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Order Number 9001983

The political economy of the Philippine sugar industry

Ku, Charng-Yeong, Ph.D.

The Ohio State University, 1989

Copyright ©1989 by Ku, Chamg-Yeong. All rights reserved.

UMI 300 N. ZeebRd. Ann Arbor, MI 48106

THE POLITICAL ECONOMY OF THE PHILIPPINE SUGAR INDUSTRY

DISSERTATION

Presented in Partial Fulfillment of the Requirements for

the Degree Doctor of Philosophy in the Graduate

School of the Ohio State University

By

Charng-Yeong Ku, LL. B ., M.A.

* *

The Ohio State University

1989

Reading Committee: Approved By

R. William Liddle

Bradley M. Richardson

David Pion-Berlin Advisor Department of Political Science Copyright by Charng-Yeong Ku 1989 To my wife, my daughter, and my mother

11 ACKNOWLEDGEMENTS

To complete this dissertation is one of the greatest dreams I have ever had. Before starting this research, I was not confident that I would get this job done. This dissertation is not a work of one, but many. Thus, a lot of thanks need to be given.

Professor R. William Liddle is the first person who deserves recognition and thanks. It is through his intellectual revelation that I got involved in the field of political economy. In effect, my interest in the

Philippine sugar industry originated from one of his assignments in the course of political development--"The

Philippine Sugar Crisis," (Alfred McCoy, 1982). Later, due to his encouragement and guidance, I was inspired to further study on the political economy of the Philippine sugar industry. To him, I owe my greatest debt.

Professor Bradley Richardson and Professor David Pion-

Berlin are also very helpful to this study, because of their valuable criticisms and comments. Besides, I am particularly indebted to my friend--Dr. Khai Leong Ho, who continually shares with me not only his intellectual thinking but also his experience in writing a dissertation that helps me a lot. I am also grateful to three of my colleagues--Yujen Chou, Hsianfen Hemstock, and Joushieh Wu, for their comments on some chapters of this dissertation.

iii Further, my debts have to extend to my mother, a widow since 1972, whose spiritual support and financial assistance are invaluable and priceless. She is always pleased and satisfied with what I have achieved, even with the bachelor degree I obtained ten years ago. Thus, I can imagine how over-enjoyed she will be about my doctoral degree.

Finally, I like to give thanks to a special person--

Ching-Jen, my wife— , for her understanding and patience.

While I am working on the degree, she is also working on her D.M.A. (Doctor of Musical Arts), with a specialization in piano performance. As a wife and a mother of a two- year-old baby, she definitely has to put more efforts to maintain harmony in our family. Fortunately, she will obtain her degree in September, 1989. I am not sure how much Ihuei, our daughter, contributes to our studies, but I am certain that our degrees, except the intellectual parts, are also integrated and coupled with bottles, diapers, toys, and numerous mid-night wakeups as well.

IV VITA

1955 ...... Born - Tainan, Taiwan, R.O.C.

1979 ...... LL. B. Central Police College

1983 ...... M.A. Ohio University

1983-1989 ...... Doctoral Student Department of Political Science, The Ohio State University, Columbus, Ohio

PUBLICATIONS

"Some Issues in the Philippine Political Development," Chinese Ethos Monthly, Vol. 7, no.5. (May 1987).

"Analysis of the August Coup in the Philippines," Chinese Ethos Monthly, vol. 7, no.10. (October 1987 ).

"The Communist Movement in the Philippines," paper presented at the Public Security Academic Conference in Taoyuan, Taiwan, June 1988.

FIELDS OF STUDY

Major Field: Political Development, Southeast Asia

Minor Field : International Organizations

Studies in Political Development. Professor R. William Liddle

Studies in Politics of Industrialized Society Professor Bradley B. Richardson

Studies in International Organizations Professor Chadwick F . Alger TABLE OF CONTENTS

ACKNOWLEDGEMENTS ...... iii

VITA ...... V

LIST OF TABLES ...... x

LIST OF FIGURES ...... xiii

LIST OF A C R O N Y M S ...... xiv

INTRODUCTION ...... 1

1. Statement of the P r o b l e m ...... 1 2. Literature Review...... 10 A. The Philippine literature...... 13 B. The literature of comparative politics . . . 22 3. Organization of the Dissertation...... 25

PART ONE FEUDALISM AND DEPENDENCY: HISTORICAL BACKGROUND OF THE PHILIPPINE SUGAR I N D U S T R Y ...... 31

CHAPTER

I. THE PHILIPPINE SUGAR INDUSTRY UNDER SPANISH E R A ...... 33

1. Birth of the Philippine sugar industry . . . 33 2. Rise of H a c i e n d a s ...... 47 3. Plantation System ...... 53 4. Hacendero-Labrador Relationship ...... 57 5. Conclusion ...... 60

II. THE SUGAR INDUSTRY UNDER AMERICAN COLONIALISM.. 62

1. Significance of the Growing Sugar Industry.. 62 2. Factors for the Growing Sugar Industry . . . 67 A. Legislation...... 68 B. Capital investment ...... 73 C. New manufacturing method ...... 76 3. Characteristics of the Sugar Industry . . ..78 A. Dependency upon the American market. ... 78 B. Foreign-owned sugar industry ...... 80 C. Cooperative relationship between millers and planters ...... 82 D. Evolution of the hacienda system ...... 86

vi III. THE POSTWAR SUGAR INDUSTRY (1946-74) ...... 92

1. Rehabilitation and Expansion of the Sugar I n d u s t r y ...... 92 2. Factors for the Expanding Sugar Industry . . 93 A. The Bell Trade A c t ...... 94 B. The Laurel-Langley Agreement ...... 97 C. Increasing financing assistance ..... 102 3. Problems of the Sugar Industry Before 1974..103 A. Continuing dependence upon the American market ...... 103 B. Comparative high production costs on s u g a r ...... 105 C. Comparative low production per hectare.. 108 4. Perspectives of the Sugar Industry (1946-1974 ) ...... 110 A. Fil ipinization of the i n d u s t r y ...... 110 B. Family-Type enterprise ...... 116 C. The plight of sugar wo r k e r s ...... 118 5. Conclusion of Part O n e ...... 125

PART TWO THE FLUCTUATIONS OF WORLD SUGAR PRICES . 127

CHAPTER

IV. INTERPRETATION OF LOW WORLD SUGAR PRICES (1975-1985) AND ITS IMPACTS ON THE PHILIPPINE SUGAR I N D U S T R Y ...... 129

1. Adverse Climate ...... 131 2. Increasing Use of Sugar Substitutes ...... 133 3. Failure of International Sugar Agreements .. 138 4. Sugar Policy in the Developed Countries . .. 147 A. The European Economic Community ...... 147 B. The United S t a t e s ...... 152 5. Impact of Low World Sugar Prices on the Philippine Sugar Industry ...... 156 6. Conclusion ...... 160

PART THREE STATE DOMINANCE: MARCOS' CONTROL ON THE PHILIPPINE SUGAR INDUSTRY ...... 162

CHAPTER

V. MANAGEMENT MONOPOLIZATION ...... 165

1. Institution Control ...... 165 2. Control of Sugar Mills ...... 171 3. Extended Control over Sugar-Related B u s i n e s s e s ...... 176

VI 1 4 . The Fall of the Old Oligarchy: The Lopez Family ...... 181 5. Impacts of Management Monopolization on the Sugar I n d u s t r y ...... 186

VI. TRADE MONOPOLIZATION ...... 195

1. External Trade Control ...... 195 A. Performance...... 195 B. Criticisms of external trade control . . 203 2. Internal Trade Control ...... 211 A. Performance...... 211 B. Losses of producers Due to Domestic Control on Sugar ...... 215 3. Conclusion ...... 217

VII. PRICE MONOPOLIZATION ...... 221

1. Performance...... 222 2. Criticisms of Price Control ...... 228 A. The gap between the sale price and the composite price ...... 228 B. Low sale price to foreign buyers .... 230 C. Low domestic sugar p r i c e ...... 230 D. Low composite price ...... 233 E. Low wages ...... 235 3. Conclusion ...... 239

VIII. OTHER ISSUES IN THE SUGAR I N D U S T R Y ...... 241

1. Plight of Sugar W o r k e r s ...... 242 2. Labor Displacement ...... 252 3. Growing Communist Insurgency ...... 257 4. Conclusion of Part T h r e e ...... 267

PART FOUR ANALYSIS OF ARGUMENT ...... 270

CHAPTER

IX. WHO WINS THE GAME ? ...... 272

1. Argument of Feudalism ...... 272 2. Argument of Dependency on International C apit a l i s m...... 277 3. Argument of Free Enterprise ...... 283 4. Argument of the Misuse of the State for Personal g a i n s ...... 289 5. Conclusion ...... 293

VI 1 1 CONCLUSION ...... 298

1. Lessons of the Study for Political Science and for Political Change in the Philippine Sugar I n d u s t r y ...... 298 2. Current Trends in the World Sugar Market . . . 306 3. Suggestions for the Future Development of the Philippine Sugar Industry ...... 311

BIBLIOGRAPHY ...... 318

IX LIST OF TABLES

TABLE PAGE

1. Earnings of Sugar Export and As % of Total World Sugar Market Economy In Five Top Sugar Exporting Countries, 1974-1985 ...... 5

2. Centrifugal Sugar Production In Five Countries And As % of World Sugar Production, 1973-1982 ...... 6

3. Negros Population Structure in 1870 ...... 37

4. Philippine Sugar Performances, 1850-1892 ...... 39

5. Philippine Exports to the U.S., 1849-1897 ...... 40

6. Philippine Sugar Production, 1910-1941 ...... 64

7. Number of Sugar Centrals, Planters, and Plantations in 1938 ...... 65

8. Philippine Sugar Exports to the U.S. And Their Role in Total Exports, 1899-1940 ...... 66

9. Export Structure of Three Major Commodities, 1918-1927 ...... 67

10. Philippine Sugar Quotas Under the Jones-Costigan Act, 1934-1936 ...... 72

11. Philippine Sugar Quotas Under the Sugar Act of 1937, 1937-1941 ...... 73

12. Capital Investment in Philippine Centrals, 1927 74

13. PNB's Loans to Six Centrals in 1918 ...... 75

14. Production of Centrifugals, 1920-1934 ...... 77

15. Nationality of Sugar Exporters, 1917-1927 . . . 82

16. Sugar Production and Mills Operating, 1946-74 . 94

17. Philippine Sugar Exports to the U.S. And Philippine Sugar Quotas, 1946-55 ...... 96

18. U.S. Tariff Duties on Philippine Sugar, 1956-74 . . 98

19. Philippine Sugar Quotas And Exports to the U.S., 1956-73 ...... 101 20. Value of Sugar Exports to the U.S. And Its Role in the Total Exports, 1950-71 ...... 104

21. Members of the Philippine Sugar Association of 1972 ...... 116

22. World Sugar Production, Consumption And Trade, 1960-1983 ...... 130

23. World Sugar Production, Consumption And Net Trade, 1979-81,1983, and 1990 ...... 137

24. 1953 ISA Price Range And BETs, And World Sugar Prices, 1953-1958 ...... 140

25. EEC Sugar Exports And World Exports, 1975-83.... 150

26. Philippine Sugar Exports To The U.S. And Its Total Sugar Exports, 1974-81 ...... 158

27. World Sugar Prices, Philippine Sugar Export Earnings And Its Contribution To National Foreign Exchange Earnings, 1974-84 ...... 159

28. Sugar Centrals Established After WWII ...... 172

29. Philippine Sugar Exports And Destinations (Volume and Percentage), 1976-1977 ...... 198

30. Gains (Losses) of Sugar Producers Due To Monopoly of Export Trade, 1974-83, Assumption I ...... 209

31. Gains (Losses) of Sugar Producers Due To Monopoly of Export Trade, 1974-83, Assumption II ...... 211

32. Gains (Losses) of Sugar Producers Due To Monopoly of Domestic Trade, 1974-83 ...... 216

33. Nasutra's Operating Performance, 1978-1981 ...... 217

34. Prices of Various Classes of Sugar, 1979-82.... 226

35. Comparison of The Composite Price, World Sugar Prices, And Philippine Sugar Production Costs, 1974-1984 ...... 228

36. Daily Wages of Sugar Workers, 1950-1985 ...... 236

37. Malnutrition Rate Among Children 0 to 7 Year Old, By Age Group And Degree of Mainourishment, 1981 . . 248

38. The Leading Causes of Infant Mortality

xi And Their Rates in Negros Occidental, 1981 ...... 249

39. Ten Leading Causes of Mortality of All Population And Their Rates in Negros Occidental, 1981 ...... 249

40. Modern Implements Used And Their Labor Requirements, Hacienda Y ...... 254

41. Modern Implements Used And Their Labor Requirements, Hacienda 2 ...... 254

42. GPP And NPA Growth over 1968 to 1983 ...... 261

xi i LIST OF FIGURES

FIGURE PAGE

1. Hacienda Structure in Central Luzon ...... 87

2. Hacienda Structure in Negros ...... 89

3. Trend of Fluctuations of World Sugar Prices, 1974-1984 ...... 161

4. The Structure of The Sugar Industry, 1974-84 .... 169

5. Sugar Flow C h a r t ...... 214

6. Decline of the Philippine Sugar Industry ...... 297

XI 1 1 LIST OF ACRONYMS

AFP Armed Force of the Philippines AIM Association of Integrated Millers GPP Communist Party of the Philippines ISA International Sugar Agreement NASUTRA National Sugar Trade Corporation NDF National Democratic Front NFSP National Federation of Sugarcane Planters NFSW National Federation of Sugar Workers NPA New People's Army PHILEX Philippine Corporation Exchange PHILSUCO Philippine Sugar Corporation PHILSUCOM Philippine Sugar Commission PHILSUGIN Philippine Sugar Institute PNB Philippine National Bank PSA Philippine Sugar Association SQA Sugar Quota Administration

XIV INTRODUCTION

1. Statement Of The Problem

Sugar, together with coconut and Manila hemp have traditionally been the three most significant agricultural commodities in the Philippines. By 1970 these three commodities usually contributed more than 50 percent of the country's annual total export value. Of these three, sugar particularly had its golden age in the Philippine's agriculture history. In the peak year 1934, for example, it is reported that sugar "produced an estimated 40 percent of total crop value, 65 percent of export value, 30 percent of national income, and directly and indirectly, 40 percent of total government revenue."1

After the Second World War, sugar maintained its crucial role in the Philippine national economy, although its contribution to the total foreign earnings fell a little to 20 to 25 percent. Since the early 1970s when the world sugar price kept rising, the profits that sugar brought to the country increased. In the year 1974, the

1. Norman Owen, "Philippine Economic Development and American Policy: A Reappraisal," in Norman Owen (ed.), Comoadre Colonialism. Ann Arbor: University of Michigan, 1971, p.111. 2

Philippine sugar industry reached another peak, when the world sugar price jumped to a historical high of 65 cents c pound in November 1974, compared with the normal price of

10 to 15 cents a pound in the 1970s.

The year 1974 was a watershed in the archipelago's sugar industry. In that year, sugar made as much as

US$785 million, contributing 27 percent of the total export value. The number of sugar mills increased from 5 in 1946 to a high of 41 in 1974.2 Accordingly, sugar production was expanded, from only 12 thousand tons in 1946 to 2.5 million in 1974. As for sugar planters, they benefited from sugar production, so that they were not only economically prosperous enough to dominate the country's economy but also politically powerful enough to manipulate the presidential elections, not to mention the provincial and local elections.3 In addition, in early 1974, the martial-law government under President Marcos (1972-1981) decided to initiate a new program to expand the sugar industry. Thus, it seemed that the Philippine sugar industry would look even better in the future.

However, things do not always lead to the result expected. The Philippine sugar industry is such a case.

2. During the War, many sugar mills and farms were either closed or destroyed, because of the Japanese invasion. This is the major reason why the sugar industry was in a very bad shape after the War.

3. The influence of these sugar barons is further explored in Chapter V. 3

By 1984, ten years after the peak year, the archipelago's sugar industry had, on the contrary, almost collapsed. In that year, sugar brought as little as US$246 million to the

Philippine government, or only 4.5 percent of the country's total export value. Sugar farms declined about 34 percent from 1974 to 1980, whereas 14 sugar mills were foreclosed by the government by 1984, because of the severe financial crisis.4 Also, it is reported that 13 out of the top 20 milling companies tasted losses in 1982, and 10 in 1983.5

The decline of sugar farms, accordingly, resulted in a drop in sugar production to only 1.8 million tons in 1985, as compared to 3 million tons of production in 1974.

As for sugar planters, another indicator of the decline of the sugar industry, they were hard passed for capital. In 1974, due to the profits from producing sugar, they were creditors depositing money in the banks.

Ten years later in 1984, many of them became debtors, borrowing money from the banks, because of the declining sugar income. Their loans to the banks went higher with the passage of time.

Sugar workers, the bottom people in the hierarchical

4. The management of these 14 sugar mills was transferred to the Philippine Sugar Corporation, created by the government in 1983. The government would maintain the management and operation of these mills until their eventual disposal to interested private banks.

5. Jose Galang, "The Bitter Harvest," Far East Economic Review. 18 April 1985, pp.61-62. 4 structure of the sugar community, experienced an even more bitter story. Before 1974, they, as compared with planters, did not enjoy the benefits from sugar production, because of the exploitative relationship between the planters and the workers.6 Yet, they were able to survive on the marginal profits of the industry. But, during the sugar crisis period from 1975 to 1984, they had a difficult time to make a subsistence Diving ( see Chapter VIII). It is estimated that about 40 percent to 50 percent of the workers were already displaced by 1985, and more laborers become unemployed in the latter half of the 1980s, because of the promotion of sugar mechanization.

Negros island, where more than 50 percent of the country's sugar is produced, is no longer proud of its monoculture, but is known as a place of poverty, malnutrition, and a popular communist insurgency in the

1980s.7 Taking malnutrition as an example, about 70 percent of all children under seven in Negros Occidental province suffer various degrees of mainourishment, the worst in the country. The rate of infant mortality in this sugar-producing province increased from 74.65 per

1,000 live births in 1976 to 81.24 in 1981. All these problems made Negros island unattractive in the 1980s, in

6. The exploitative relationship between the planters and the workers is examined in Chapters II and III.

7. All these problems are investigated in Chapter VIII contrast with its status as a golden mine to hundreds of thousands of investors for the island's sugar industry in the 1960s and early 1970s.

The extent of the decline in the Philippine sugar industry can best be seen in comparative perspective by the following two tables.

