INVESTMENT OPPORTUNITY IN SUGARCANE PLANTATION

Introduction
The government is promoting the development of tracks of land in Southern
Philippines into sugarcane plantations. A foreign investor engaged in food or beverage
production which consumes a lot of sugar may invest in sugarcane production in the
Philippines to supply its sugar requirements. Although Philippine sugar cannot be
exported directly, some forms of cost leverage on the foreign investors sugar from the
Philippines can be arranged. We also consider bioethanol as another source of revenue for
the sugar industry. Its demand in the domestic market is high and will further rise as the
government mandates the increase in the blend of bioethnol with all gasoline sold
domestically.
Promotion of agribusiness projects like sugarcane plantations will make use of our
undeveloped or idle lands or existing farmlands where investments are needed to make
them more productive. Owners of undeveloped alienable and disposable lands, cultural
ancestral domain claimants (CADCs) and beneficiaries of agrarian reform programs
(ARBs) are important stakeholders.
Sugarcane production is highly desirable and very profitable. Supporting
computations done by an industry player prove its desirability. Furthermore, sugarcane
production is one of the governments priority activities that would be eligible for a
package of incentives under the Omnibus Investments Code.

Investment Opportunities
Most of the sugar produced in the country go to the domestic market. On top of
this, we set aside about 200,000 tons to preserve preferential access to sugar exports to
the US. The Philippines tries to always honor its commitment to the US because it is a
generally favored market.
Normally, the industry is producing enough of what the country needs. It is for
this reason that area expansions in the industry are geared for the production of alternative
products. But sometimes, an El Nino-induced drought may damage crop resulting to low
harvest. The Sugar Regulatory Administration (SRA) determines if there is a need to
import sugar when the crop year ends and sugar millers had reported their actual sugar
productions. When the SRA sees that there will be a tight domestic supply, importation
becomes necessary for the government to ensure it keeps preferential export quotas to the
US and to maintain a buffer stock. Newcomers in the industry will have this market in
case such phenomenon happens. But we dont want them to exist just to address the
shortage in sugar when there is tight domestic supply.
The Mill District Development Committees (MDDCs) are optimistic on
increasing the countrys production of ethanol. The Biofuels Act of 2006 which aims to
achieve a three-pronged objective of energy security, countryside development, and
environmental protection mandates the use of ethanol and/or ethanol-blended gasoline for
the transport sector.

The enactment of the Biofuels law created a sure market for locally-produced
ethanol but our existing capacity cannot supply the demand. To address this gap and to
comply with the mandate, oil companies import their additional requirements from other
countries particularly from Brazil.
Meanwhile under the said law, fuel companies are currently required to blend
ethanol with gasoline at 10% this year with some exemptions. Current ethanol demand is
estimated at about 219 million liters versus domestic production of merely 80 million
liters, derived from sugarcane and molasses.
The table below shows the production and importation trend of the industry since
2008 vis-a-vis the demand based on the mandate of the law.

Source: Department of Energy

As of December 2008, three companies had registered with the DOE as bioethanol
producers. One additional bioethanol plant will operate this year and another two have
secured certification from DOE for their plant site.
The SRA has certified 4,990.07 hectares of existing sugarcane plantations as
feedstock areas for bioethanol.

General Profile of the Sugar Industry*

Total area planted to Sugarcane ~ 383,000 hectares

-

Average size of farm holding ~ 5 hectares

Estimated number of farm owners = 55,000

Estimated number of farm workers ~ 580,000 individuals

Number of operating Sugar Mills = 29 mills (as of February 13, 2011)

Average capacity of sugar mill ~ 6,900 tons cane/day (TCD)

Average duration of milling season ~ 180 days per annum

Number of Refineries = 12 refineries (as of February 13, 2011)

-

Average refining capacity ~ 12,000 LKg Sugar/Day

Annual raw sugar production (5-year average) = 2. 2 million metric tons

Annual refined sugar production (5-year average) = 20.437 million 50Kg/bag

Sugarcane is one of the major crops of the Philippines. It is cultivated in 19

provinces across the country. From 2002 to 2006, sugarcane production contributed an
average of P24.91 billion/per year to national agricultural production. Based on the latest
statistical data, about 392,300 hectares are for sugarcane production which accounts for
7.43 percent of agricultural lands for major crops.
Sugarcane areas are divided into small farms with an average farm size of 5
hectares. A hectare of sugarcane usually requires 1.5 workers. This puts the labor force
directly employed by the industry, including sugar mills and refineries, at 600,000
workers, with an additional 5 million indirectly dependent on sugar production for
livelihood.
On the average, the country milled 20.42 million tons cane per season in CY 20082009 and CY 2009-2010 and has, at present, 29 operating mills and 12 operating
refineries strategically located in the various sugar producing areas.
*Source: Philippine Sugar Millers Association, Inc.

