sector: FOOD

19.  Exporter and Importer: PHILippines and USA

Other major exporters of sugar include EC, Argentina, Australia,
Brazil, China, Cuba, India, Mexico, Thailand, etc.

E.   ENVIRONMENT filters

20.  Environmental Problem Type:  DEFORestation

The forests of the Philippines (and other Southeast Asian
countries) are unusual for the tropics in their high
concentration of species of the Dipterocarpaceae family, offering
high commercial yields (Bioscience).
As stated above, conversion of forest lands for sugar cane is a
cause for deforestation in these precious forest.  Also, the
upland migration of sugar cane workers has reduced the forest. 
These accompanied by other causes, such as both legal and illegal
logging have damaged the Philippines' forest.  Forest cover
declined from 50 percent of the national territory in 1970 to
less than 21 percent in 1987.  In addition, in Negros island,
where massive sugar production has been situated, forest lands
decreased from 30 percent of total area in 1980 to 5 percent in
1992.     

21.  Species

Sugar is derived from sucrose, a chemical substance, which is
present in all green plants.  The most important sources of
sucrose are beet and cane.  The Philippines produce sugar by
cane.  Sugar cane is a perennial giant grass that belongs to the
same plant group as maize and sorghum.

     Name:          MANY
     Type:          MANY
     Diversity:     ?

22.  Impact and Effect:  HIGH and Structural [STRCT]
     
The deforestation process in the Philippines has been complex and
has involved different causes.  Thus, the impact of forest
conversion to sugar cane and cane workers upland migration to
deforestation is difficult to measure.

23.  Urgency and Lifetime:  MEDiunm and 100s of years

The deforestation rate of the Philippines now pegged at 25
hectares an hour or 219,000 hectares a year.  Experts say the
country can expect its forests to be gone in less than 40
years.

24.  Substitutes: SYNTHetic products

In addition to sugar beet which is grown in the world temperate
zones, alternative sweeteners fall into two categories; cereal
based sweeteners and artificial sweeteners.  Cereal based
sweeteners are derived traditionally from the wet milling of
maize or wheat to produce starch.  This, in turn, is modified to
produce glucose, dextrose (crystallized glucose) and high
fructose known in the EC as isoglucose and known in the United
States as High Fructose Corn Syrup.  Artificial sweeteners
include Saccharin and Cyclamate, which were used but are banned
because of risks to health.  Also, Aspartame (brand name
Nutrasweet), Acesulfam K (trade name Sunnett), and Thaumatin are
used as artificial sweeteners.  
     
F.   OTHER factors

25.  Culture:  Yes  
     
Migration to uplands has not only hastened the destruction of the
forests but also infringed upon the ancestral domains of the
indigenous peoples, such as Bagobo people, Batak people, Igorot
people. (see 27. Human Rights)

26.  Human Rights:  Yes  

Many sugar cane workers have lived under the condition of
extensive poverty.  Thus, recent ISA have contained a clause
stating that all members of the Agreement must ensure a decent
standard of living for sugar workers.  However, the fair labor
standard clauses remain ineffective due to the lack of systems to
monitor labor standards and impose sanctions on member countries
which abuse worker's rights.

Also, land conversion from forest and migration to upland pushed
many of indigenous people onto more marginal lands in more
fragile ecosystems.  Today, many of indigenous people are
demanding recognition of their ancestral domain rights, which
include rights to lands lost.  Throughout the Philippines, where
indigenous people still live on ancestral land, they are trying
to protect the last remaining rainforests from the plunder that
has followed the invasion of the lowlander.

26.  Trans-Boundary Issues:  No   
  
28.  Relevant Literature

"Aquino promises to bring illegal loggers to justice."  Agence
France Presse.  November 11, 1991.

Coote Belinda.  The Hunger Crop - Poverty and the Sugar Industry. 
Oxford: Oxfam, 1987.

"Better life for sugar workers."  the Visayan Daily Star.  June
14, 1994.  

EIU Country Profile 1993/94,  the Economist Intelligence Unit
Limited, 1993.

Michael S. Billig. "Rationality of Growing Sugar in Negros." 
Philippine Studies.  Ateneo de Manila university press. 1992.

"Environment chief warns Ormoc deluge could be repeated."  Japan
Economic Newswire.  November 11, 1991.
s
Kummer M. David and Turner B.L.  "Human causes of deforestation
in Southeast Asia."  Bioscience.  May 1994.

Gamboa A. Rodolfo.  "Sugar: World Market and World Price" Manila
Bulletin.  May 3, 1993.

"Man's Dominant Raw Material; The Vanishing Forests"  Los Angeles
Times.  June 17, 1987.

"New Biotechnologies; Promise and Performance."  UNESCO Courier. 
March 1987.

SRA: After Three Years.  SRA Printing Press.  Bacolod city,
Philippines. 1986.

World Resources.  World Resource Institute.  New York.  Oxford:
Oxford university press. 1994.





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