Table 1 Earnings of Sugar export and As % of Total World Sugar Market Economy in Five Top Sugar Exporting Countries, 1974-1985 (In Million U.S. Dollars)

Philippine Australia : Cuba Tha iland Brazil

1974 785.5 978 . 4 (10.0%) (8.9%) : (30.5%) (2.5%) (17%)

1975 580 . 7 722 . 6 : 3282.3 279.3 974.2 (4.7%) (5.8%) : (52.6%) (2.2%) (7.8%)

1978 196.9 544 . 4 • -- 195.1 228.9 (7.7%) (21.2%) (7.6%) (8.9%)

1979 211.5 498 . 9 ; 4098.8 234.4 270.0 (3.1%) (7.2%) : (59.4% (3.4%) (3.9%)

1980 557.2 1090.8 : 4577.8 145.2 941.9 (5.6%) (11.0%) :(46.3%) (1.5%) (9.5%)

1982 370.8 558 . 0 : 4506.9 531.0 327.1 (4.7%) (7.1%) :(57.5%) (6.8%) (4.2%)

1983 264.6 548 . 0 : 4743.2 236.3 359.0 (3.4%) (7.0%) :(60.9%) (3.0%) (4.9%)

1984 283.1 525 . 1 : 4618.7 209 . 0 477.6 (3.8%) (7.1%) :(62.3%) (2.8%) (6.4%)

1985 144.8 151. 8 : 4804.5 209.0 --- (2.3%) (2.4%) :(74.8%) (3.3%)

Source: United Nations, International Trade Statistics, New York: The United Nations, various issues, and also United Nations' Industrial Statistics Yearbook, various issues. Table 2 Centrifugal Sugar Production in Five Countries And As % of World Sugar Production, 1973-1982 (1,000 metric tons)

Philip's Cuba Brazi1 Tha iland Australia World

1973 2,643 5, 800 6,959 930 2,592 80,488 (3.2%) (7.2%) (8.5%) (1.1%) (3.1%)

1974 2,466 6,300 7,400 1,060 2,927 78,650 (3.0%) (8.0%) (9.4%) (1.2%) (3.6%)

1975 2,937 6,200 6,200 1,641 2,988 82,060 (3.5%) (7.5%) (7.5%) (1.9%) (3.5%)

1976 2,675 6,100 7,500 2,261 3, 405 86,263 (3.0%) (7.0%) (8.7%) (2.5%) (4.0%)

1977 2,397 7,200 8,863 1,800 3,400 92,454 (2.5%) (7.8%) (9.5%) (2.0%) (3.7%)

1978 2,347 7,500 7, 740 1,851 2,978 91,264 (2.7%) (8.2%) (8.4%) (1.9%) (3.2%)

1979 2,325 6,400 6,990 1,098 2,967 84,560 (2.7%) (7.6%) (8.2%) (1.3%) (3.5%)

1980 2,373 7,542 8,500 1,676 3,389 88,561 (2.7%) (8.4%) (9.6%) (2.0%) (3.8%)

1981 2,503 8,207 8,385 2,788 3,586 100,695 (2.5%) (8.1%) (8.3%) (2.8%) (3.6%)

1982 2,580 7,200 9,300 2,070 3,612 101,000 (2.4%) (7.1%) (9.2%) (2.0%) (3.6%)

Source: U.S. Department of Agriculture, Sugar and Sweetener: Outlook and Situation, Washington D.C. U.S. Department, various issues.

Table 1 shows that Philippines' sugar earnings and its role in the total world sugar economy are declining during the last decade of the Marcos regime. The Philippines earned US$785 million from sugar exports (or 10% of total market economy) in 1974, but this figure was down to 7

US$283.1 million (or 2.3% of the world sugar economy) in

1985. Yet, during the same period , the other four major exporters' sugar income maintained roughly the same percentage in the world sugar economy, although their sugar income, except Cuba, declined also.

Table 2 shares a similar story. The amount of

Philippine sugar production to the world production declined too, from a 3.5 percentage of the world production in 1975 to a only 2.4 percentage in 1982. Still, other sugar producers maintained pretty stable roles in the world sugar production. However, it is significant to note that

Thailand, another Southeast Asian country, has demonstrated its increasing competitive ability in the world sugar economy during these ten years, based on these two tables.

Why did the Philippine sugar industry decline so quickly after the sugar crisis? What went wrong with the industry during these ten critical years? What are the factors causing the downfall of the once-golden sugar industry in the Philippines?

Is it because of the so-called "feudal system" in the sugar industry?8 The tenancy system, which characterizes

8. The term--feudal system-- is from Marc Bloch. The reason I use here is because I think Bloch's definition of feudalism is applicable to the Philippine society. According to Marc Bloch, "The feudal system meant the rigorous economic subjection of a host of humble folk to a few powerful men. Having received from earlier ages of the Roman villa and the German village chiefdom, it extended and consolidated these methods whereby men exploited men, and combining inextricably the right to the revenues from what is called in the Philippines literature on the subject the feudal mode, has existed in the sugar community for centuries. It is perceived as the root of exploitation.

Under the hierarchical system, sugar workers are always exploited by their planters. As a result, the bottom workers became poorer and poorer and the rich-poor gap wider and wider as time goes on.

Or, is it because of the end of dependence on the

American sugar market in 1974? After the free trade policy was established in 1909, the Philippines began to rely heavily upon the American market. Between 1921 and 1974, for instance, about 80% to 90% of Philippine sugar exports were delivered to the U.S. with a favorable price, a little higher than the prevailing price in the world market.

After 1974, the Filipinos were forced to sell their sugar to various destinations on the world free market with unfavorable prices; as a result sugar income was curtailed.

Or, is it due to the plunge of the world sugar price during the ten years of the sugar crisis? After the peak year, the sugar price on the world free market fell to an average of only 10 cents a pound between 1975 and 1979.

The sugar price jumped again to about 25 to 30 cents a pound in early 1980, and then suddenly dropped to even less

the land with the right to exercise authority, it fashioned from all this the true manor of medieval times." (Marc Bloch, Feudal Society, translated by L.A. Manyon, Chicago: The University of Chicago Press, 1964, p.443.) 9 than 10 cents a pound during the period from 1981 to 1985.

In the year 1985, the world sugar average price dropped to as low as only 4 cents a pound, even lower than a bag of sand. In contrast with the normal average price of 15 to

20 cents a pound, world sugar prices during the ten stormy years were comparatively low, and extremely low if the

inflation factor was counted.

Or, is it due to the monopolization policy exercised by the Marcos government from January 1974 to February

1984? During the monopoly years, the Marcos regime took control over all sugar affairs, including institutions, trade and price-setting. Previously, sugar was managed by the sugar brokers and planters. Now, it was completely manipulated by the state. President Marcos nationalized the sugar industry at a time when the industry was profitable and thriving. Yet, when the monopolization policy was abolished in February 1984, the industry was in a state of near collapse. Is there any relationship

between the monopolization policy and the decline of the

Philippine sugar industry? In other words, is the

declining sugar industry caused by the ten years of Marcos'

political intervention through the monopolization policy?

If all these factors contribute to the decline of the

archipelago's sugar industry, which one plays the most

important role? Further, what happened to other sugar

exporters in the world under the influences of these 10 variables? Did they fail also, or did they survive? If they did not fail, why did the Philippine sugar industry collapse alone after the ten stormy years? What are the similarities and differences between the Philippine sugar industry and other sugar producers in the world? These are the questions to be explored in the dissertation. In addition to my direct analysis of the Philippines, I will try at various points to make a comparative analysis, across time and across country, to examine the rise and the fall of the Philippine sugar industry.

2. Literature Review

For political scientists, the focuses of Philippine studies vary from the 1960s to the 1980s. In the 1960s and the 1970s, many scholars concentrated on the following areas: democracy and political change in the Philippines,? performance of the martial-law government,10 study of the

9. See, for example, Carl Lande, Leaders. Factions, and Parties: The Structure of Philippine Politics. Yale University Southeast Asia Studies, Monograph Series no.6, New Haven: Yale University Press, 1965; Benedict J. Kerkvliet (ed.). Political Change in the Philippines: Studies of Local Politics Preceding Martial Law. Hawaii: University of Hawaii Press, 1974; Dapen Liang, Philippines Parties and Politics: A Historical Study of National Experience in Democracy. San Francisco: The Gladstone Company, 1971.

10. David Rosenberg (ed.), Marcos and Martial Law. Ithaca: Cornell University Press, 1979; Joel Rocamora, "Marcos: Safe For Now," Southeast Asia Chronicle, no.83, April 1982, pp.12-15; John Bresnan (ed.). Crisis in the Philippines: The Marcos Era and Beyond. Princeton: Princeton University Press, 1986; James Gregor, Crisis in 11 opposition movement,11 exploration on the communist movement,12 the issue of the Moro people on Mindanao island,13 and so on. Even at the end of the 1970s, not many Philippine experts were paying attention to questions of political economy, the subfield that examines systematic the Philippines. Washington D.C.: Ethics and Public Policy Center, 1984; E. San Juan, Crisis in the Philippines: The Making of A Revolution. Massachusetts: Bergin and Garvey Publishers, Inc., 1986.

11. Frank Bellono and Dennis Heller (ed.). Faction Politics: Political Parties and Factionalism in Comparative Perspective. Santa Barbara, California: ABC-Clio, 1978; Robert Stauffer, The Philippine Congress: Causes of Structural Change, Beverley Hills: Sage, 1975; Joel Rocamora, "Turning Point: The NDF Takes The Lead," Southeast Asia Chronicle, no.83, April 1982, pp.2-7; Robert Snow, The Bourgeois Opposition to Export Oriented Industrialization in the Philippines, Quezon City: University of the Philippines, Third World Studies, the Philippines in the Third World Papers Series no.39 (1983).

12. Philippine Research Center, New People's Armv of the Philippines. Boston: United Labor Press, 1981; Benedict Kerkvliet, The Huk Rebellion: A Study of Peasant Revolt in the Philippines. Berkeley: University of California Press, 1977; Robert Rose, "Inside The Philippine Revolution: With The New People's Army," Southeast Asia Chronicle, no.83, April 1982, pp.8-11; Earl Martin, "In The Name of Security: A Philippine Strategic Hamlet," Southeast Asia Chronicle, no.83, April 1982, pp.16-18; Lim Joo Jock and Vani S. (ed.), Armed Communist Movements in Southeast Asia. Hampshire, England: Grover, 1984.

13. Peter Growing, Muslim Filipinos: 1970-72. Quezon City: Philippine Graphic Arts, 1979; Saber Hurley, The Maranao. Manila: Solidaridad Publishing House, 1975; Aijaz Ahmad, "Class and Colony in Mindanao," Southeast Asia Chronicle. no.82, February 1982, pp.4-10; "The Moro Peoples," Southeast Asia Chronicle. no.82, February 1982, pp.11-13; Aijaz Ahmad, "The War Against The Muslims," Southeast Asia Chronicle, no.82, February 1982, pp.15-22. 12 relationships between politics and economics.14

Since the mid 1970s, while the above studies continued, the Philippine political economy as a field of study has surfaced. The most significant reason for the emergence of this new field is that political scientists now want to examine the relations between political variables and economic development. Specifically, they desire to interpret the issue of why the Philippine economy gradually declined after the mid-1970s under the Marcos government, while many other Third World countries, such as

Singapore, Taiwan, Korea, etc., enjoyed the benefits of rapid economic growth during the same period.

This trend of studying political economy is not only popular in the Philippines, but all over the Third World, especially in Latin America. Political scientists are now more interested in the study of the policy making process and its costs and impacts on economic development, or the linkage between the processes of politics and economics.

In the area of the Philippine political economy, a lot of work has been done. Most of this work, however, concentrates on the study of general strategies and

14. In his book--What Is Political Economy. Martin Staniland identifies three kinds of political economy theory: (1) deterministic theory (a causal relationship between one process and another), (2) interactive theory (a relationship of reciprocity), and (3) behavioral continuity. (Martin Staniland, What Is Political Economy: A Studv of Social Theory and Underdevelopment, New Haven: Yale University Press, 1985, pp.5-9.) 13 policies of economic and agricultural development,15 and, of course, some of it examines a specific sector, such as abaca, coconut, banana, tobacco, fruit, etc.16 These studies ask why a specific policy or policies are designed, how they are operated by the government, and what are the costs entailed by these particular policies. From this work, political scientists have attempted to connect a general relationship between the policy process and economic development. For the sugar industry, this connection has not yet been clearly established.

My literature review concerning the decline of the

Philippine sugar industry falls into two categories, i.e.

(A) the Philippine literature, and (B) the literature of comparative politics.

A. The Philippine Literature

There are four schools of thought among Philippine specialists on the political economy of the Philippine

15. See, for instance. World Bank, Philippines: Industrial development Strategy and Policies. Washington, D.C.: The World Bank, 1980; Walden Bello, David Kinley and Elaine Elinson, Development Debacle: The World Bank In the Philippines, San Francisco: Institute for Food and Development, 1982; Russel Cheetham and Edward Hawkins, The Philippines: Priorities and Prospects for Development. Washington, D.C.: The World Bank, 1976.

16. For abaca, see Norman Owen, Prosperity Without Progress. Berkeley: University of California Press, 1984. For coconut, sugar, and fruit, see Gary Hawes, The Philippine State and the Marcos Regime, Ithaca: University of Cornell, 1987. For banana, tobacco, and coconut, see Third World Studies Program, Political Economy of Philippine Commodities. Quezon City: University of the Philippines, 1983. 14 sugar industry. First of all, there is a Marx-derived argument about the internal structure of the Philippine sugar industry. The "feudalism" school, represented by

Temario Rivera, argues that exploitation tenancy arrangements, similar to the European experience of the

Middle Ages, were brought to the Philippines and have persisted in the Philippines since the early 18th century.17 The feudalistic structure in the sugar

industry, for example, did not change at all from Spanish

colonialism to American sovereignty and to the Marcos

presidency.18 Actually, the tenancy system, the pillar of

feudalism, has strengthened with the passage of time.19

Thus, it is argued that under the hierarchical-oriented

17. Temario C. Rivera (ed.). Feudalism and Capitalism in the Philippines. Quezon City: Foundation for Nationalist Studies, 1982, pp.1-3.

18. The feudalistic structure in the Philippine sugar industry is also similar to "capitalistic farm economy", one of the six classifications of the agricultural population in Europe, as identified by Pitirim Sorokin, Carle Zimmerman, and Charles Galpin. According to these three sociologists, capitalistic farm economy refers to the agricultural enterprise which "is so large that the entrepreneur performs only the organizational, managerial and controlling function. The whole of manual work and subordinate half-manual work, and half-organizational work is done through hired labor. The objective of the farming enterprise is obtaining the maximum return on the invested capital and the maximum profit for the entrepreneur per unit of capital and labor, and low per unit of land." (Juan J. Linz, "Patterns of Land Tenure, Division of Labor, and Voting Behavior in Europe," Comparative Politics. New York: The City University of New York, 1976, vol. 8, p.369.

19. It is estimated that the tenancy rate was 19% in the early 20th century, and this figure was up to 22% in 1918, 36% in the 1930s, 40% in the 1950s, and 53% in 1971. feudal system the bottom sugar workers are always exploited by their planters, politically and economically, no matter who is in power or what policy is being exercised by the government. Accordingly, the feudal system is like a cancer in the sugar industry that erodes the sector.

Another school on the left, the neo-Marxist dependency, represented by Jonathan Fast and Jim

Richardson, attempts to refute the former school. It insists that feudalism is not useful to describe the economic conditions in the Philippines. The key point, is that, the Philippine sugar industry has long been dependent on the international capitalist economy because the pattern of western capital penetration and emergence of an export economy based on world market factors was already established by the end of the 1850s.20 According to Fast and Richardson, the sugar industry was clearly responding to factors of capital accumulation and world market forces which bore no relationship to any definition of feudalism.

This capitalist penetration has further deepened in the 20th century. For instance, from 1909 when the free trade policy was established between the U.S. and the

Philippines until 1974 when it was terminated, about 80% to

90% of Philippine sugar exports were delivered to the U.S. with a favorable price, a little higher than the prevailing

20. Jonathan Fast and Jim Richardson, Roots of Dependency, Quezon City: Foundation for Nationalist Studies, 1983, pp.1-10. 16

price In the world market. After 1974, the Philippines was

forced to sell its sugar to other countries in the world

free market, although the U.S. was still a major market for

the Philippine sugar.

From 1974 to 1985 the world sugar prices experienced

the greatest fluctuations in modern history, from its peak

price of 65 cents a pound in November 1974 down to only about 5 cents a pound in 1985.21 The plunge of the world sugar price and its resultant reduction of income is an especially a serious blow to sugar-exporting countries like

the Philippines. The capitalist dependency school contends

that it is because of this dependence, first on Spain, then

on the U.S., and then on the world market, that the

Philippine sugar industry declined.

Third, there is another group of people, especially represented by the economics professors in the university of the Philippines, who advocate the argument of free market economy. Prior to 1974, the archipelago’s sugar

industry was managed by a semi-governmental institute, but sugar was freely traded. In January 1974, President Marcos decreed to monopolize the Philippine sugar industry, and

the monopolization policy was not abolished until 1984.

Between 1974 and 1984, the Marcos regime took control over all sugar affairs, including credit institutions, price-

21. The normal world sugar price in the late 1970s and 1980s is between 15 cents to 20 cents a pound. 17 setting, and the sugar market. According to a study done by the economics professors from the University of the

Philippines, the Filipino sugar planters lost about 11 billion pesos during the ten critical years. This loss would not have happened if the policy of free enterprise was undertaken during the same period.22 Therefore, these scholars, together with many Filipino sugar planters, harshly criticized the Marcos interventionist monopolization policy, which led to the collapse of the

Philippine sugar industry. To them, the policy of free market is definitely much better than those policies controlled by the government.

The final argument is best represented by Alfred McCoy and Gary Hawes. It points to the misuse of the state for

Marcos personal benefits, or, in my terms, "kleptocracy", which constitutes a major factor for the decline of the

Philippine sugar industry.

Alfred McCoy is the most prominent scholar of those who have studied the archipelago's sugar industry. Ever since he was a graduate student in the late 1960s, McCoy has been involved in the study of the archipelago's sugar industry. McCoy's studies of the sugar industry include: the history and evolution of the industry, the impact of martial law on the sugar industry, the influence of the

22. Emmanuel S. De Dios, An Analysis of the Philippine Economic Crisis. QUezon City: University of the Philippines, 1984, pp.43-47. 18 monopolization policy on the industry, evaluation of several issues in the industry such as the living situations of the sugar workers, especially on Negros island, the analysis of sugar mechanization and its impact on the sugar industry, and so on.23 Truly, as a historian, McCoy has given us a very broad picture of the

Philippine sugar industry, not only politically and economically, but socially as well.

McCoy has another remarkable contribution to the study of the Philippine sugar industry, i.e. empirical research.

Since the late 1960s, McCoy has visited the Philippines several times, mostly to Negros island--the major sugar- producing area in the country. He has done a lot of field research through interviews, surveys, and so on. In other words, all of McCoy's studies are empirically strengthened by first-hand information. McCoy is also heavily dependent upon various kinds of local materials, such as native newspapers, journals, government documents, etc.

All these studies are definitely helpful in finding facts about the sugar industry.