Constitutional Provisions and Statutory Laws Relevant to Agribusiness Ventures

with Foreign Investors
Foreign corporations or associations can not be owners of alienable lands of the
public domain. They may hold such lands only through lease for a period not exceeding
25 years, renewable for not more than 25 years and not to exceed 1,000 hectares in area.
Modality Options Open to Investors in Agribusiness Commercial Plantations
Agribusiness Venture Agreements (AVAs) in agrarian reform areas involves a
contract signed between a lessee and a lessor wherein the lessor (agrarian reform
beneficiary) binds itself to give the lessee (investor) control over the use and supervision
of the land for a specific period of time and for a certain amount.

Management Contract

This is a form of agribusiness agreement whereby Agrarian Reform Beneficiaries

(ARBs) or their cooperative/farmers organizations that assume full and exclusive
ownership of the land, hire services of the former land owner or contractor-investor to
manage and operate the farm in exchange for fixed wages or commission, as the case may
be.
Joint Venture
In a joint venture arrangement, the agribusiness firm and the cooperative agree to
form a third party or a joint venture (JV) company. The JV leases the land from the
cooperative while the agribusiness firm provides the technology, financing the
management of the operations. The cooperative members now become hired laborers in
the farm and if operations include processing, qualified household members can be hired
in the processing plant as well. The market could be the JV company and or the
agribusiness firm, depending on the terms and conditions agreed upon.
In case of the ARBs, the land is their equity in the joint venture and its value is
based on the computed valuation.
Nucleus Estate Scheme
This is an integration of contiguous individual lots to form a single estate or
several nucleus farms. The management of the nucleus estate can be handled by a
cooperative or a company. Two possible set-ups are as follows:
Company-Managed Farm
The company negotiates the lease of the land to individual owners over fixed
term. The nucleus farm can be managed by the anchor firm as core plantation.
Management is centralized. The company handles the production, financing and
management of the nucleus farm. The cooperative members are hired as laborers.
Cooperative-Managed Farm
This is a grower-type arrangement between the company and cooperative. The
cooperative is contracted as a supplier of raw materials for the company. In this
case, the members of the cooperative surrender their right to operate the land they
owned to the cooperative that subsequently manages the nucleus farm. The
member-owner of the nucleus farm provides the necessary labor.
Identification of Possible Plantation Areas
The Philippines Agricultural Development and Commercial Corporation
(PADCC), the designated agribusiness marketing, investment promotion and project
development corporate arm of the Department of Agriculture, extends assistance to
investors for their projects basic requirements, namely:

Identification of possible plantation areas, which include:

- assistance and provision of general support identification and evaluation of
suitable agricultural lands
- endorsement of the project to interested and qualified landowners
- provision of complete data and information necessary in the
implementation of the project
Consolidation, packaging, and contract negotiation with the land owners
Facilitation of endorsements, accreditations, licenses, and permits from concerned
government agencies.

Keys to a More Sustainable and Globally-Competitive Sugarcane Industry

Tariff rates on imported sugar from competing ASEAN countries will be
gradually reduced from the current 38% to only 5% by 2015. By 2012, tariff rate will
further go down to 28%, to 18% by 2013, and 10% by 2014. This schedule of tariff
reduction is expressly provided under Executive Order 892.
In the light of the implementation of the ASEAN Free Trade Agreement (AFTA),
sugarcane farmers need help from the government in providing the necessary equipment
and infrastructure particularly tractors, trucks and irrigation systems to increase
productivity and enhance long-term competitiveness in the world market. Other farmers
also clamor for more farm-to-market roads in major sugar producing provinces for faster
and more efficient transport of canes to the mills. Investors may provide funds to bankroll
their equipment needs or they may enter into any of the different modalities presented
herein.
Incentives Under the Omnibus Investments Code (E.O. 226)
1. Income Tax Holiday (ITH) for registered enterprises engaged in new, expanding
and modernizing projects. Period of availment shall be as follows:
New registered pioneer firms - 6 years from commercial operations.
Registered projects locating in Less Developed Areas (LDA) - 6 years from
commercial operation regardless of status (pioneer or non-pioneer) or type
of project (new or expansion).