McCoy's argument about the post-1974 period was that a major reason for President Marcos' intervention in the sugar industry, through the monopolization policy, was to grab sugar profits for his political and personal

23. Professor McCoy's work about the Philippine sugar industry will be discussed in detail later in this dissertation. 19 purposes.24 In doing so. President Marcos assigned Robert

Bénédicte, his close friend, to take over the management of the sugar industry; and Benedicto in return helped establish Marcos' political party in the sugar community while his opponents were mistreated.

There are two shortcomings in McCoy's work. The most crucial weakness is that he offers only an impressionistic account of the causal factors in the post-1974 decline of the Philippine sugar industry. In addition, McCoy fails to count international variables in his studies. That is, he does not explain the causal factors for the low price of

sugar on world markets and its impact on the Philippine

sugar industry during the ten years of the sugar crisis.

As for Gary Hawes, being a political scientist, his

study is more policy-oriented. He can be credited with analyzing the changing policies and their influence on the

sugar industry from the American colonial period to the

Marcos administration. He explains how, during the

American rule, for instance, the free trade policy and the

quota system inspired the growth of the archipelago's sugar

industry. When President Marcos took power in the mid-

1960s, the export-oriented economic policy was initiated,

to replace the import substitution policy of the 1950s and

24. See, for instance, McCoy's "The Philippine Sugar Crisis," pp.10-12, and also his "In Extreme Unction," in Third World Studies, Political Economy of Philippine Commodities, pp.144-147. 20 early 1960s. As a result, the sugar industry continually expanded, in spite of the end of the free trade policy in

1974 .

In addition, Hawes successfully analyzes the relationship between Marcos' political involvement and the sugar industry. According to Hawes, for example, by the

1970s, the Philippine sugar industry had long been dominated by a few prominent families such as the Lopezes,

Yulos, Cojuangcos, etc., who formed a major opposition force in the Filipino Congress. In order to set up his own political empire in the industry. President Marcos approved the establishment of 17 new sugar centrals

(mills). Each new central required from five to forty billion pesos, which tied the investors to government sponsors and diluted the power of the old elites.

Furthermore, in the 1970s, President Marcos diversified some of the new mills to new areas, including Mindanao,

Bicol, and Luzon. This effort was a further dissolution of the political and economic power of the old oligarchy, whose sugar businesses were concentrated on the island of

Negros.25

Hawes, therefore, also lays the blame for the decline of the sugar industry at the feet of President Marcos. The weakness of Hawes, however, is that he does not analyze the

25. The details of this story will be explored in Chapter V. 21 topic deeply. With only one published work, even though the most recent one on the subject (1987), Hawes does not portray a complete picture of the political economy of the

Philippine sugar industry. For example, the impact of the sugar mechanization policy on the industry was not clearly examined in his work. Hawes did not pay much attention to the international variables either, although he did mention the impact of the world sugar price fluctuations on the

Philippine economy in general and the sugar industry in specific. In short, like McCoy, Hawes' study on the sugar industry is focused almost entirely on the analysis of domestic variables, plus he misses an important internal factor--the influence of feudalism in the sugar industry.

In addition to these arguments, there is a group of scholars, including Filipinos and westerners, who have done empirical studies of the industry through surveys, interviews, and so on. These scholars include Violeta

Lopez-Gonzaga, Filomeno Aguilar, Rene Offreneo, Yoshiko

Nagano-Kano, Rosanne Rutten, Frank Lynch, etc. Also, when the sugar crisis occurred, several groups, such as the

Catholic Church and the Labor Department, sponsored field studies on the industry. Although these efforts have provided some extremely important data, they provided very little analysis of the sugar industry.

The focuses of these field studies vary, covering the living condition of sugar workers (e.g. wages, life style. 22 etc.), the relationship between hacenderos and sugar workers, political activities in the sugar industry (e.g. unions, strikes, communist insurgency, etc.), the political attitude of sugar planters and workers toward the Marcos government, and so on. The timing of these studies varies too. Some were done before martial law whereas others after; some were in the late 1970s while others in the early 1980s. More importantly, some of these field studies are in comparative perspective, for example, a comparison of the sugar industry between the pre-sugar crisis and the post-crisis period. Thus, these field works have constituted an empirical data base to examine the performance of the sugar industry in the 1970s and

1980s.

B. The Literature o£ comparative Politics

In the discipline of comparative politics, some scholars' work are theoretically useful for the framework of this dissertation. First, Guillermo O'Donnell' studies about South American politics are helpful to explain the overall nature of President Marcos' authoritarian regime in the Philippines. O'Donnell argues that the Latin American bureaucratic authoritarian state, caused and consolidated by the shift of economic policy from import substitution industrialization (ISI) to exported-oriented industrialization (EOT), plays a dominant role in the 23 economic development policy process.26 The key causal factor for O'Donnell is the need for authoritarian means to keep dissatisfied groups, particularly urban laborers, from making the products of export industries too costly through demands for higher wages.

Accordingly, O'Donnell's thesis is helpful to explain the formation of the Marcos authoritarian regime in the

Philippines, because the Philippines also undertook a shift on its economic policy from ISI in the 1950s and 1960s to

EOI in the 1970s. Yet, O'Donnell's analysis is not useful to explain the downfall of a specific sector like the sugar industry.

Also, there is a literature on "policy content" in the discipline of comparative politics, represented primarily by Merilee Grindle and her colleagues, who advocate the importance of policy content in the process of policy implementation.27 Grindle is credited with the analysis of how policies are implemented in terms of various characteristics of the policies themselves. For example.

26. Guillermo O'Donnell, Modernization and Bureaucratic-Authoritarianism: Studies in South American Politics. Berkeley, CA: University of California Press, 1973; see also his "Reflections on the Pattern of Change in the Bureaucratic-Authoritarian State," Latin American Research Review. 13(1978), pp.3-78; Alfred Stepan, The State and Society; Peru in Comparative Perspective. Princeton: Princeton University, 1979.

27. Merilee S. Grindle (ed.). Politics and Policy Implementation in the Third World, Princeton: Princeton University Press, 1980. 24 when talking about policy content, Grindle points out several useful variables such as the interests affected by particular policies, whether benefits are individual or collective, who the program implementors are, and so on.

However, Grindle's weakness is that she puts too much emphasis on policy implementation. This is not very helpful for the Philippine sugar monopolization policy, where most of the action takes place at the stage of policy formulation.

In this context, Robert Bates' study of agricultural policies in postcolonial Africa is very helpful for my study.28 Bates' general argument is that the crisis of food production in Africa is due to policies that help the short-term political interests of these in power. These policies reduce the incentives to smaller producers of both food crops and the exported cash-crops on which the economies and exchequers of many African states depend.

According to Bates, African leaders made policies both to secure social objectives and to protect and tighten their hold on power. They treat the market as an instrument of political control, and their intervention leads to some scarcities which provide the resources for political patronage and corruption. This is very close to my view of the Philippine sugar industry during the Marcos presidency.

28. Robert Bates, Markets and States in Tropical Africa: The Political Basis of Agricultural Policies. Berkeley: University of California Press, 1981. 25

Yet, Bates is mainly focused on political survival (or

staying in power) of political leaders through policies,

which is not enough to explain the entire story of the

Marcos regime in the Philippines. In terms of examining

the decline of the archipelago's sugar industry, Bates'

framework is useful but incomplete, because he has missed

three important variables, i.e. feudalism, the world

market, and what I have called the kleptocratic element in

Philippine politics. That is, I will attempt to argue,

with Hawes and McCoy, that Marcos' policies toward the

sugar industry were a result not just of his political

survival needs but also of his personal greed.

In sum, the existing studies toward the Philippine

sugar industry concentrate on describing different periods

or aspects of the industry. They fail to examine a

systematic relationship between politics and economics,

especially the process and impact of political intervention

in the sector. This is the major task that I am going to

do in the dissertation. From this perspective, I

hypothesize that President Marcos' political intervention

over the sugar industry during the period from 1974 to 1984

was the most significant causal factor for the decline of

the archipelago's sugar industry.

In this position, I am in basic agreement with McCoy and Hawes. But I will try to do two things lacking in

their work: (1) provide a systematic analysis of Marcos' 26

intervention and the resulting corruption and mismanagement; and (2) show how feudalism and the world market variable operated both independently and in

interaction with Marcos' interventionist policies.

3. Organization Of The Dissertation

This dissertation includes four parts. Part One,

including three chapters, discusses two themes, i.e.

feudalism and dependency, in the historical background of the Philippine sugar industry. Although the sugar crisis occurred between the mid 1970s and mid 1980s, the exploration of the industry's history is very significant to trace the roots of the crisis.

Chapter I introduces when and how the sugar industry commenced in the Philippines, especially on Negros island where more than half of the country's sugar is produced.

The first chapter also investigates the origin of the

feudal system, a particular economic pattern that has dominated the sugar industry politically and economically

since the 19th century.

The second chapter covers the era when the sugar

industry was under American colonialism. The

significance of this chapter is to analyze how the

Philippine sugar industry began to depend upon the American

market, and the impact created by this dependency. It

contends that the American economic policies toward the

Philippines (i.e. free trade and the quota system), under 27 the operation of several American laws, explain the roots of this dependency.

Chapter III, covering the period from the end of WWII to 1974, is mainly to show that the factors for the rapid growth of the sugar industry during this era are more investment, modern technology, and further inspiration by the expanded sugar market in the U.S. It is argued that the continuing dependency on the U.S. generated not only profits to Filipinos, but also some problems which constituted a potential time bomb to the industry.

Part Two, or Chapter IV, brings attention to the external variable, i.e. the impact of world sugar price

fluctuations on the Philippine sugar industry. Between

1974 and 1984, the world sugar price experienced the greatest fluctuations in sugar history. During these ten years, world sugar prices were comparatively low, which diminished sugar incomes to all sugar exporters in the world, including the Philippines. The reasons for the low world sugar price include adverse weather, increasing use

of sugar substitutes, failure of International Sugar

Agreements, and sugar subsidy policies in the developed

countries (i.e. the EEC and the U.S.).

Part Three, including four chapters, is concentrated

on the period of the sugar crisis from 1974 to 1984. The

major theme in the third part is on the performance of the

sugar monopolization policy initiated by the Marcos regime. 28

It is contended that Marcos authority over the Philippine

state was the dominant factor in the turnover of the

country's once-golden sector. Under the arrangement of

the monopolization policy, sugar profits and incomes were

diverted for private use as a means of payoff to lower

level supporters of the Marcos regime. As a result, this

changed the market for Philippine sugar, causing a decline

in the industry's position in world trade and a decline in

its contribution to Philippine GNP and exports. Part

Three is the most important, because it demonstrates the

relationship between performance and consequence of Marcos'

political involvement in the sugar industry.

Chapter V, the first chapter of Part Three,

investigates how the sugar institutions were dominated by

the state. When the old organizations were abolished.

President Marcos created four new institutions, with the

Philippine Sugar Commission (Philsucom) as the supreme one.

The major argument is that with his cronies given the most

important positions in the sugar institutions. President

Marcos very easily beat the old oligarchy--mainly his

major opponents in the industry and the country as well.

Chapter VI analyzes the performance of the trade

monopoly, internally and externally. This chapter argues

that the trade monopoly resulted in a huge loss of sugar

income, totalling between 11 billion pesos and 14 billion

pesos, because of Philsucom's mismanagement, corruption. 29 and policy mistakes. And the Marcos government made the sugar producers bear the burden.

Chapter VII examines another critical issue, price monopolization. By setting up all sugar prices (i.e. external, internal, reserve, and composite), the Marcos government was able to grab profits legally from sugar production. It contends that the Marcos regime took the major portion of sugar profits, while the sugar planters were made to share the remainder.

Chapter VIII, the last chapter of Part Three, investigates three other issues (i.e, poverty, labor displacement, and communist insurgency) in the sugar industry, mainly on Negros island. These three inter­ related problems are actually the by-products of the sugar monopolization policy. The key argument is that all these issues either originated or worsened during the ten critical years.

Part Four, or Chapter IX, offers a theoretical analysis about the four arguments on the decline of the

Philippine sugar industry. After the examination of every variable relating to the sugar industry, it is now a time to see who wins the game, meaning which variable plays the most important role in the collapse of the once-golden sugar industry in the Philippines. It is concluded that while President Marcos' political intervention, through the monopolization policy, in the sugar industry bears the 30 major responsibility, the other two variables (i.e. feudalism and dependency on the world market) are involved too. PART ONE

FEUDALISM AND DEPENDENCY : HISTORICAL

BACKGROUND OF THE PHILIPPINE SUGAR INDUSTRY

The first part of this dissertation is to introduce the historical development of the Philippine sugar industry, in which two themes, feudalism and dependency, are involved.

Feudalism, as one of the most significant agricultural and social characteristics in the Philippines, symbolizes the internal structure of the Philippine sugar industry. It reflects the state of the Filipino's political behavior and economic status under the hierarchical system.

Dependency, on the other hand, is related to the external market of the Philippine sugar, which was connected to the world market since the mid 19th century. The Philippine sugar export was further concentrated upon the American market since 1909 when free trade was established. This dependency relationship upon the U.S. lasted until 1974.

There are three chapters in Part One. The first chapter covers the beginning of the Philippine sugar industry until the end of Spanish colonialism in 1898, whereas the second chapter will explore the development of the industry under the sovereignty of the American

31 32 administration from 1898 to 1946. Chapter III is to investigate the growth of the industry under the newly independent government during the first three decades after

World War Two. Therefore, there are two major objectives in Part One: (1) to introduce the evolution of the feudal system in the sugar industry from 1850s to 1974, and (2) to examine the development and consequence of the sugar dependency relationship with the U.S. CHAPTER I

THE PHILIPPINE SUGAR INDUSTRY UNDER SPANISH ERA

1. Birth of the Philippine Sugar Industry

It is not certain when sugar was brought into the

Philippines. It is believed, however, that Indians and

Chinese were those who introduced sugar into the

Archipelago.1 In 1572 when the Spaniards arrived in

Manila, sugar was found as one of the fourteen items imported from China to meet the demands of city residents.2

Since then, sugar was gradually but steadily planted in the

Philippines. Yet, Philippine sugar was not exported until two hundred years later during the mid-18th century when the British occupied the islands in 1764.3

Unlike the Spanish colonial government which discouraged sugar exportation, the British administration encouraged sugar trade internally and externally. Twenty years later in 1785 when the Royal Company of the

1. One important evidence is that Filipinos were using traditional Chinese methods to plant sugarcane before western methods were imported.

2. Carlos Quirino, Historv of the Philippine Sugar Industry. Manila: Kalayaan Publishing Co., Inc., 1974, p.4.

3. The British temporarily occupied Manila for three years from 1763 to 1765.

33 34

Philippines was established, sugar began to be promoted for further exportation.

Sugar, however, did not play a crucial role in

Philippine agricultural production until the mid-19th century when it was introduced to the island of Negros by

Nicholas Loney, a British Vice-Consul to Iloilo in 1856.

Iloilo city, located only 30 kilometers (or 20 miles) away from Negros island across the Guimaras Strait, was the commercial and cultural center of the three provinces (i.e.

Iloilo, Negros Occidental, and Antique) throughout the four centuries of Philippine colonial history. After Iloilo's port was opened to direct foreign trade in 1855, the city became a vital entrepot in terms of managing in the transport and warehousing of the Negros sugar crop.

Iloilo was previously known for its textile industry and rice cultivation, but the city's logistic infrastructure was completely integrated with the Negros sugar hacienda complex since the mid-19th century. In fact, while Negros island began to produce sugar in the mid

1850s, Iloilo city performed all of the industry's support functions. For example, banks, social clubs, warehouses, machine shops, printing presses, retail shops, commercial firms, educational institutions and medical services were only to be found in Iloilo city. Thus, since the 1860s

Iloilo city's prosperity was dependent upon serving the needs of the Negros sugar planters, their foreign patrons. 35 and so on.4

After Nicholas Loney arrived in Iloilo, sugar happened to be an important crop in the island of Negros.

Originally, as a British Vice-Consul at Iloilo, Loney's main job was to develop and foster the inter-island and international shipping connections which would vitalize the

Iloilo entrepot and reduce the shipping cost as well. To reach this goal, the most significant strategy was to promote trade internally and internationally. After several visits to Negros, Loney found out that Negros island, a sparsely populated rainy land, was very suitable for sugar plantation.5 Loney also believed that if more efficient crushing and evaporation methods were used, more profits could be obtained from sugar cultivation.

Realizing that these improvements would be possible only with readily available capital, Loney decided to invest and promote sugar cultivation in the island of

Negros. Loney's decision proved to be significant later.

4. While sugar began to be prosperous in Negros island, Iloilo's textile industry declined. See Alfred McCoy, "A Queen Dies Slowly," in A. McCoy and Ed. C. de Jesus (ed.), Philippine Social Historv. Honolulu: University of Hawaii, 1982, pp. 293-350.

5. According to a chemist's survey, comparing other soil (e.g. Hawaii and Java), the soil of Negros may rightfully be classed as among the better of the sugar lands of the world, and, given the proper care in cultivation, should be able to yield eventually as much sugar in proportion to the area of ground planted as any other country. ( Hebert Walker, The Sugar Industry in The Island of Nearos. Manila: Bureau of Printing, 1910, pp.68-73.) 36 because Negros island was converted from a forgotten virgin land to a major sugar-producing area in the Philippines.

Also, the opening of the Negros sugar plantations was one of the major events in modern agricultural history of the

Philippines, and sugar had became a vital Philippine agricultural crop until the early 1970s.

By the end of Spanish colonialism in the archipelago, the growth of the sugar industry in Negros island could be demonstrated by two remarkable indicators: (1) population, and (2) sugar production and sugar exportation. In terms of population, it increased ten times between 1850 and the

1890s. In 1850, it was estimated that the population in

Negros island was only 30,000. This figure jumped to

320,606 in 1893. Most of this population was absorbed by the sugar industry. The majority of these people were immigrated from neighboring provinces such as Panay and

Cebu, and the rest of them came directly from China.

During the same period, however, the population of Iloilo province remained relatively stable--321,049 in 1849 and

410,315 in 1903--, mainly because Panay's weaving industry declined after the mid-19th century.

The increasing population in Negros indicates the need for labor force in the sugar industry. It also suggests that the development of the sugar industry in the latter 37 half of the 19th century was largely labor intensive.6

That is, sugar workers with depressed wages and new land were the two driving factors contributing to the rapid growth of the sugar industry. This has become the most significant characteristic of the Philippine sugar industry, which will generate great influence later in the country, politically, economically, and culturally as well.

The population structure in Negros island during this period is equally important to be noted. The distribution of population in 1870 in Negros is shown in the following table (Table 3 ) .

Table 3 Negros Population Structure in 1870

Number : Peoples

65 : Peninsular Spaniards 294 : Hispanicized Filipinos : 4,804 : Mestizos of Chinese, Spanish, : : and other de scent 181,802 : Indios (i.e . native Filipinos ) 165 : Pure Chinese 187,130 : Total

Source: Ma. Fe Heranez Romero, Negros Occidental Between Two Powers. 1898-1909. Bacolod City: Negros Occidental Historical Commission, 1974, p,34.

Among these people, mestizos were the most important,

principally because they played very crucial roles in the

Philippine sugar industry. As for the Chinese, for

6. McCoy, "A Queen Dies Slowly," p.311. 38 example, they did not appear in Negros Occidental in pre-

1750 times, but by 1881 the Chinese comprised 4 percent of the total population in the province.? Many of them were directly connected to the rise of the hacienda system in the sugar industry. In his report of 1861, Loney described migrations to Negros as follows:

A great number of Iloilo mestizos have invested in the large tracts of fertile and well-situated lands on the coast of Negros, each taking with them several families from Molo, Jaro and Miagao and other pueblos of their provinces to settle in their estates and work in the usual system of proportionate share of profits.8

The increase of sugar production and sugar export is another major indicator that demonstrates the growth of the sugar industry in Negros island and the Philippines as a whole. As a matter of fact, since Iloilo city was opened for trade in 1855, the latter half of the 19th century showed a period in which the sugar industry was rooted in

Negros island and continued to rise steadily. Table 4

(next page) demonstrates the growth of sugar production and export in the second half of the 19th century.

7. Edgar Wickberg, The Chinese in Philippine Life: 1850-1898. New Haven: Yale University Press, 1965, p.62.

8. The system of proportionate share of profits is referred to the acsa svstem where the owner of a hacienda supplied the laborers with the land, draft animals and ploughing implements. In turn the laborer took care of the cultivation and received as payment one-third of the value of the product, usually paid him in cash. See more in Romero, Negros Occidental Between Two Powers, pp.35-36. 39

Table Philippine Sugar Performances, 1850-1892

year Production Export % of total (tons) 9 (long t value exports

1850 29,090 — — — 1861 53,114 45,822 37% 1865 55,838 46,092 29% 1875 127,713 126,088 49% 1884 121,978 120,198 30%10 1892 251,791 248,804 41%

Source: Philippine Sugar Association, Facts and Statistics About the Philippine Sugar Industry. Manila: Philippine Sugar Association, 1928, Table I.

It is significant to observe that the majority of

Philippine sugar exports (i.e. over 50% of whole sugar exports) in the 1880's was absorbed by the American market, even before the United States occupied the archipelago in

1898. This indicates that the dependency of Philippines' sugar trade on the American market occurred prior to the time when the former was colonized by the latter. The following figure (Table 5) shows the relationship of the sugar trade between the Philippines and the U.S.

9. The unit of sugar over here is "ton", in contrast with "long ton" in the next Column. A long ton weighs 2,240 lbs, while a metric ton or 1,000 kilos weighs 2,204.6 lb, and a short ton weighs 2,000 lbs. The figure of sugar production is from Quirino, Historv of the Philippine Sugar Industry, p.39.

10. The decline of sugar production in 1884 was due to the plunge of the world sugar price in the year. 40

Table 5 Philippine Sugar Exports to The U.S., 1849-1898

Year Total sugar Exports to U.S. % of total : exports (long tons) sugar exports :

1849 22,865 5,504 24% : 1860 57,434 16,914 29% : 1870 76,975 22,773 30% : 1875 126,088 52,923 42% : 1880 178,327 100,671 56% : 1885 200,995 132,919 66% : 1889 224,859 123,776 55% : 1890 142,552 33,586 24% : 1892 248,804 45,255 18% : 1895 336,075 39,951 12% 1898 177,962 27,554 15% :

Source: Philippine Sugar Association, Facts and Statistics. Table I .

Based on these statistics, it is interesting to find that sugar exports to the U.S. dramatically declined during the last decade of Spanish colonialism in the Philippines.

The key reasons for that were the years of rebellion against Spain, the Filipino revolution against the United

States, and the plummeting of the world sugar price. As a result, Philippine sugar production declined from 224,859 long tons in 1889 to 177,962 long tons in 1898, and sugar exports to the U.S. also declined from 123,776 long tons to

27,554 long tons, respectively.

Although the sugar industry in Negros grew rapidly and steadily in the latter half of the 19th century, there were three major hurdles: (1) traditional equipment, (2) lack of capital, and (3) insufficient labor force. Fortunately, 41 these three difficulties were solved at the same time, which further explained the reasons for the growth of the

Philippine sugar industry in the latter half of the 19th century.

First of all, in terms of traditional equipment, it was replaced by the introduction of more advanced milling equipment by Nicholas Loney. Before Loney came to Negros, sugar cane was crushed in crude hardwood rollers, turned by hand or by carabao. This traditional method was believed to be imported from China, since boiling vats were obtained

from China or locally produced. In order to promote both the quantity and the quality of sugar production, Loney

imported new varieties of sugar cane seeds from Sumatra, where much experimental work had been undertaken by the

Dutch.

In addition, Loney introduced a new type of furnace, which enabled planters to burn cane waste (bagasse) as their source of fuel in place of the large quantities of

wood formerly consumed.11 Meanwhile, a French technician,

M. Delaunay, introduced from Mauritius the art of

constructing boilers that vastly improved the processing of

sugar.12 Another technological improvement was the

introduction of the steam-powered mill, also brought in by

11. Fast and Richardson, Roots of Dependency, p.32.

12. Rizalino Aguino Oades, The Social and Economic Background of Philippine Nationalism. 1830-1892. Hawaii: University of Hawaii, Ph.D Dissertation, 1974, p.122. 42

Loney, which replaced primitive wooden mills operated by animal power. According to Fast and Richardson, by 1864 seven steam mills were found in operation in Negros, producing seven thousand tons of sugar a year.13

Lack of capital was another factor to elucidate why sugar did not expand in Negros prior to the 1850s. Yet, when Loney was appointed as Vice-Consul in 1857, he established a commercial house in Negros, connecting with the Manila firm, Ker & Co., Ltd. Loney and Ker soon became the most powerful commercial house outside of Manila, engaging in the usual financing and trade operations.

Because of their effort, more Europeans were attracted by the potentiality of the sugar industry in Negros. By the end of the 1860s, there were an estimated twenty European plantations on the island, and meanwhile a couple of firms such as the Banco Espanol-Filipino, Russell Sturgis & Co.,

Peele Hubbell & Co., and Loney & Ker began to import new milling equipment and invest heavily in sugar.14 The increasing capital from Europe thus revitalized the sugar industry in Negros and the whole archipelago's economy as well.

Labor force was the third requirement for the growth of the sugar industry in Negros. However, the problem of labor recruitment was made more difficult by the internal

13. Fast and Richardson, Roots of Dependency, p.32.

14. Fast and Richardson, Roots of Dependency, p.33. 43 passport system under Spanish colonialism. A laborer was required to obtain clearance from his village cabeza or headman, if he was recruited in Panay for working in

Negros. The cabeza was responsible to the Spanish authorities for collecting tax from every laborer in his village. Obviously, in order not to lose tax revenue, the cabeza was unlikely to endorse documents for laborers to obtain passports. Thus, workers often migrated to Negros illegally. According to Loney's letter of 31 January

1867, due to thousands of illegal laborers working in

Negros canefields, the whole passport system began to crumble.15 In effect, the problem of obtaining a sufficiency of labor lasted until the next century in the

1920s and 1930s.

The internal passport system had another vexing regulation over foreigners, which provided that all foreigners (i.e. mainly non-Spanish Europeans) had to carry passports for internal travel between the islands.16

These passports were obtainable only in Manila, took a month or more to obtain, and were valid for only six months. Accordingly, the Europeans either had to travel secretly between Negros and Iloilo without a passport, or

15. Fast and Richardson, Roots of Dependency, p.35.

16. In order to keep the colony solely for Spain and for the interests of Spaniards, the colonial administration edicts of 1828, 1840, and 1844 prohibited residence and travels of foreigners in the country. See more in Oades, The Social and Economic Background, pp.90-91. 44 subject themselves to a biannual, sixteen-day nuisance journey to Manila to renew their passports. Thus, when this regulation was suspended in 1884, Europeans were more effective in sugar plantation development in Negros. One scholar says that "by the 1880s foreign businessmen had almost the same rights and obligations enjoyed by

Spaniards."17 In fact, from 1854 to 1895 sugar exports experienced a sevenfold increase, a rise due to further foreign involvement, as shown in Table 5.

One more factor contributing to the rapid growth of the sugar industry in Negros had to do with the high price of world sugar prices throughout the late 1850s and 1860's.

In 1856, for instance, sugar exports from Iloilo were less than a thousand tons, but this figure jumped to 5,400 tons in 1859, and to 17,800 tons in 1863. The steady growth of sugar production was further encouraged throughout the

1870s and early 1880s by continued high prices on world sugar markets. Actually, by 1880 the Philippines produced over 200,000 tons of sugar for the first time, making it the third ranking cane producing country in the world, after Cuba (530,000 tons) and Java (300,000 tons).18 At the same time, it must be noted that sugar production was also affected negatively twice by the plunge of the world sugar price in mid 1880s and 1890s.

17. Oades, The Social and Economic Background, p.98

18. Fast and Richardson, Roots of Dependency, p. 44. 45

As a result, sugar became a monoculture in Negros, and

it replaced textiles as the major product of the West

Visaya region. Previously the weaving industry was the trade commodity that made Iloilo city prosperous, but now

it was replaced by sugar. This converted Negros island

from a sparsely populated rainy land to a center of sugar culture in the Philippines. Concomitantly, the once textile-centered Iloilo city became a major sugar port in the region of West Visaya. The weaving industry declined

in Panay, whereas the sugar industry arose in Negros.

Finally, the connection with the world capital system was also credited to the growing Philippine sugar industry.

This had to do with Spanish policy. According to Oades, after Manila was opened to foreign merchants in 1830, the

trend of Spanish policy was toward further

liberalization.19 Even though foreign merchants suffered

from some disadvantages (e.g. internal passport system),

the archipelago's economy was moving worldwide. Thus,

when sugar export was increased after the 1870s, it was

meanwhile integrated into the western-controlled world

commercial market.

On the one hand, this connection encouraged the

Philippines' sugar production in the 1860s and 1870s,

because of the expanding market in the world. As sugar

demand on world markets was greater, Philippine sugar

19. Oades, The Social and Economic Background, p, 46 production was expanded. On the other hand, however, this connection brought in some side effects of the world capitalistic system to the Philippine sugar industry. The plummeting of world sugar prices in 1884, for example, was the first of many externally imposed blows on the

Philippine sugar industry.

The major factor for the decline of the world sugar price in 1894 was the introduction of a bounty system in

Germany and in France.20 The bounty system created the effect of subsidizing beet sugar production in both countries. As a result, sugar production in continental

Europe was spurred and sugar prices on the London and New

York market were driven down sharply. Prior to the introduction of the bounty system, about half of the total

Philippine sugar exports was destined for Britain, but after 1884 the British took only 15% of the colony's sugar exports. This politically-oriented bounty system constituted the first negative impact of the world sugar structure over the Philippine sugar industry after the latter was connected to the former. It also suggests that a growing politicization of the sugar economy was beginning to occur, both domestically and internationally.

20. Fast and Richardson, Roots of Dependency, p.44. 47

2. Rise of Haciendas

The hacienda, or large agricultural plantation, is a particular aspect of the Philippine sugar industry. It has dominated the agricultural sector of the sugar industry in the Philippines for centuries. Thus, it is imperative to explore the origin of haciendas during the Spanish era.

What does a hacienda look like? Usually a hacienda ranges from 100 to 700 hectares, or roughly from 250 to

1,700 acres, and the average estate of about 220 to 240 hectares in size produced about 7,000 piculs or nearly 450 metric tons of sugar annually.21 One American Constabulary officer who served in Negros at the century's turn portrayed the hacienda as follows:

Each hacienda was a community in itself-a feudal community of which the hacendero was the overlord. The hacendero's house, like a baron's fortress of the Middle Ages, stood in the center of the buildings and dependents' huts. Many miles of almost uninhabited country might separate one hacienda from the next or from the nearest pueblo. The laborers (men, women, and children) might be said to belong to the hacendero, for they were usually so deep in debt for the clothing and food advanced that escape was well-nigh impossible.22

We need to examine two imperative factors relating to the appearance of haciendas in the Philippine sugar industry. First, land policy was one major factor contributing to the rise of haciendas and big landlords.

21. Quirino, Historv of the Philippine Sugar Industry, p. 43.

22. McCoy, "A Queen dies slowly," pp,323-324. 48

During the first three centuries of Spanish colonialism, native Filipinos, or Indios, were generally prohibited from tilling land outside their town of residence. This land law prevented the early peasant pioneers from registering their claims. It was not until 1880 that the land law was changed by a Royal Decree, which regulated general procedures for confirming title over occupied land and acquiring empty lands.

According to the Spanish government, people could go to either municipal land committees to claim lands under 10 hectares, or to a provincial land committee for lands below

50 hectares. Yet, because of corruption among Spanish and

Filipino officials, it was not surprising that some landlords claimed lands over 100 hectares. Teodoro

Benedicto, for example, acquired lands from originally 300 hectares to 1,120.09 hectares in Negros and 7,000 hectares in the La Carlota district, in contrast with the great majority of farmers with less than two hectares.23 After an investigation, the Spaniards claimed that Benedicto had corrupted the gobernadorcillo of Pontevedra, leaving the poor dispossessed no official recourse. Other big landlords had similar stories to obtain lands during the last two decades of the Spanish colonial ism.24

23. McCoy, "A Queen Dies Slowly," pp.320-321.

24. In Negros Occidental province, 18 out of 22 landowners, with average holdings of 774 hectares, had direct ties with the government, meaning they or their 49

Second, haciendas were further created through one

more method--pacto de retroventa. an arrangement whereby

"the Indio landowner mortgaged his land for ready cash with

an option to repurchase it at a price equal to the amount

of the loan."25 Another author demonstrates two similar

means of securing haciendas: some haciendas were lands acquired through the process of homesteading, whereas

others were bought or leased through various forms of

arrangements. 26

Originally, land was in the hands of native Indios,

who rented it to foreigners. However, since the native

Indios were rarely able to repay their loans at the appointed time, the land eventually went by default to a

few rich Indios and some foreigners (i.e. mestizos of

Chinese and Spanish descent, and Europeans). A good

example could be represented by the French planter Yves

Gaston, who purchased ten parcels of land from small

farmers to form a hacienda of some 200 hectares in the

relatives had served the Iloilo government before they moved to Negros. (McCoy, "A Queen Dies Slowly," p.315.)

25. Oades, The Social and Economic Background, p.157.

26. Romero, Negros Occidental Between Two Powers, p.35. McCoy also mentioned three related tactics: "(1) forced expropriation of peasant farms later legitimized by legal documentation; (2) cash purchase of small peasant farms to form a plantation; (3) and high interest loans to peasant proprietors with default provisions requiring forfeiture of land and years of bondage." (McCoy, "A Queen Dies Slowly," pp.319-320.) 50

Silay district between March 1850 and August 1856.27

There were other forms to grab land such as denuncia

(uncleared, or unoccupied land), realenaas (the Crown lands from a royal grant), etc., but most of these forms of land acquisition under Spain were not just and fair.28

It is notable to investigate the migration movement of foreigners to the island of Negros during the 19th century, mainly because they were the pioneer hacenderos, or big landlords, in the sugar industry. These foreigners, in conjunction with the new land policy, new technology, and capital, also contributed to the rapid growth of the sugar industry in the sparsely populated Negros island. As

Romero pointed out, a three-pronged process of migration occurred during the 19th century.29

The first group of these people were Espanoles

Peninsulars, who came to Negros because of disenchantment with the political situation in Spain (the Carlistas) in the 1830s and the search for material opportunities. A second one included the mestizos of Chinese and Spanish descent, and some Indios, who migrated to Negros from neighboring Panay island, following the trail of Nicholas

Loney in the 1860s. Finally, some Europeans--largely

27. McCoy, "A Queen Dies Slowly," p.323.

28. Leslie E. Bauzon, Philippine Agrarian Reform 1880- 19 65. Singapore: Institute of Southeast Asian Studies, 1975, pp.5-6.

29. Romero, Negros Between Two Powers, p.35. 51

French and English--attracted by the potential of the

Negros sugar industry, moved to the island in the 1870s.30

These people were not only the pioneers but also the big landlords in the Negros sugar industry. They later emerged as one of the most prosperous and influential economic groupings in Negros island and the whole country as well. These hacenderos started with the sugar industry— an economic commodity, but later connected it with political power.31 Due to this political intervention, sugar was no longer a pure agricultural commodity, but an instrument to extend political influence and economic prosperity in the country. Some of these big prominent families have maintained their economic prosperity and political influence for a century, even until the present.

Don Teodoro Benedicto, for instance, was the ancestor of Roberto Benedicto, who was a close friend of former

President Marcos and was appointed as President of the

Philippine National Bank (PNB), then Ambassador to Japan,

30. Another author says there were five types of landowners before the introduction of export crops: (1) the native Filipinos whose parcels of land had no clear boundary marks; (2) the friars who were given land grants by the Crown for their support; (3)Spaniards who were beneficiaries of the royal grant; (4) representatives of the Spanish royal estate; and (5) residents of pueblos who owned communal lands or lands whose produce was communally shared. See more in Onofre Corpuz, The Philippines. Caloocan City: Philippine Graphic Arts, Inc., 1973, pp.31-32

31. For example, during elections, candidates, in order to win, have to gain support from these sugar barons. 52 and finally chairperson of the state-monopolized

Philippine Sugar Commission in 1977.32 Teodoro Benedicto was one of the six landowners in the province of Negros

Occidental who owned over 1,000 hectares by the end of

Spanish colonial ism.33

Another big hacendero was Cabeza Basilio Lopez, like

Benedicto, who was also originally from Jaro. One of his sons, Claudio Lopez--the vice consul for Portugal at

Iloilo, owned three haciendas in La Carlota totaling 550 hectares. Another son of Cabeza Basilio was Eugenio

Lopez, grand father of former Philippine Vice President

Fernando Lopez, who owned 11 haciendas in Negros and Iloilo totaling 2,592 hectares in 1887.34 Later in the 1970s, when Fernando Lopez was no longer a partner, but an opponent to President Marcos, Lopez's families were politically persecuted and his industries were taken away by the Marcos regime. This political dispute and conflict between Marcos and Lopez is elaborated later in Chapter V.

President Corazon Cojuangco Aquino is also from a prominent sugar family--the Cojuangco family, although she is from central Luzon, another major sugar-producing area

32. Roberto Benedicto's involvement in the sugar industry is examined later in Chapter V.

33. According to an 1897 colonial government survey, of these six big landowners, two were Spanish and the other four were the mestizos: Don Teodoro Benedicto, Ysidro dela Rame, Lucio Lacson, and Teodoro Yulo.

34. McCoy, "A Queen Dies Slowly," p.315. 53 in the country. The first Jose Cojuangco was an immigrant from China's Fujian province, who started in business as a building contractor in Manila in 1861, and moved to Tarlac in central Luzon in the mid 1890s where he invested earlier earnings in rice and sugar lands. The family's business today still remains largely rooted in the sugar industry.