New registered non-pioneer firms - 4 years from commercial operations.

Expanding firms - 3 years from commercial operations of the expansion.

Registered firms can avail of bonus year if they meet any of the following criteria,
but the aggregate ITH availment (basic and bonus years) shall not exceed eight (8)
years:

The ratio of the total imported and domestic capital equipment to the
number of workers for the project does not exceed US$ 10,000 to one (1)
worker; or

The net foreign exchange savings or earnings amount to at least

US$500,000 annually during the first three (3) years of operation; and

The indigenous raw materials used in the manufacture of the registered

product must at least be fifty percent (50%) of the total cost of raw
materials for the preceding years prior to the extension unless the Board
prescribes a higher percentage.

2. Additional deduction from taxable income of fifty percent (50) of the wages
corresponding to the increment in the number of direct labor for skilled and
unskilled workers in the year of availment as against the previous year for the first
five (5) years from date of registration if the project meets the prescribed ratio of
capital equipment to the number of workers set by the Board of $10,000 to one
worker and provided that this incentive
shall
not
be
availed of
simultaneously with the Income Tax Holiday.
3. Employment of foreign nationals. This may be allowed in supervisory, technical or
advisory positions for five (5) years from date of registration. The president,
general manager and treasurer of foreign-owed registered firms or their equivalent
shall not be subject to the foregoing limitations.
4. Importation of consigned equipment for a period of ten (10) years from date of
registration, subject to the posting of re-export bond.

ANNEX
PHILIPPINE SUGAR INDUSTRY

Total Volume of Production and Area Harvested with Sugarcane

Sugarcane
Volume of Production
(in 000 metric tons)
Area Harvested
(in 000 hectares)

2006

2007

2008

2009

2010

24,345.1

22,932.80

26,601.4

22,932.8

18,421,429.2

392.3

383.0

398.0

404.0

362.8

Source: Bureau of Agricultural Statistics

Raw and Refined Sugar Production

CY 2005-2006

CY 2006-2007

Raw Sugar
(in
metric
2,138,075
2,233,453
tons)
Refined Sugar
(in 50K bag)
20,036,314
21,645,089
Source: Sugar Regulatory Administration (SRA)

CY 2007-2008

CY 2008-2009

CY 2009-2010

2,455,027

2,100,048

1,970,784

21,843,627

18,977,540

19,684,060

Number of Sugarcane Farms by Farm Size

(Crop Year 2005-2006)
Mill District
(in hectares)

0.01-5

5.01-10

10.01-25

25.01-50

50.01-100

over 100

Total

Philippines

44,895

6,059

4,843

2,396

1,378

808

60,379

Luzon
1. Carsumco
(Cagayan)
2. Basecom
(Pasudeco)
3. Tarlac
4. Batangas
5. Don Pedro
6. Pensumil
(Bisudeco)

10,118
450

1,221
110

1,041
101

503
47

288
29

231
44

13,402
781

295

162

142

71

49

21

740

1,142
2,392
4,983
856

146
430
285
88

184
405
167
42

83
238
56
8

31
155
20
4

107
50
5
4

1,693
3,670
5,516
1,002

Negros
1. Aidsisa/
HawPhil
2. BacMur/
FFTalSilay

17,114
277

2,265
54

1,797
89

1,022
100

619
47

284
17

23,101
584

881

235

138

108

87

38

1,487

3. Binalbagan
4. Dacongcogon
5. Danao/ Sagay
6. La Carlota
7. Lopez
8. Ma-ao
9. San Carlos
10. Sonedco
11. Victorias
12. Bais-Ursumco
13. Tolong

1,064
3,426
642
190
240
107
587
1,015
67
5,885
2,733

280
450
272
72
82
66
121
119
50
292
172

245
117
240
97
120
93
134
103
178
180
63

131
49
104
69
83
63
40
33
155
76
11

68
18
39
58
49
43
15
19
112
43
21

44
7
37
19
13
13
9
49
36
2

1,832
4,060
1,304
523
593
385
910
1,298
611
6,512
3,002

Panay
1. Monomer
2. Capiz/ Pilar
3. Passi
4. Santos-Lopez

2,767
305
639
1,266
557

417
55
141
122
99

329
32
113
120
64

104
15
28
43
18

79
8
8
6
57

15
2
4
5
4

3,711
417
933
1,562
799

Eastern Visayas/
Mindanao
1. BogoMedellin
2. BogoDurano
3. Ormoc Hideco
4. Bukidnon
5. Davao
6. Cotabato