The Cojuangcos-owned Tarlac sugar mill, for example, amounted for 4.2% of total Philippine rav-sugar production in the period 1974-83.35 When Corazon married Benigno

Aquino, a grand son of a former Philippine revolutionary general, the political influence and assets of the two families were connected at the same time.

3. Plantation Systems

Two different plantation systems have been developed in the haciendas in the Philippine sugar industry. One is the wage labor system, represented by sugar farms in Negros island, and the other is based upon a share tenancy system, represented by the sugar farms in central and northern

Luzon. It is very imperative to introduce these two plantation systems, because the development of these two systems have governed the archipelago's sugar industry from the late 19th century until the present.

In fact, Luzon is the island where the Philippine

35. Jose Galang, "Wealth rooted deep in a sugar empire," Far Eastern Economic Review, 26 March 1987, p.73. 54 sugar industry commenced. By the mid-1850s almost all of the sugar produced in the Philippines was from Luzon. The sugar industry in Luzon was marked by a share tenancy system, in which the landowner contributed the land, seed, milling facilities and a cash in advance, whereas the tenant contributed his labor. The sugar harvest was usually divided fifty-fifty between tenants and landlords, though the conditions of partnership varied.36 In this production system, a four-tiered hierarchy of operations was developed, i.e. merchants in Manila, local landlords, tenants, and the bottom laborers.37

Accordingly, the landlord borrowed capital from Manila commercial houses to meet his expenses and to advance money to his tenants. The tenant in fact functioned as a part- time laborer during the leisure season (May to September), and also part-time overseer during the harvest season (late

October to early April). The laborers, the bottom of the hierarchy, were usually paid by the day and employed only during the four or five-month harvest season. Due to low productivity, laborers eventually found themselves chained by debt and whipped by hunger into the sugarcane fields.

In short, central Luzon planters divided their haciendas into tenanted farms of usually less than five hectares each

36. Quirino, History of the Philippine Sugar Industry, p.45; Fast and Richardson, Roots of Dependency, p.43.

37. Fast and Richardson, Roots of Dependency, p.43. 55 and increased their incomes by devising elaborate means of squeezing their tenants.38 And yet the tenant was a small landlord/planter to his laborers.

Negros island, however, began to produce sugar for the first time in 1856 when 625 tons were milled, as compared to 36,000 tons produced in Luzon at this time.39 Yet, during the late 19th century, Negros grew to be the leading sugar province in the Philippines, followed by the Luzon provinces of Pampanga and Batangas.

In the beginning Negros was following Luzon, in terms of sugar production pattern and labor system as well.

However, due to distinct environments and policies, a unique agricultural system was developed in the Negros sugar industry. This is the so-called "wage labor" system, which is characterized by powerful big landlords, large-scale plantations, and exploited wage laborers as well. This particular system has generated great influence over the economic pattern and trade activities in

Negros, people's political behaviors in West Visaya, as well as the growth of a particular sugar culture in the region.

Originally, Negros planters followed the same tenancy

38. McCoy, "A Queen Dies Slowly," p.325.

39. Nicholas Loney to W. Farren, 12 April 1857, in Robert MacMicking, Recollections of Manila and the Philippines during 1848. 1849 and 1850. Manila: Filipiniana Book Guild, 1967, p.219. 56 system as Luzon. But, after the 1880s a number of Negros sugar planters began to observe some advantages, if they shifted from tenant-based production to the employment of hired day laborers. They realized that by hiring wage laborers, unlike tenants who were not constructive during the growing (or leisure) season, they would achieve greater flexibility and increased profits. Thus, some planters tried to break out of the tenancy system and base all their operations on the seasonal employment of wage workers, which led to the birth of migrant seasonal workers, better known as sacadas or contract laborers. As a result,

Negros haciendas were cultivated by supervised work-gangs paid a nominal daily wage. This transition from tenanted hacienda to directly administered and large-scale plantation occurred in Negros during the 1870s and 1880s, and was eventually completed within 20 years. This was the key difference between Negros haciendas and central

Luzon haciendas where a share tenancy system developed.

Due to this distinctive plantation pattern between central Luzon and Negros island, laborers' living conditions between the two areas varied too. McCoy has portrayed the divergences of these two sugar regions as follows :

The Kapampangan sugar tenant of central Luzon lived in his own freestanding house, worked some four to ten hectares of plantation land on a share crop arrangement, and was responsible for supplying his own work animals and implements. The Negros hacienda 57

worker, by contrast, a wage or debt slave who owned, quite literally, nothing more than his clothes and cooking utensils. Worked in teams under the supervision of a foreman like open-air factory workers, the Negros worker was paid an inadequate daily wage which left him constantly in debt to the planter.40

A. Hacendero-Labrador Relationship

When the sugar crisis happened in the mid 1970s, many analysts observed that an unusual exploitative relationship existed between sugar planters and sugar workers in the

Philippines. They were wondering why and how the huge gap between rich planters and poor laborers was formed.

Actually, it was based upon an unhealthy social system--a tradition that started in the beginning of the sugar industry in Negros during the late Spanish rule. One significant way to trace this tradition is to probe how laborers were employed in the latter half of the 19th century. Usually, three tactics were practiced by planters to acquire an adequate supply of labor: (1) contract migrant labor (the sacadas) recruited annually in western Panay, (2) cash advances to encourage migration by permanent workers, and (3) debt binding of resident laborers.41

Under this system, peasants were discriminately treated. Cash advance, for example, was a critical

40. McCoy, "A Queen Dies Slowly," p.325.

41. McCoy, "A Queen Dies Slowly," p.320. 58 technique utilized by the landlords to keep tenants indebted to them. Yet, because of poverty and low productivity, the tenant was always more than ready to grab any loan that came his way for the survival of his family during the lean period. This situation resulted in the appearance of a usurious system,42 The loan contract usually contained clauses requiring forfeiture of land upon non-payment and subsequent debt bondage to the lender's hacienda for an unlimited period until the balance was worked off. Also, hacenderos listed such debts as a part of the hacienda's assets together with plough, work animals, implements, buildings, etc. A good example of the means to secure labor was a series of eight contracts signed between the Spanish planter Adolfo Lazarte and peasants from the Bacolod area in 1871, as described by

McCoy as follows:43

To repay debts ranging from 50 pesos to 85 pesos, these eight peasants agreed to work for an indefinite period in Lazarte's hacienda. In exchange for a half-share of sugar produced, the debtors were responsible for cultivating an assigned plot on the hacienda, cutting and hauling the cane to the

42. In a report by the Labor Department, there were three most common usurious practices as follows: (1) Takipan: The landowner who loaned the tenant two cavans of palay would collect four cavans, meaning a 100 percent interest rate for the landlord. (2) Talindua: The tenant paid three cavans for two cavans borrowed, assuming a 50% interest for the landlord. (3) Terciahan: A loan of three cavans was paid back with four cavans, a 33.3 percent interest for the lender.

43. McCoy, "A Queen Dies Slowly," p.322. 59

hacienda's mill, providing half the firewood to boil the cane from their fields, and most significantly, contributing one day of free labor per week to the hacienda.44

With few alternatives to respond to grievances about

their treatment, laborers often defaulted on their debts to

the planter in two ways: either fleeing to another hacienda

where the conditions were better, or becoming pioneers in

some of the more remote areas. Confronted with this difficult labor problem, planters usually exercised

corporal punishment to maintain discipline and elaborate

security procedures to prevent flight. After work every day, peasants returned to the barracks inside the hacienda

compound, and during the night hacienda guards patrolled

the perimeter to prevent flight and also Guardia Civil

troopers monitored the roads to catch fleeing workers.

In short, the landlord-tenant or hacendero-labrador

relationship in the 19th century was primarily on the basis

of heavily bonded debt, which left the laborer open to

various possibilities of exploitation. This is a very

typical relationship between the planter and the laborer,

although hacendero-labrador relationship varies in

different haciendas.45 This is also the historical root

44. Later, within a decade, however, shared tenants declined and were replaced by daily laborers at fixed wage rates--a fundamental transition from tenancy to the work gang which characterized the hacienda system in Negros island

45. On the other hand, laborers usually like to ask their planters to act as godparents to their children. The planters in return are likely to give advice and lend money 60 of the tenant-labor conflicts as well as the present-day sacada problem, mainly because most sacadas or migrant workers have not really been absorbed as permanent laborers in haciendas, even one century later in the 1980s.

5. Conclusion

It was during late Spanish colonialism that the

Philippine sugar industry started to play an important role in Philippine agriculture, and Nicholas Loney was the one who helped promote the sugar industry on Negros island so that the latter could become a major sugar-producing area in the country. By the end of Spanish rule in 1898, the

Philippine sugar industry was marked by the following three characteristics.

First, foreign traders and investors were the two most crucial factors contributing to the rapid growth of the sugar industry in Negros during the second half of the 19th century. This foreign involvement indicates that western- oriented capitalism, meaning commercialization of the sugar industry, was brought into the Philippine sugar industry.46

Second, due to the change of the colonial land policy and labor policy, big landlords were created. These hacenderos, especially a few native Filipinos and mestizos. for various emergencies to laborers.

46. Rene Ofreneo, Capitalism in the Philippines, Quezon City: Foundation for Nationalist Studies, 1980, p.12. 61 later became not only the owners of sugar haciendas but also politically the masters of their laborers in the country. When the two plantation systems were developed in the sugar industry, a feudal system with a hierarchical structure, politically and economically, was followed.

Finally, when sugar export began to be promoted in the

1870s, the Philippine sugar industry was connected to the world market system. The Philippine sugar industry was henceforth tied to the ups and downs of world sugar prices.

The essence of the Philippine sugar industry during the last forty years of Spanish colonialism was, however, that it was able to compete in the global free market because of its family-type economy and low cost of production.47

47. Urbano Zafra, Philippine Economic Handbook, Washington D.C.:------, 1955, p.52. CHAPTER II

THE SUGAR INDUSTRY UNDER AMERICAN COLONIALISM

1. Significance of The Sugar Industry In Philippine Economy

The 48-year (1898-1946) American administration in the

Philippines was very important for the continuing development of the Philippine sugar industry, although the first ten years did not mean much. By the end of

American colonialism, sugar became the most important

Philippine agricultural export commodity, contributing roughly 30% to 50% of total foreign earnings. In the peak year of 1934, for instance, sugar was estimated to contribute "40% of total crop value, 65% of export value,

30% of national income, and directly and indirectly, 40% of total government revenue."1

Moreover, the prosperity of the various segments of the national economy was linked to the stability of the sugar industry. In 1935, Governor General Murphy enumerated the following contributions of the industry, referring to sugar's significance to the economy of the

Phi 1ippines:

1. Owen, "Philippine Economic Development and American Policy," p.111.

62 63

1. Sugar accounted for 64% of all income derived from export trade in 1932. Remove it from the list and a favorable visible balance of trade of $15,500,000 would have been converted into a negative balance of $44,500,000. 2. There are 10 banks in the Philippines and in addition 3 private companies engaged in agricultural financing. The total loans, overdrafts, and advances of these 13 establishments amount to $72,500,000. Of this amount $34,000,000 or 47%, is advanced on sugar. 3. Considering the Government-owned Philippine National Bank alone, its loans, overdrafts, and advances amount to $22,500,000, of which $17,500,000 or 77%, is advanced on sugar. 4. The Government owned Manila Railroad, collected $2,300,000 as freight revenue in 1932. Of this amount, nearly $1,000,000 or over 50%, was derived from handling sugar. 5. The Philippine Railways in Cebu, Iloilo, and Panay, in a large part guaranteed by the Government, also derives the bulk of its freight revenue from sugar. 6. Five of our leading provinces. Occidental Negros, Oriental Negros, Pampanga, Laguna, and Tarlac, are largely supported by taxation from sugar. Extreme withdrawal of this support in these provinces would seriously affect the public finances and be reflected in cessation of public works and closing of schools.2

The speedy progress of the Philippine sugar industry could be demonstrated by the continuing expansion of sugar production, farms, and its contribution in the total value of exports. In terms of sugar production, it is the most remarkable indicator that shows the growth of the

Philippine sugar industry. The following table (Table 6) shows the growing annual production of the industry during the American rule, from 395,000 tons in 1910 to more than 1 million tons in 1941.

2. Zafra, Philippine Economic Handbook, p.58 64

Table 6 Philippine Sugar Production, 1910-1941

Year Sugar production (short tons)

1910 395,000 1920 466,900 1925 779,000 1930 983,700 1932 1,174,300 1934 1,652,500 1937 1,118,000 1938 1,055,000 1940 1,049,000 1941 1,035,000

Source: Quirino, History of the Philippine Sugar Industry, pp.58-59.

The expansion of sugar production was actually a result of the increasing numbers of sugar farms, which is another indicator demonstrating the growing Philippine sugar industry. Sugar farms increased dramatically during the twenty years between 1910 to 1930. During these two decades, 35 new sugar mills, known as centrals in the

Philippines, were established, producing centrifugal sugar to replace antiquated muscovado sugar. By 1938, there were 45 sugar centrals operating in the country, with

24,020 sugar planters. Most of these new sugar mills were constructed in the islands of Negros (18 mills) and Luzon

(16 mills), in contrast with a total of 11 mills in the other four islands. Table 7 shows the distribution of sugar centrals and sugar farms in 1938. 65

Table 7 Number of Sugar Centrals, Planters, and Plantations in 1938

Island Number of Number of Number of centrals planters plantations

Luzon 16 14,173 12,883 Negros 18 5,543 4,552 Panay 6 2,083 1,902 Cebu 2 1,591 1,566 Leyte 2 599 570 Mindoro 1 29 20 Total 45 24,020 21,493

Source: This survey was conducted by National Sugar Board 1938, and this table is copied from Quirino, History of the Philippine Sugar Industry, p.74.

The third important indicator that demonstrates the increasing significance of the sugar industry in the archipelago's national economy is sugar export and its valuable share in national income. As mentioned earlier, sugar production had remarkably increased during the

American colonial sovereignty. Yet, the significance was that the majority of sugar production was oriented for exportation after 1910, and the United States became almost the sole destination after 1920.3 This indicates that after the 1920s Philippine sugar was almost totally dependent upon the American market. Table 8 shows the relationship between Philippine sugar and the American market. According to Table 8, only 11 percent of all

Philippine sugar exports was delivered to the U.S. in the

3. Before 1920, England, China, and Japan were the other three major markets for the Philippine sugar. 66 beginning of American rule (1899-1902). Thirty years later in the 1930s, however, about 99 percent of the archipelago's sugar exports was sold to the U.S.

Table 8 Philippine Sugar Exports to The U.S. And Its Role in Total Exports, 1899-1940

Year average Exports to U.S. % of total % of all (short tons) sugar exports exports

1899-1902 84,300 11% 10%-23% 1903-1909 127,800 27% 10%-18% 1910-1913 188,700 66% 15%-25% 1914-1922 273,400 49% 12%-33% 1923-1930 571.900 91% 24%-39% 1931-1933 1,046,500 99% 48%-63% 1934-1940 969.900 99% 32%-43%

Source: Zafra, Philippine Economic Handbook, p.58.

As sugar augmented its significant role in the

Philippines' national economy, the other two major agricultural commodities, coconut and Manila hemp, gradually declined. In 1918, for example, sugar contributed 11.69 percent of the total exports, whereas

Manila hemp 45.65 percent. But, ten years later in 1927, sugars' role in the total exports became the most important

(contributing 32 percent), whereas Manila hemp's role declined (contributing only 22.08 percent of total exports). Table 9 represents the changing structure of these three principal exports between 1918 and 1927. 67

Table 9 Export Structure of Three Major Commodities, 1918-27

Year Sugar: % of Coconut: % of Manila hemp: % : total exports total exports total exports:

1918 11.69% 27.27% 45.65% : 1919 13.45% 37.45% 25.45% : 1920 32.83% 18.64% 25.15% : 1921 28.96% 33.75% 16.36% : 1922 26.77% 32.71% 22.52% : 1923 28.58% 29.08% 23.72% : 1924 : 30.94% : 27.69% : 25.76% 1925 30.57% 26.86% 27.72% : 1926 : 23.54% : 33.18% : 27.03% 1927 32.32% 31.70% 22.08%

Source: Philippine Sugar Association, Facts and Statistics. Table X I .

2. Factors for The Growing Sugar Industry

It is imperative to explore some driving factors in the rapid growth of the Philippine sugar industry under the

American rule, not only because the structure of

Philippines exports changed but also a dependent relationship on the U.S. started. In fact, there was only one politically-oriented factor, i.e. American economic policy toward the Philippines. It was because of the development of American policy that a couple of laws were passed during the American administration. Accordingly, because of this legislation, more capital and technology were brought into the Philippines, and more sugar farms were motivated to be established. In short, three categories of factors can be observed: (1) legislation, (2) capital investment, and (3) the establishment of a new 68 sugar manufacture method.

A. Legislation

The first ten years (1898-1908) of the American colonial regime in the Philippines did not succeed in promoting the sugar industry, in spite of the enactment of the first tariff act in 1902. Under this Act of 1902,

Philippine products were granted a 25 percent reduction in the rates of the Tariff Act of 1897. The main reason was that American business people had invested heavily in Cuban sugar mills and Americans owned large sugar estates in

Hawaii, which had been annexed to the U.S. in 1898 for the sake of American interest in those islands.4 Thus, with

the conquest of the Philippines, Americans foresaw a threat

to their own sugar interests in the mainland and outlying

islands. This threat was dissolved when U.S.

Representative Payne of New York convinced the Congress to

enact the Tariff Act of August 1909, or the Payne-Aldrich

Law, which established free trade with the Philippines,

with certain limitations.5 Under this Law, almost

4. Quirino, History of the Philippine Sugar Industry. p. 48.

5. When the Payne-Aldrich Bill was under consideration, some Filipinos opposed the establishment of free trade and petitioned Congress not to establish it, because it "would in the future become highly prejudicial to the economic interest of the Filipino people and would hinder the attainment of the independence of the said people." But, the Congress deemed it advisable to establish free trade in order to give the Filipino people, "the opportunities to grow in habits of industry, to grow in the building up of national pride and national power, to 69 all Philippine products, with the exception of rice and certain quantitative limitations on Philippine sugar, cigars and tobacco, entered the U.S. free of duty. Sugar was limited to 300,000 long tons. On the contrary, under the Philippine Tariff Law of 1909, American products entered the archipelago free of duty, without limitation as to quantities and as to materials used in their manufacture. As a result, while virtual free trade between the two countries was beneficial to the Philippine sugar and tobacco, on the other hand it was a loss of revenue for the Philippine government which was estimated at around US$1,000,000.6

The limitation on sugar, tobacco and rice were eliminated in 1913, when the Tariff Act of 3 October 1913. known as the Underwood-Simmons Law, was enacted. This Act of 1913 also established a truly commercial reciprocity between the two countries. Congressman Oscar Underwood explained the removal of this limitation:

We may leave the limit where it is ..... but we would leave it where it is to the shame of every American citizen. We could not honestly face those dependent people who give us free trade in their markets if we close our doors here...... I say that no true-born American citizen who faces the question fairly and squarely and understands the grow in the accumulation of property and the diffusion of wealth, lying at the foundation of civilization." (Zafra, Philippine Economic Handbook, p.31.)

6. Pedro E. Abelarde, American Tariff Policy towards the Philippines. New York: King's Crown Press, 1947, p.101. 70

situation will consent to that.7

The Underwood-Simmons Act became American's economic policy toward the Philippines in the succeeding 20 years.

From 1913 onwards, the United States did not impose any limitation on Philippine export products into the U.S. until 1934 when Congress enacted the Philippine

Independence Law and adopted the sugar quota system in that same year. Under this preferential tariff treatment of the 1913 Tariff Act, the Philippines was actually placed within the American economic system. Accordingly, it was because of the stimulus of free trade that the sugar industry was greatly promoted and sugar production increased to a large extent, as shown in Tables 6, 7, and

8. Between 1910 and 1930, for instance, 35 new modern sugar mills or sugar centrals were established, with a total initial capacity of 80,168 short tons daily. Yet, on the other hand, free trade was perceived by some scholars as one of basic problems of Philippine economic development.8

During the ten years (1935-1946) of the Commonwealth decade, the American economic policy was based on the

Independence Act of 1934. known as the Tydings-McDuffie

7. Zafra, Philippine Economic Handbook, p.52.

8. Salvador Araneta (ed.). Economic Re-Examination of the Philippines, Rizal; Araneta Institute of Agriculture, 1953, pp.53-60. 71

Act. which continued the free trade relationship, but with certain limitations on the free entry of Philippine products into the U.S. According to this Act, an absolute duty-free quota was established for sugar, coconut oil and cordage, as follows: sugar, 50,000 long tons of refined sugar and 800,000 long tons of unrefined sugar; coconut oil

200,000 long tons and cordage, 3,000,000 pounds. The quantities in excess of these quotas were subject to the

U.S. full duties.

The Joneg-Costlgan Act. following the Independence

Act, was enacted by Congress on May 9, 1934, and it officially led to the birth of the sugar quota system.

This quota system was also applied to other sugar areas, including Hawaii, Cuba, Puerto Rico, and the Virgin

Islands. Understandably, the creation of the sugar quota system was because of the internal pressure from American sugar producers, since they were against the free entry of

Philippine sugar into the U.S. The sugar quota was determined by taking the average quantities brought into the U.S. for consumption in the three most representative years in the period 1925-1933.9 In accordance with this pro-rata system of quota allocation, the Philippines received a proportionate share of from 15.49 to 15.67 percent of the total United States sugar consumption for

9. Joshua Bernhardt, The Sugar Industry and the Federal Government. Washington: Sugar Statistics Service, 1948, pp.162-163. 72 the three years 1934 to 1936, as follows (Table 10):

Table 10 Philippine Sugar Quotas Under the Jones-Costigan Act, 1934-36

: Year :Philippine quotas •.Total quotas : % of total: : (short tons) : (short tons): quotas :

: 1934 : 1,015,000 : 6,476,000 : 15.67% : : 1935 : 991,308 : 6,359,261 : 15.58% : : 1936 : 1,055,386 : 6,812,687 : 15.49% : ± _ _ Source : Zafra. Philiooine Economic Handbook., p.53.

Further, the enactment of the Sugar Act of 1937 allocated higher quotas for Philippine sugar into the U.S., although the percentage of total quotas declined a little.

The Sugar Act of 1937, a continuance of the quota system created under the Jones-Costigan Act, represented exact percentages of quotas, however. Under this Sugar Act, the

Philippines received a share of 15.41 percent of the total sugar consumption of the United States, with a greater annual quota than its absolute duty-free quota of 850,000 long tons, or 982,000 short tons, raw value. Table 11 shows the growing sugar quotas that the Philippines obtained from the U.S. during the years between 1937 and

1941.10 Although the percent of total quota was fixed, the amount of quota increased, from 1 million tons in 1937 to more than 1.3 tons in 1941.

10. However, because of America's high tariff on sugar at this time, the Philippines chose not to fill any part of the quota beyond the amount. 73

Table 11 Philippine Sugar Quota Under the Sugar Act of 1937, 1937-41

Year Philippine quotas Total quotas % of total (short tons) (short tons) quotas

1937 1,085,304 7,042,733 15.41% 1938 1,044,903 6,780,566 15.41% 1939 1,041,903 6,780,566 15.41% 1940 982,441 6,471,362 15.41% 1941 1,387,383 9,002,975 15.41%

Source: Zafra, Philippine Economie Handbook, p.54.

B. Capital Investment

Following duty-free trade and the sugar quota system, more capital investment was brought into the Philippine sugar industry, which became another major stimulus for its rapid growth under the American administration. Table 12

(next page) shows the distribution of capital investment by various nationalities in Philippine sugar centrals in 1927.

According to Table 12, in the year 1927 capital investments were mainly from Filipino nationals (80 million pesos),

Americans (43 million pesos), and Spaniards (40 million pesos). The most significant of these investments was on the establishment of new sugar mills.

In the same year, aside from the investments in the centrals, a total amount of 180,000,000 pesos were invested in cane fields, plus 25,000,000 pesos in crop loans and

10,000,000 in miscellaneous investments.il Thus, the

11. Philippine Sugar Association, Facts and Statistics. p.47. 74 annual total capital investments in the sugar industry aggregated to more than 380 million pesos in the year 1927.

This capital investment was enlarged year by year until the eve of WWII. As of 1935, for example, 500 million pesos were invested in the sugar industry, 185 million pesos of which were allocated to the centrals. Of the 185 million pesos invested in the centrals, 43 percent were raised by

Filipinos, 33 percent by Americans and 23 percent by

Spaniards.12

Table 12 Capital Investment in Philippine Centrals, 1927

Nationality Investment % of total : Centrals : (pesos) investment:controlled:

Filipino 80,558,803.82 49% : 17 : American 43,075,665.91 26% : 10 : Spanish 40,555,776.28 24% : 11 : Cosmopolitan 1,084,835.07 1% : 1 : Total 165,275,081.08 100% : 3913 : X ------X ______X ------X ------X Source: Philippine Sugar Association, Facts and Statistics. Table IV.

Of all these capital investments, one event is worth noting--the creation of the Philippine National Bank (PNB) in 1916. The PNB, with an original authorized capital of

12. A.V.H. Hartendorp, History of Industry and Trade of the Philippines. Manila: American Chamber of Commerce of the Philippines, Inc., 1958, p.31.

13. In effect, three of the thirty nine central were under construction in 1927. 75

20 million pesos, was primarily designed to assist agricultural producers by supplying them with credit, and thus improve the economic conditions of the country. The purpose of the creation of the PNB was to promote the entry of Filipinos into the establishment of sugar mills. In the middle and latter part of 1918, for instance, six large centrals, five in Negros and one in Pampanga, were financed

in their initial stage by the PNB. Their investment

(original cost) and the loans obtained from the PNB totaled

50 million pesos and 46 million pesos, respectively, as

illustrated in Table 13.

Table 13 PNB's Loans To Six Centrals In 1918

Sugar centrals Investment: PNB loan (pesos) : (pesos)

Bacolod-Mucia Milling Co. 11,500,000: 11,117,600 Binalbagan Estate 10,500,000: 11,875,000 Maao Sugar Central 9,500,000: 10,849,000 Isabela Sugar Co. : 4,300,000: 6,235,000; Talisay-Silay Milling 7,800,000: 4,829,000 Pampanga Sugar Devi. Co. 6,700,000: 2,008,000 Total 50,400,000: 46,913,600

Source: Quirino, History of the Philippine Sugar Industry, p.56.

As revealed in Table 13, the PNB loaned more than double its authorized capital of 20 million pesos in 1918.

Thus, after WWI, the bank was almost bankrupted. Yet, the

PNB was able to survive in 1921, when Governor Leonard Wood changed its officials and introduced stringent financial measures. Since then, the capitalization of the PNB was 76

increased from time to time by the Philippine Congress until in 1972 it raised a billion pesos under martial law.

This indicates that the PNB was increasingly playing a significant role by giving loans to Filipino sugar planters. As a result, it was clear that those who were able to obtain huge loans from the government-financed PNB were usually those who were closely associated with the government.

C. New Manufacturing Method— Centrifugal Sugar

Due to the stimulus of free trade, the sugar industry

underwent a change of manufacturing method from antiquated mills producing low grade sugar to modern factories (i.e. centrals) producing granulated sugar called "centrifugal"--

the quality demanded by American sugar refineries.

Actually, the first modern sugar mill, St. Louis Oriental

Factory, now Hind Sugar Company, was invested in by

Americans. The owner, Thomas Rous, was also the first

person who converted his muscovado mill into a centrifugal

plant. His installation of a centrifugal mill spurred

several other sugar planters to modernize their factories

too. Therefore, more sugar mills, manufacturing sugar

with new method, were constructed. This constituted

another crucial factor contributing to the growing

Philippine sugar industry during the American colonial

regime. By 1939, there were 45 centrals operating in the 77 sugar industry. Table 14 shows the increasing of centrifugals in the sugar production, with an increasing production from 91,000 tons in 1920 to almost 1.6 million tons in 1934.

Table 14 Production of Centrifugals (short tons), 1920-34

Year Total Centrifugal % of :Low grade:% of Production sugar total : sugar : total

1920 466,900 91,000 20% : 375,900 : 80% 1923 475,300 258,800 54% : 216,500 : 46% 1927 766,900 686,800 77% : 180,100 : 23% 1930 983,700 866,900 88% : 116,800 : 12% 1932 1,174,300 1,100,200 94% : 57,800 : 6% 1934 1,652,500 1,597,900 97% : 54,600 : 3%

Source: Zafra, Philippine Economic Handbook, p.53

By 1930, the modernization of the sugar manufacturing process was almost accomplished. After 1930, the low grade sugars (i.e. muscovado and panocha) ceased to be a part of the sugar export trade and the total production had entirely been consumed locally. From the year 1930 until the eve of WWII, about 99 percent of Philippine sugar exports were consumed in the American market. This was the second technological modernization in the Philippine sugar industry, which resulted in the industry becoming a part of the American economic system.

Apart from the new method of manufacturing centrifugal sugar, research on sugar plantations was also embarked on by some institutions such as the Philippine Sugar 78

Association (PSA). These researches included fertilizer constituent tests, introduction of new cane varieties, better methods of cane cultivation, etc. Without a doubt, these scientific researches were also credited for the increasing sugar production during the 1920s and 1930s.

3. Characteristics of The Sugar Indugtr:v

By the end of the 48-year American rule in the

Philippines, the archipelago's sugar industry had the following four characteristics: (1) a dependent relationship upon the American market, (2) a foreign-owned sugar industry, (3) an unique relationship between millers and planters, and (4) an evolutional hacienda system.

A. Dependency upon the American market

This is the most extraordinary characteristic of the

Philippine sugar industry during the American administration. As analyzed earlier, it was the stimulus of American legislation, together with capital investment and technological modernization, that greatly expanded the

Philippine sugar industry. Yet, meanwhile, Philippine sugar exports became wholly dependent upon the American market after 1930, as shown in Table 8.

This dependent relationship dominated the development of the Philippine sugar industry until mid-1974, when the

Laurel-Langley Agreement expired. This dependency had created a two-fold effect. On the one hand, under the 79

protection of free trade--!.e., the absence of any U.S.

tariff on Philippine sugar— and favorable price, the sugar

industry brought prosperity to the Philippine government

and sugar planters as well, especially the few big

landlords. On the other hand, however, the Filipinos were

discouraged to promote advanced sugar mechanization, a method to increase sugar yield per hectare and to reduce

sugar production costs.14 Yet, the Philippine government and Filipino planters did not realize the importance of sugar mechanization until the end of the 1970s, a moment when the sugar industry was about to collapse.

As compared to other foreign sugar areas such as

Hawaii, Australia, Cuba, Puerto Rico, etc., the Philippine

sugar industry was very insensitive toward sugar mechanization. The Hawaii sugar industry, for instance,

began to be mechanized before the Second World War, and the

process of mechanization was fully achieved in the 1950s.

As a result, the Hawaii sugar industry was much more

efficient than the Philippines', in terms of sugar

production cost and sugar yield per hectare. Like Hawaii,

the sugar industry in Australia and Puerto Rico shared

similar stories.15 Philippine sugar, on the contrary, was

14. The issue of sugar mechanization is further examined in the latter section of Chapter V.

15. An important issue is raised here. Why were the sugar industries in Hawaii, Australia and Puerto Rico mechanized in the 1950s and 1960s, but not the Philippine sugar industry when they all were with the US sphere of 80 gradually losing its competitive ability in the world market, because of its higher production costs and lower sugar yield per hectare.

Nevertheless, this dependency relationship guaranteed and protected the growth of the Philippine sugar industry during the American era. Under the assurance of American legislation, the Philippine sugar industry really became one part of the American domestic economy, ignoring what happened in the world market. On the other hand, this dependent relationship later turned out to be a major problem of the sugar industry when free trade came to an end in the mid 1974.

B. Foreign-owned sugar Industry

It is not unfair to conclude that the Philippine sugar industry was mostly dominated by foreigners during the

American colonial sovereignty. Thus, Filipinization of ownership and management has gradually taken place after the American recognition of Philippine independence in

1946. As discussed earlier, because of foreign capital investment, almost all the new sugar mills constructed in the first quarter of this century were designed, managed, and operated by foreigners. In the crop year of 1927-

1928, for example, of the total 36 operating sugar centrals, only 16 were owned by Filipinos, whereas 10 were influence? Simply speaking, the answer to this question is that the former three had sufficient capital and technology, while the Philippines did not . 81 owned by Americans, 9 by Spaniards, and 1 by cosmopolitan

(i.e. ownership shared among Filipinos, Americans and foreigners).16 In terms of sugar land, it was concentrated in the hands of private business corporations, the majority of which were owned by foreigners too. One author summed up the distribution of sugar land among corporations as follows:

On December 31, 1938, business corporations owned 346,017 hectares of (sugar) land: of these, 121,096 hectares belong to Filipino, 106,473 to American, and 70,981 to Spanish corporations. A good deal of this land is worked by cash tenants, the remainder by laborers under farm managers.17

As regard to sugar exporters, foreigners even controlled a larger percentage of the sugar exporters than they did sugar mills and sugar land. Table 15 (next page) represents the nationality of various exporters of

Philippine sugar during the period of 1917-1927.

Consequently, it is understood that during the

American period, not only internal sugar mills and sugar lands were mostly in the hands of foreigners, but also sugar exports were principally managed by non-Filipinos.18

16. Philippine Sugar Association, Facts and Statistics. pp.45-46.

17. Karl Pelzer, Pioneer Settlement in the Asiatic Tropics. New York: American Geographical Society, 1948, p.91

18. Some scholars, including some Filipinos, did not count Americans as foreigners during American colonialism. Under this condition, it is claimed that the Philippine sugar industry was not dominated by foreigners before the independence of the Philippines. 82

Table 15 Nationality of Sugar Exporters, 1917-27

Nationality of Sugar export % of total exporters (long tons) sugar e

Filipinos 796,713 22% British 799,901 23% Americans 628,623 18% Chinese 630,998 18% Spanish 571,265 16% Various 107,442 3% Total 3,534,942 100%

Source: Philippine Sugar Association, Facts and Statistics. Table X.

C. Cooperative relationships between millers and planters

In many countries the sugar factories not only own the land but grow the sugar cane for their mills, whereas in some places the mills buy the cane from the planters. In the Philippines, however, the system is different. A cooperative relationship is developed between sugar millers and planters,19 which becomes a unique characteristic of the Philippine sugar industry. This cooperative arrangement is embodied in a milling contract, under which the planters are obligated to grow the cane to be milled by the central while the millers furnish transportation for the cane and grind the cane into sugar.20

19. Millers refers to the owners of sugar mills, whereas planters are the owners of sugar plantations.

20. Each sugar central usually mills the cane of from 50 to 500 planters, and planters own areas of land varying in size from 1 to 300 hectares, equivalent to from 2.5 to 750 acres. 83

The sugar production is then divided between millers and planters under a certain proportion. Millers obtain sugar as payment for the cost of manufacturing and transportation (from 30 to 50 percent of the sugar produced), whereas planters receive it as a cost of cultivation (from 50 to 70 percent). Generally, the milling contract remains effective for a period of from 5 to 30 years, and the relationship between millers and planters is in general harmonious.21

To explain the socio-economic background of this sharing system in the Philippine sugar industry, two variables might be introduced. First of all, a land law--

Homestead Act of 1902. encouraged the establishment of individual farms not exceeding 24 hectares and prohibited private corporations from acquiring or leasing public lands in excess of 1024 hectares, or 2,500 acres.22 This prevented excessive land holdings by factory owners and compelled them to make arrangements with the planters in

21. Quirino, History of the Philippine Sugar Industry, pp.84-86.

22. Unfortunately, the Homestead Act was not significant toward increasing landholding by small, independent farmers, due to a couple of factors such as landlord manipulations, inadequate infrastructure projects to connect the homesteads with marketing outlets, and so on. As a result, big landlords continued to grow. See Leslie E. Bauzon, Philippine Agrarian Reform 1880-1965. Singapore: Institute of Southeast Asian Studies, 1975, p.12. 84 the district where the factory was located.23 Second, since new sugar mills were established in the late 1910s, centrifugal sugar was then produced in the new mills, in order to fit the American market. But, still a certain number of planters continued to produce non-centrifugal sugar. Therefore, millers had to induce these planters to cease the low grade sugar production in their farms, and to deliver sugarcane to the new mills for centrifugal production. Hence a favorable condition to planters was followed by millers.

Because of the sharing/cooperative system, millers and planters organized themselves through the creation of the

Philippine Sugar Association (PSA) and the National

Federation of Sugarcane Planters (NFSP), respectively.

The formation of these two institutions indicates that sugar millers and planters began to strive for their own interests, politically and economically. Established in

1923, the PSA pioneered scientific research both in the factory and in the field. The PSA was credited with improving the yield of sugar per hectare in the late 1920s and 1930s. Also, the PSA dispatched representatives to the

U.S. to protect the interests of the Philippine sugar industry, and fully cooperated with the Philippine government to preserve to Philippine sugar quota in the

American market. Through these interactions and

23. Zafra, Philippine Economic Handbook, p.56. 85 negotiations between national governments and local sugar planters, the PSA, composed of prominent families such as the Roxas's, Ledsma's, ïulo's, Lopez's, etc., gradually gained political reputation and influence in the government and the sugar industry as well.