14,896

2,156

1,676

767

392

278

20,165

161
136
763
7,499
4,128
2,209

56
11
199
1,453
306
131

33
14
205
1,074
203
147

15
4
71
602
38
37

10
4
61
249
46
22

25
2
73
144
28
6

300
171
1,372
11,021
4,749
2,552

Source: SRA

Wholesale Sugar Prices in Metro Manila per 50K Bag (in PhP)
CY 2003-2010

Source: SRA

Retail Sugar Prices in Metro Manila (in PhP)

CY 2003-2010

Source: SRA

Potential Areas for Sugarcane Plantations in Mindanao

Province

Potential Area (in hectares)

Agusan del Norte/Sur

35,000

Lanao del Norte

38,110

Southern Bukidnon

10,000

Maguindanao

60,000

South Cotabato

15,000

Sultan Kudarat

70,000

General Santos/ Saranggani

22,000

Zamboanga del Norte

6,250

Source: Philippine Agricultural Development and Commercial Corporation

Directory of Sugar Mills

Crop Year 2010-2011
Mill District /
Planter-Miller Sharing

Region

Rated Capacity
(TCD)

Luzon
1

Universal Robina Corp. - CARSUMCO

Piat, Cagayan
60/40

II

3,800

Sweet Crystals Integrated Sugar Mill Corp. San Fernando

65/35

III

3,500

Sweet Crystals Integrated Sugar Mill Corp. Planas, Porac, Pampanga

65/35

III

2,500

Central Azucarera de Tarlac

67.5/31.5
1-CATPA

III

7,000

Batangas Sugar Central, Inc.

Balayan, Batangas
65/35

IV

5,500

Central Azucarera Don Pedro, Inc.

Nasugbu, Batangas
65/35

IV

13,000

PENSUMIL, Inc. Mill

Camarines Sur

3,500

VII

9,000

60/40
Negros
1

Central Azucarera de Bais, Inc.

Bais City, Negros Oriental
67/33

Binalbagan-Isabela Sugar Co., Inc.

Negros Occidental
66.33/30

VI

12,000

First Farmers Holding Corp.

Talisay, Negros Occidental
70/30

VI

4,800

Hawaiian-Phil. Co.
Silay City, Negros Occidental
68/32

VI

7,500

Herminio Teves & Co., Inc.

Sta. Catalina, Negros Orienta;
68/32

VII

3,000

Central Azucarera de la Carlota, Inc.

La Carlota City, Negros Occidental
65/35

VI

18,000

Lopez Sugar Corp.

Sagay City, Negros Occidental
70/30

VI

7,000

Universal Robina Corp. - URSUMCO

Manjuyod, Negros Oriental
67/33

VII

8,000

Sagay Central, Inc.

Bato, Sagay, Negros Occidental
70/30

VI

4,000

10

Universal Robina Corp. - SONEDCO

Kabankalan City, Negros Occidental
70/30

VI

9,000

11

Victorias Milling Company, Inc.

Victorias City, Negros Occidental
69.5/30.5

VI

15,000

12

OPTION MPC
Sagay City, Negros Occidental
70/30

VI

500

VII

2,800

Central and East Visayas

1

Bogo-Medellin Milling Co., Inc.

Medellin, Cebu
64.5/33.5

R. D. Durano III & Co., Inc.

Dungo-an, Danao City, Cebu
65/35

VII

2,000

Hideco Sugar Milling Co., Inc.

Kananga, Leyte
66/34

VIII

5,000

VI

4,500

VI

4,500

VI

8,000

Panay
1

Capiz Sugar Central, Inc.

Pres. Roxas, Capiz
65/35

Universal Robina Corp.

San Enrique, Iloilo
65/35

Central Azucarera de San Antonio

Passi City, Iloilo
35/35
Mindanao

Busco Sugar Milling Co., Inc.

Bukidnon
64/36

18,000

Crystal Sugar Co., Inc.

Maramag, Bukidnon

10,000

60/40
3

Davao Sugar Central Co., Inc.

Hagonoy, Davao del Sur
60/40

XI

5,000

Cotabato Sugar Central Co., Inc.

Matalam, North Cotabato
62/38

XII

4,500