The NFSP was founded in 1928 with its major objective being to obtain a better bargaining position towards the sugar mills in the distribution of benefits. The majority of planters' associations joined the NFSP, though there continued to be a few more independent planters associations. The organized NFSP proved to be active and effective in protecting sugar planters' interests, especially after WWII when it was revitalized in 1948. For instance, in the beginning the sharing percentage was generally half and half between planters and millers, but over the years the planter's share increased up to 70 percent of sugar produced.24 Besides, gaining a larger sugar quota from the Quota Administration and loans from the banks were equally important to the sugar planters.

Millers and planters continued to enjoy the profits from sugar, but also strived for their own interest, in the following decades until the mid 1970s.

24. The ups and downs of the sharing percentage between the millers and the planters did not affect the general harmonious relationship between the two groups, because they both benefited from the growing sugar industry. As compared to sugar workers, millers and planters are always the winners in the distribution of sugar benefits. 86

D. Evolution of the hacienda system

We mentioned earlier in the first chapter about the appearance of haciendas in the sugar industry, in which two systems were developed: a share tenancy system in central

Luzon and a wage labor system in West Visaya (i.e. Negros island and neighboring islands). By the end of the

American colonial regime, these two systems were wholly consolidated. As stated earlier also, these two systems generated great influence over people's political behavior, economic pattern, and cultural style as well. Therefore, it is necessary to examine how these two systems evolved during the American administration.

In central Luzon, hacenderos (big landlords), now mainly corporations and entrepreneurs, managed multiple economic activities, such as sugar, rice, corn crop, etc.

They maintained leasing land to tenants, known as

Inouilinos. Each inquilino however was principally marked by one major agricultural commodity, either sugar, rice, coconut, or corn. Among inquilinos, some owned their land and became small landlords (i.e. lessees), while others still remained as tenants (i.e. cash tenants). Every inquilino had share tenants, or kasamas. under him, through contracts.25 Under kasamas, there were wage laborers, who were employed seasonally and their wages were daily based.

25. Some kasamas might have direct contracts with the hacenderos. 87

All inquilinos, kasamas, and wage laborers were direct producers in the sugar farms, and inquilinos were the small planters to kasamas and wage laborers. Yet, between hacendero and inquilinos, there were administrado. encarqado. and kat iwala. working as supervisors and overseers for the hacendero. Therefore, the feudal structure of a hacienda in central Luzon may be demonstrated in Figure 1.

Hacendero

Administrado

Encargado

Kat iwala

: Inquilinos Inquilinos : (lessees) (cash tenants)

: Kasamas Kasamas

: wage laborers : wage laborers : j . ______± ±

Figure 1 Hacienda Structure in Central Lizon

Legend: 1. Encargado: canefield supervisor. 2. Katiwala: canefield overseer. 3. Inquilinos: cash tenants or lessees. 4. Kasamas: share tenants.

Source: Yoshido Nagano-Kano, The Structure of The Philippine Sugar industry At The End of American Colonial Period. Manila: Third World Studies Center, 1981, p.16. Figure 1 was based on the survey of four friar haciendas in central Luzon in the 1930s. Thus, this figure is not automatically applicable to all haciendas in

Luzon, although they might share some similarities. These similarities can be summarized as follows. First, the hacendero, situated at the top of the hierarchical system, had multiple economic activities including sugar, rice, coconut, and so on. Due to owning huge land and enjoying regular large amounts of rent from tenants, the hacenderos therefore became richer and richer.

Second, the majority of sugar planters (65%) were composed of Inquilinos or small planters with less than two hectares. These people were directly engaged in the management of sugar farms. Unlike hacenderos who lived in the cities and controlled other businesses, these small planters were not significant, politically and economically. Finally, as direct producers in the farms, kasamas and wage laborers were placed at the bottom of the pyramid. They did not have their own land, but had to work hard for their bosses for the sake of survival.

Generally, these bottom laborers were chained by heavy debts, and squeezed by their planters.

In Negros, the wage labor system in haciendas was completely established by the eve of WWII. The hierarchically administrative structure of haciendas in

Negros is shown in Figure 2 (next page). 89

: Hacendero :

: Encargado :

-__X------i - Cabo : : Contratista

: Dumaan : : Sacada 1______X X______

Figure 2 Hacienda Structure in Negros

Legend: 1. Cabo: canefield overseer. 2. Contratista: labor contractor. 3. Dumaan: resident worker. 4. Sacada: migrant worker.

Source: Nagano-Kano, The Structure of the Philippine Sugar Industry, p.20.

According to Figure 2, the hacendero (most of whom were Spanish mestizo or Chinese mestizo) was the owner of the hacienda, which was managed by relatives, a family-type enterprise. Due to living in the cities, the hacendero employed Encargado and Cabo to administer Dumaans (resident workers) on sugar farms. Dumaans were able to take care of all jobs in the sugar field during the leisure season

(from May to September). But, during the harvest season

(from September to April), more laborers were demanded.26

Thus, a contratista (labor contractor) was then hired by

26. In Negros Occidental, for example, 50,000 resident workers were employed during the leisure period, whereas an additional 30,000 persons were demanded during the harvesting season. (Robert E. Huke, Shadows on The Land. Manila: Carmelo and Bauermann, Inc., 1963, p.308.) 90 the hacendero to recruit sacadas (migrant workers) from neighboring islands to work on sugarcane fields. Both dumaans and sacadas were directly engaged in producing sugar in the cane fields. However, because of the hierarchical administrative structure, they were also exploited by encargado, cabo, and contratista.

A clear example of exploitation was cantinas. or hacienda stores, owned by encargados or their wives.27

Dumaans and sacadas were usually forced to purchase foodstuffs and commodities in cantinas at a price twice as high as the market price. When hacenderos owned cantinas, dumaans and sacadas only got part of their wages and the rest was given in the form of commodities at unfavorable prices. As time went on, consequently, the bottom laborers found themselves chained by debts. For sacadas, for instance, at the end of the harvest season, many of them went home without making any money, but on the contrary were in a debt to their planters.

In short, the wage labor system in Negros island is different from the tenancy system in central Luzon in two aspects. First, hacenderos in Luzon manage multiple economic activities, and sugar is only one of them. In

Negros, however, the sugar industry is the major economic commodity for most hacenderos. Therefore, hacenderos in

27. Department of Labor, Report of the Fact Finding Survey of Rural Problems in the Philippines. Manila: Department of Labor, 1937, p.34. 91

Negros are more sensitive toward sugar price fluctuations.

This is to say that they are tied to the sugar Industry,

with few other alternatives. Another aspect is that sugar

planters in Luzon do not require migrant laborers, unlike

sugar planters in Negros who are urgently in need of migrant laborers during the harvest season. The key

factor for this difference is that the sugar harvest season

in Negros is the leisure period in the neighboring islands

(i.e. Panay, Cebu, and Bohol) where rice or corn are produced. Accordingly, people go to Negros to obtain additional income using their leisure time in their home

islands. It is precisely because of these two major differences between the sugar industry in Negros and Luzon that the former was much more severely hurt when the sugar crisis occurred in the mid 1970s. CHAPTER III

THE POSTWAR SUGAR INDUSTRY (19 46-74)

1. Rehabilitation and Expansion of The Sugar Industry

During the Second World War, the Japanese military administration occupied the Philippines for three years from 1942-46. It took over control of the political and economic life of the archipelago, and as a result a new

Philippine Sugar Association was created to allot all sugar quotas and control sugar sales. In order to resist the

Japanese, many sugar planters even destroyed their sugar facilities instead of allowing them to fall into the enemy's hands.

The sugarmen in the islands of Negros and Panay further resisted the Japanese by supporting guerrilla units financially and materially. Some prominent sugarmen, like

Roberto Benedicto, a Lieutenant during the war and later president of the PNB, ambassador to Japan, and chairman of the Philippine Sugar Commission, even joined the guerrilla movement against the Japanese. Thus, the Philippine sugar industry suffered tremendously and was almost completely paralyzed during WWII. For example, before the War there were 46 sugar centrals in operation, but after the war in

92 93

1946 only five centrals were operating.

When the war ended, therefore, the most urgent task was to restore and reconstruct sugar mills. But, because of shortages of machinery and equipment, and lack of capital, the rehabilitation of the sugar industry went slowly. It took nine years, from 1949 to 1958, before the

Philippine sugar total production (1,313,080 short tons in

1958) came up with the same capacity as before the war, in spite of less sugar acreage and fewer milling districts (

25 centrals operating in 1958 ).1

From 1958 onwards, the Philippine sugar industry began to grow and expand steadily. In effect, the years 1946-58 were the rehabilitation period for the Philippine sugar industry, and the years 1958-74 the expansion period. The increasing growth and expansion of the postwar sugar industry can be demonstrated in Table 16 (next page).

2. Factors For The Expanding Sugar Industry

It is important to explore this question: what were the factors that made Philippine sugar production increase so fast from its postwar low of 12,884 tons in 1946 to a high of more than 2.5 million tons in the early 1970s?

The answer to this question still relies upon American economic policy toward the Philippines after the war, which

1. Quirino, History of the. Philippine Suaar Industry, p. 83. 94 can be represented by a couple of U.S. laws.

Table 16 Sugar Production and Mills Operating, 1946-74

Production (short Year tons in thousand) Mills operating

1946 12 5 1948 389 23 1953 1,133 25 1958 1,313 25 1960 1,371 — 2 1962 1,470 — 1965 1,561 — — 1968 1,598 — 1970 1,930 — 1972 1,819 38 1974 2,446 41

Source; World Bank, The Philippine: Priorities and Prospects for Development , Washington D.C. World Bank, 1976, p.152.

A. The Bell Trade Act

The Bell Trade Act, also known as the Philippine Trade

Act. was the first trade law enacted by the U.S. after the war in 1946, dealing with the economic relations between the United States and the Philippines. The Bell Act, later extended by the Laurel-Langley Agreement in 1955, also was the law that governed Philippine trade relations with the

U.S. from 1946 to 1974. Therefore, it is significant to examine what the Bell Act was about.

The Bell Act was based on the assumption that

Philippine economic revival depended upon restoring trade

2. Thirteen mills were constructed in the years 1960-72 95 with the United States; hence free trade was continued.

But, the Act did not establish reciprocity relations between the two countries. The Bell Act provided that the

Philippine products such as sugar, rice, cordage, cigars, scrap tobacco, coconut oil and pearl buttons were to be exported to the U.S. with a fixed quantity free of duty, while American goods to the Philippines had no restriction on the quantity.3 Thus, the Bell Trade Act maintained the previous quota system established by the Jones-Costigan Act in 1934, and was credited with bringing more American capital and investment into the archipelago.

In terms of sugar, the Bell Act determined the following three important provisions:4

(1) From the period January 1, 1946 to July 3, 1974, the Philippines was given a basic sugar quota of 980,000 short tons or 863,640 metric tons for each calendar year for export to the United States.5

(2) Sugar from the Philippines was admitted to the

U.S. free of duty until July 3, 1954 (amended to January 1,

1956); the rate was to be 5 percent of the lowest rate charged any other country for the remainder of 1954.

3. Araneta, Economic Re-examination, pp.97-98.

4. United States Cuban Sugar Council, Sugar; Facts and Statistics. New York: United States Cuban Sugar Council, 1948, p.55.

5. The allocation of these quotas among Filipino sugar producers was on the basis of their production in the years 1931, 1932, and 1933. 96

(3) The rate for 1955 was 10 percent of the duty charged any other country and for each year after 1955 it was progressively increased 5 percent until it reached 100 percent on January 1, 1973.

However, due to slow rehabilitation of the sugar

industry, the Philippines was unable to take full advantage of the benefits of free trade provided in the Bell Trade

Act. For instance, Philippine sugar exports to the United

States did not reach the basic quota of 980,000 short tons until 1955. Table 17 illustrates the performance of

Philippine sugar exports to the U.S., showing an increase from 251,622 tons in 1948 to 977,375 tons in 1955.

Table 17 Philippine Sugar Exports to the U.S. And Philippine Sugar Quotas, 1946-55

Year Exports to U.S. Basic quotas Unfilled (short tons) (short tons) quotas

1946 none 980,000 -980,000 1947 none 980,000 -980,000 1948 251,622 980,000 -728,378 1949 524,803 980,000 -455,197 1950 473,620 980,000 -506,380 1951 705,522 980,000 -274,478 1952 860,123 980,000 -119,877 1953 932,116 980,000 - 47,884 1954 973,968 980,000 - 6,032 1955 977,375 980,000 - 2,625 1 ____ Source Zafra, The Laurel-Lanolev Agreement and the Philippine Economv. Manila: National Economic and Development Authority, 1973, p.91.

Accordingly, because of the unfilled sugar quotas during this ten-year period, the Philippine government 97 failed to earn nearly US$ 450 million. Together with the other three major traditional agricultural products (i.e. coconut oil, cordage, and scrap tobacco) which didn't fill basic quotas either, the Philippine government missed winning an aggregated value of almost US$ 900 million in foreign currency during the first ten years after the war.6

Based on Dr. Zafra's estimation, had these four traditional export-oriented industries been able to export their total basic quotas to the U.S., they would have reduced the

Philippine trade deficits with the U.S. from US$ 1,498.1 million to US$ 615.1 million.7

The United States, however, was capable of taking full advantage of the free entry of American exports to the

Philippines, and therefore enjoyed a total favorable balance of trade amounting to US$ 1,498.1 million in the ten-year period from 1946 to 1955. Nevertheless, from the perspective of Filipino sugar planters, it was because of the stimulus of free trade and the quota system under the

Bell Trade Act that the Philippine sugar industry was motivated to grow and expand.

B. The Laurel-Langley Agreement

The Bell Act was revised and extended by the Laurel-

Langley Agreement, decreed on 18 June 1955. The Laurel-

Langley Agreement supplied three salient provisions: (1)

6. Zafra, The Laurel-Langlev Agreement, p.22.

7. Zafra, The Laurel-Langley Agreement, p.22. 98 the eight-year duty free provision of the Bell Act was prolonged by one and half years to December 31, 1955; (2) the progressively increasing application of the U.S. duties

on Philippine products was lessened; and (3) the absolute sugar quota was removed, permitting its increase at the

judgement of the U.S. Congress.

Undoubtfully, these three provisions generated a grave

influence over the Philippine sugar industry. In effect,

they provided further advantages and a bigger market to

Filipino sugar planters. The first reinforcement, for example, sustained the tenure of free trade between the two

countries. According to the second provision, the U.S.

tariff duties were revised to be increased in intervals of

three years from 5% in 1956-58 to 100% in 1974, as shown in

the following table (Table 18).

Table 18 U.S. Tariff Duties on Philippine Sugar, 1956-74

Period % of U.S. Duty

1956-58 1959-61 1962-64 1965-67 1968-70 1971-73 1974-July 100%

Source: Zafra, The Laurel-Langley Agreement, p.94

This table indicates that from 3 July 1974 onward

Philippine sugar would be subject to the U.S. full (100%) 99 duty of .625 cents per pound or $12.50 per short ton, which was the rate of U.S. duty applicable to GATT member countries.

The last mentioned provision of the Laurel-Langley

Agreement was also the most important one, which not only removed the absolute sugar quota but also furnished an opportunity for the Philippine sugar industry to expand its exportation to the United States. Actually, this reinforcement had been exercised several times through further legal documents after 1955.

It was first implemented in 1960 when the Cuban crisis happened and Cuban sugar was embargoed to the U.S., and thereby the Philippine sugar export to the 'U.S. was increased to meet the deficiency of American sugar market.

This additional quota was the so-called "non-quota proration quota" under US Public Laws 860592 of 6 July

1960, and PL 87015. This extra quota was equivalent to 15 percent of the Cuban quota. By virtue of these new arrangements, the Philippines shipped an additional 176,426 short tons of sugar in 1960, and 490,731 tons in 1961 to the United States. 8

Second, under the Sugar Act of 1962, an amendment of the Sugar Act of 1948, the Philippine sugar basic quota was

further increased to 1,050,000 short tons commercial

8. Quirino, History of the Philippine Sugac Indvst&y, p. 92. 100 weight, or 1,070,000 short tons, raw value. The gain of an extra Philippine sugar quota to the U.S. in 1960 and

1962 was directly caused by the Cuban event. Once again, politics was involved in the sugar industry. This time, however, the Philippine sugar industry benefited and the industry was expanded from the 1960s until the middle of the 1970s.

Finally, the Sugar Act of 1965 assured more advantages for Philippine sugar exports to the U.S. from 1965 to the end of 1971. This Act stated two imperative provisions:

(1) the total basic quota was increased to 1,126,020 short tons, or a basic quota of 1,050,000 short tons plus 10.86 percent of the increased U.S. consumption requirements

(from 9.7 million to 10.42 million tons); and (2)

Philippine sugar exports were offered to share 47.22 percent of the deficits of any supplier, domestic or foreign, to the American market.

Therefore, in the crop year of 1970-1971, the

Philippines shipped as much as 1,593,000 short tons of sugar to the United States, earning approximately US$ 210 million in foreign exchange.9 Later under the 1971 amendments, the Philippines was given the same sugar quota of 1,126,020 short tons and a share of 30.08% of the deficits, for a three-year period commencing from January

9. Quirino, History of the Philippine Sugar Industry. p.92. 101

1972. Moreover, among the thirty foreign suppliers of

sugar to the U.S. under the quota system, the Philippines

still enjoyed the largest quota of all.

Table 19 shows Philippines' increasing basic sugar

quota and its actual sugar exports to the U.S. in the years

1956 to 1973. According to Table 19, after the Cuban event, the amount of Philippine sugar exports to the U.S. was always larger than that of the Philippines' basic quotas given by the U.S. For example, the difference of these two figures was about 6,000 tons in 1962, but it

jumped to more than 300,000 tons in 1973.

Table 19 Philippine Sugar Quotas and Exports to the U.S., 1956-73

Year Basic quota Basic quota plus Shipped to deficit quota the U.S.

1956 980,000 N. A. 929,122 1957 980,000 N. A. 724,999 1958 980,000 N. A. 1,014,978 1959 980,000 N.A. 998,736 1960 980,000 N. A. 1,124,930 1961 980,000 N.A. 1.175,775 1962 1.050,000 1,480,989 1,056,625 1963 1,050,000 1,280,639 1,129,211 1964 1,050,000 1,170,604 1,203,650 1965 1,073,000 1,231,000 1,178,633 1966 1,123,305 1,355,736 1,078,196 1967 1,126,020 1,329,284 1,071,930 1968 1,126,020 1,529,303 1,060,760 1969 1,126,020 1,530,960 1,076,397 1970 1,126,020 1,502,978 1,350,327 1971 1,126,020 1,592,462 1,479,144 1972 1,126,020 N.A. 1,431,745 1973 1,126,020 N.A. 1,454,325

Note: The unit of sugar in this table is "short ton". Source: Zafra, The Laurel-Langlev Agreement, pp.93-95 102

C. Increasing financial assistance

It is not difficult to realize that under the spur and

protection of the American legislation, more capital and

investment were brought into the Philippine sugar industry.

As for financing, the sugar industry has enjoyed the

largest accommodation from the banks since the end of World

War Two. For example, in 1961, just six years after the

Laurel-Langley Agreement, the sugar industry constituted 23

percent of PNB's total loans, whereas coconut, another

major industry, only enjoyed 2 percent of the PNB's total

fund.10

Why did the sugar industry receive so much financing?

A banker and also sugar planter responded to this question

by giving three reasons: (1) the American market was a

government supported market, and the U.S. kept the sugar

prices up, so that the price risks present in many other commodities were not present in sugar for export to the

U.S.; (2) because of its tradition, the sugar industry was a very closely administered industry under the Sugar Quota

Administration, and thereby some of the risks that were

inherent in other industries such as palay, or copra, etc. were absent from the sugar industry; and (3) due to these two major advantages, the sugar industry was the most

10. Sixto K. Roxas. "Financing of Sugar Production," in Casiano Anunciacion, A Handbook of the Sugar Industry and Other Industries in the Philippines. Manila: The Sugar News Press, 1961, p.84. 103 bankable, and a lot of funds went to the sugar industry.11

Consequently, the guaranteed American market coupled with high purchasing prices spurred the Philippine sugar industry to grow steadily in its production, exports, and the establishment of new sugar mills as well, as demonstrated in Table 16.

3. Problems of The Sugar Industry Before 1974

A. Continuing dependence upon the American market

The degree of dependency of the Philippine sugar industry upon the American market became higher after the

Second World War. The major difference after the war was that Filipino sugar planters were forced to increase sugar production to meet their quotas in the American market.

This is to say, during the first ten years after the war the Philippine sugar industry was totally directed to produce sugar to fill its basic sugar quotas in the U.S.

Even after 1955 when the Laurel-Langley Agreement was enacted, Philippine sugar exports to the U.S. did not completely fill their basic quota plus the deficit quota, because of the emergence of the Cuban event and increasing demand in the American market. This is the positive effect of the dependency, since it encouraged the expansion of the

Philippine sugar industry.

Dependency, however, also has its negative effects.

11. Roxas, "Financing of Sugar Production," pp.84-85. 104 because Filipino sugar planters were overstimulated and overshadowed by the requirements of the U.S. sugar market.

Under the protection of favorable prices and a guaranteed market, Philippine sugar exports were thus almost entirely absorbed by the American market after the war. Beside, due to sugar's significant role (roughly 20% of the total export value) in the Philippines' foreign reserve, the archipelago's national economy was closely tied to the sugar industry in particular and the United States in general. Table 20 illustrates the increasing sugar exportation to the U.S. and its role in the national economy. In 1950, for instance, the Philippines earned

US$45.9 million by selling sugar to the U.S., but in 1971

Filipinos benefited US$212.3 million from sugar exports.

Table 20 Value of Sugar Exports to The U.S. And Its Role in the Total Export Value, 1950-71

Sugar exports Total exports % of the total Year (US$ Million) (US$ Million) Exports

1950 45.9 331.0 13% 1952 89.9 345.7 23% 1955 106.3 400.5 26% 1958 115.5 492.8 23% 1960 133.5 560.4 24% 1962 122.0 556.0 22% 1964 148.3 742 . 0 20% 1967 141.7 821.5 17% 1969 148.8 854.6 17% 1970 187.6 1,061.7 18% 1971 212.3 : 1,121.8 : 19% X ------X. Source ; Robert E. Baldwin, Foreign Trade Regime and Economic Development; The Philippines. New York: National Bureau of Economic Research, 1975, p.9. 105

B. Comparative high production costs on sugar

By the end of Spanish colonialism in the Philippines,

Philippine sugar was very competitive in the world market because of its lower production cost in contrast with the cost elsewhere. Yet, ever since free trade was established in 1909, Philippine sugar gradually lost its competitive ability in the world market because of its comparatively higher production cost. In 1937, for example, U.S. Tariff Commision reported that the costs of

Philippine sugar, as compared to Cuban sugar, were higher in the following three items of expense:(1) 1.89 pesos or

71 percent in the production of sugarcane, (2) 0.22 pesos or 10 percent in the transportation of cane- and milling, and (3) 0.42 pesos or 19 percent in the transportation to the American Atlantic coast ports.12

This was a warning to the Filipino planters about their higher production costs on sugar. However, this sign was neglected by Filipino planters after the war, because of the continuation of free trade and the quota system. It was exactly due to this duty-free privilege together with favorable prices that the Philippine government and Filipino sugar planters were discouraged to promote efficiency in the sugarcane field. Even a sugar

12. Casiano Anunciacion, "Our Competitive Position In U.S. Market" in C. Anunciacion, A Handbook of the Sugar Industry and Other Industries In the Philippines (1961), p.99. 106 expert like Casiano Anunciacion was not sensitive toward this problem.

In 1961, for example, Anunciacion wrote an article stating that as long as the quota system and preferential treatment of sugar participation in the U.S. continued, the

Philippine sugar industry would be "in the direction of production cost reduction", meaning more efficient.13 The concept of dependency was deeply rooted in his mind, and this philosophy was shared by many other Filipino planters.

Therefore, sugar mechanization, a method to reduce production cost and to increase yield per hectare, was paid little attention among the Philippine sugar industry.14

As a consequence, the production costs of Philippine sugar were increased, an outcome not anticipated by Anunciacion.

In 1973, for Instance, a report estimated that "it cost the Philippines 5.5 cents to produce a pound of sugar, whereas it cost Australia 2.5 cents to produce the same pound of sugar."15 And worse than that,the Philippines' sugar production cost was then generally higher than the world market price, which was ranging from 1.97 cents per

13. Anunciacion, "Our Competitive Position in U.S. Market," p.99.

14. Hawaii sugar plantations had fully achieved mechanization during the 1950s, and Australia in the 1960s. Even a Third World country like Puerto Rico had made significant progress in mechanizing its sugar harvest by the late 1960s.

15. McCoy, "The Philippine Sugar Crisis," p.12. 107 pound in 1968 to a high of 9.59 cents in 1973.16 This

indicates that had Philippine sugar entered the world market then, many Filipino sugar planters would have been bankrupted. Yet, to deal with this problem, rather than promoting intensive techniques like mechanization, the

Philippine sugar industry devoted its resources to

increasing gross production by extensive means such as constructing new mills, expanding existing factories, and so on. Clearly, the consequence became worse, because the costs of Philippine sugar production continued to go higher.

This grave problem was not totally ignored by all

Filipino sugar planters, however. In April 1965, for example, a Negros planter, Alfio Locsin, had pointed out this problem by writing to a sugar journal as follows:

Two problems the industry feels it must solve immediately are its relatively high cost of production and its narrow foreign market base..... The yield per hectare is pitifully low, about 120 piculs to a hectare compared to the 200 to 300 piculs in other places like Hawaii. Because of inadequate mechanization, lack of high yielding varieties, improper fertilization, insufficient irrigation, etc., the industry's cost production is high.17

Another economist— Dr. Zafra--raised this potential

issue again in 1973, just one year before the expiration of

16. McCoy, "The Philippine Sugar Crisis," p.12.

17. Suqarland, 1965 (no.3), p.30; McCoy, "The Philippine Sugar Crisis," p.15. 108 the Laure1-Langley Agreement. Dr. Zafra observed this problem from an international perspective, though. By

1973, the world sugar price level had gone from 1/3 to 1/2 of the American price level. Thus, when the Laurel-Langley

Agreement expired in 1974, Philippine sugar, as well as other foreign sugar, was to be sold in the U.S. at the world's price level. Obviously, the high-production-cost

Philippine sugar was almost unprofitable. In the mean time, the world sugar price dropped dramatically in early

1975. These two bad things came together within a year, and resulted in a serious sugar crisis in the Philippines.

C. Comparative low production per hectare

The problem of low sugar production per hectare is

closely connected to the problem of high production cost.

According to the experience of other sugar places like

Hawaii, Australia, and Puerto Rico, sugar mechanization is

the best and only solution for these two problems. Hawaii

had completely achieved sugar mechanization in the 1950s,

Australia in the 1960s, and Puerto Rico in the 1970s. In

Hawaii, for instance, the tonnage of sugarcane handled per

worker increased from 18.8 in 1930 to 129.0 in 1957, a rise

due to a shift from manual to mechanical field

operations.18 Unfortunately, the promotion of

mechanization in the Philippine sugar industry did not

start until the late 1970s, a moment when the industry was

18. McCoy, "The Philippine Sugar Crisis," p.13. 109 about to collapse.

The belated sugar mechanization in the Philippines had to do with, as analyzed earlier, a couple of combined factors such as free trade, the quota system, the emergence of the Cuban crisis, and so on. To meet its new obligations of increasing sugar quotas in the U.S., the

Philippines launched a crash production program in the

1960s, which resulted in augmenting the dependence of the national economy on sugar. This extensive program included the following means: (1) constructing 13 more new sugar centrals during the years 1960-1973; (2) expanding existing sugar factories so that total daily mill capacity climbed from 77,410 tons in 1960 to 155,464 in 1973; (3) increasing total sugarcane hectares cultivated from 206,762 to 422,635 during the same twelve-year period;19 and (4) recruiting more poorly paid laborers working in the sugarcane field, rather than introducing machinery to work the new lands.

These extensive production means brought about two outcomes: higher production costs and lower yield per hectare. Higher production costs have been analyzed earlier. As for yield per hectare, it continued to

19. These extended hectares were obtained either from marginal forest lands (particularly in the islands of Negros and Panay) or existing ricelands, which was reinforced and encouraged under the martial-law land reform policy. Later it was reported that the destruction of marginal forest lands caused serious ecological problem in Negros island. 110

decline annually after 1960, from 106.09 piculs in 1960 to

67.69 in 1972, or 84.04 in 1973.20 Comparatively

speaking, in the year 1965, for instance, the Philippine

sugar production per hectare was 120 piculs, whereas Hawaii was about 300 piculs. By 1974, the Philippines had the

lowest sugar yield per hectare in the world, second only to

the Dominican Republic, and was the only major sugar producer for the American market that had failed to mechanize a substantial portion of field operations.21

Therefore, it is clearly understood that the

Philippine sugar industry, with low yield per hectare and high production costs, was entirely unprepared for its sudden entry into a highly competitive world market in 1974 as its dependency on the U.S. came to an end.

4. Perspectives of the Sugar Industry (1946-74)

A. Filipinization of the industry

The most significant characteristic of the Philippine sugar industry after WWII was Filipinization. As analyzed in the second chapter, the Philippine sugar industry was mostly under the dominance of foreigners during American colonialism. However, after the war, the

20. Sugar land. 1974 (no.4), p.25; McCoy, "The Philippine Sugar Crisis," p.14.

21. Suqarnews. (February 1974), p.95; McCoy, "In Extreme Unction," in Third World Studies Program, Political Economv of Philippine Commodities, p.143. I l l newly independent government began to execute a policy of gradual Filipinization of ownership and management in the sugar industry. By 1954, Filipinization of the sugar industry proved to be successful already. In his book--

Philiopine Economic Handbook (1955), Dr. Zafra stated that

the nationality of the controlling interest in the sugar industry is predominately Filipino. Investments in the centrals is 61 percent Filipino; 23 percent American; 11 percent Spanish; and 5 percent Filipino- American. At least 95 percent of the total investments in lands and improvements is Filipino.22

Two decades later in 1974, another source reported that

except for the holdings of Theo H. Davies, the only foreign-owned central in the existing 40 odd mills is the Central Azucarera de Bais, and the 10 percent American equity interests in the Victories Milling and the Binalbagan- Isabela Sugar companies.23

Why was the process of Filipinization going so successfully after the war? One major factor is that many foreigners were naturalized as Philippine citizens, so that formerly foreign sugar planters, especially mestizos of

Chinese and Spaniards, became Filipino planters after the war. The other major factor was because of the rise of economic nationalism in the Philippines. In fact, in the first several years after WWII, the Philippine government

22. Zafra, Philippine Economic Handbook, p.60.

23. Quirino, History of the Philippine Sugar Industry. p. 64 112 was not ready to regulate foreign (especially American) businesses. Yet, since the early 1950s, Filipino aspirations for economic development were linked to nationalistic sentiment, demanding greater Filipino executive responsibility and ownership in foreign firms.

This sentiment of Filipinization in the economy seemed to mature during the late 1950s. In January 1960, President

Garcia explained the policy of economic nationalism in his speech as follows:

It is an imperative of this epoch of our national life that the Filipinos acquire a major and dominant participation in the national economy of the Philippines.... In this light therefore I can give full assurance that Philippine economic nationalism as a national policy is not anti-alien, much less anti- American. It is simply an honest-tb-goodness effort of the Filipino people to be the masters in their own economic household...... 24

Sugar Fi1ipinizaton has generated a tremendous impact in the politics of the Philippine republic since the early

1950s. The key reason is that most formerly foreign sugar planters and big landlords have now become Philippine citizens, meaning they are members of Philippine society and are closely connected to the Philippine government.

They began to be more involved in the Philippine politics

for four reasons.

24. Lewis Gleek, American Businesses and Philippine Economic Development. Manila: Carmelo and Bauermann, Inc., 1974, p.113. 113

First, each sugar planter controls a certain amount of

laborers, and these people are his political estate during elections. Second, the worth of a sugar man in Negros is measured by the size of his quotas, rather than the size of his farm.25 In order to grab more sugar quotas, every sugar planter needs to strive with the Sugar Quota

Administration for his own benefits. Third, for seeking more loans from the banks, particularly the PNB, sugar planters have to build up links with the government.

Finally, the government and politicians in return need the cooperation of sugar planters to develop the industry and to support them in the elections.

Practically speaking, ever since the Commonwealth period, these sugarmen had already played significant roles

in politics. They sat in the councils with national leaders. They contributed heavily to retain a favorable sugar market in the U.S., and later to the independence mission to the U.S. Thus, after the war, sugarmen had an advantage in occupying prominent positions in the newly-

founded government, and further manipulated every postwar presidential election.

In the 1946 presidential election, for example, sugar

25. The reason is that the more quota one planter is allocated means the richer he is. (Anunciacion, "Our Competitive Position in U.S. Market," p.85.) In central Luzon, on the contrary, the worth of a sugar planter is dependent on the size of his farm, instead of the size of his quotas. 114 barons such as Jose Locsin, Alfredo Montelibano, etc., sided with the Nationalista party for the continuation of

President Osmena, whereas other sugarmen led by J. Amado

Araneta and Ildefonso Coscolluela joined the liberals to support Manuel A. Roxas.26 This division among sugarmen continued in the 1949 election. In that election, Elpidio

Quirino and his running mate Fernando Lopez won the presidency, primarily because they got support from

Fernando's elder brother--Eugenio Lopez, sugarman from

Iloilo. Later, President Magsaysay, Macapagal, and Marcos were also supported by sugarmen to enter Malacanang, the presidential palace. Because of their influence and power in politics, the sugarmen were thus called the "sugar bloc".

In the lower political system like the province of

Negros Occidental, the sugar bloc dominated its influence even deeper and greater. The police forces, investigation agencies, mayors and councilors, and even courts of justice were all under the control of these sugarmen. It is to say there is very little social justice in sugar provinces.

One former Justice of the Court of Appeals once remarked,

"Don't take labor disputes to court. The courts are there to kill the workers' organizations and to protect the

26. Quirino, History of the Philippine Sugar Industry, p p .97-98. 115

interests of management."27 Therefore, it is obvious that the sugar bloc is able to manipulate not only national politics but also local society.

B. Family-type enterprise

Family-controlled enterprise is not a new phenomenon

in the sugar industry after the Second World War. It has existed for decades. One of the most significant features, however, is that the whole sugar industry, especially the Negros sugar industry, is under the dominance of a few big and prominent families, usually owning plantations of 100 hectares or larger per family.

For example, about 400 families occupied only 5 percent of all hacenderos (roughly 30,000) in Negros island, but they claimed 80 percent of the total sugar area.28

These sugar barons include such family names as

Benedicto, Cojuangco, Elizalde, Garcia, Ledesma, Lopez,

Yulo, etc. These prominent families dominate not only the association of sugar centrals but also that of sugar planters in the Philippines. For example, the

Philippine Sugar Association of 1972 was composed of the

following 15 centrals, among a total of 33 centrals, together with their presidents, as shown in Table 21.

27. Gerry Bulatao, "Social Justice and the Sugar Industry" in Antonio Ledesma (ed.). Liberation in Suaarland. Manila: Kilusan ng Bayang Philipino, 1971, p.7.

28. Bulatao, "Social Justice and the Sugar industry," p. 6. 116

Table 21 Members of the Philippine Sugar Association of 1972

:Sugar centrals : Presidents

iCanlubang Sugar Estate : Jose Yulo Jr. :Central Azucarera Don Pedro : Antonio Roxas :Hind Sugar Central .'Mrs. Consuelo Perez •.Paniqui Sugar Mills iRamon Cojuangco :Central Azucarera de Tarlac :Jose Cojuangco Sr. :Pampanga Sugar Development Co. : Alfonso de Leon :Bais Sugar Central rManuel Manahan ;Hawaiian-Philippine Company :Erwin G. Vorster .•Central Azucarera de la Carlota rManuel Elizalde Sr. :San Carlos Milling Co. : Carlos Ledesma iVictorias Milling Company rManuel V. Locsin : Asturias Sugar Central •.Thomas Ford :Central Azucarera de Pilar rManuel Elizalde Sr. ;Central Santos-Lopez Co. rMayo Lopez Carillo :Bogo-Medellin Milling Co. rErvin G. Vorster j.______i. Source: Quirino, History of the Philippine Sugar Industry. p.136.

In terms of sugar planters' associations, many

relatives or members of these big families also play

significant roles on the associations, such as Ciro

Locsin's Association de Hacenderos de Silay-Savaria; Carlos

Ledesma's San Carlos Planters' Association; Trino

Montinola's First Farmers' Association; Alfredo

Montelibano's Northern Negros Planters' Association;

Alberto Yulo's Ma-ao Sugar Planters Association; Luis

Lacson's Hawaiian-Philippine Planters Association; Mayo

Lopez Carillo's Central Lopez Planters Association, and so

on. 29

29. Quirino, History of the Philippine Sugar Industry, pp.142-143 and pp.156-157. 117

Furthermore, the influence of these big sugar barons was stretched into the newly-founded Association of

Integrated Millers (AIM) in 1970. In the mid 1950s, when the existing mill capacities were not able to fill the country's quota allocation in the U.S., the Philippine government under President Marcos' administration took bold action to establish new sugar mills in order not to lose foreign exchange. In February 1970 when the AIM was created, it consisted of the following 10 sugar mills:

1. Agro-Industrial Development Co. of Silay-Saravia, Inc. 2. Batangas Sugar Central, Inc. 3. Galinog-Lambunao Sugarmill, Inc. 4. Dacongcogon Sugar and Rice Milling Co. 5. Davao Sugar Central, Inc. 6. First Farmers Milling and Marketing Cooperative Association, Inc. 7. Passi Sugar Central, Inc. 8. Southern Negros Development Corp. 9. Sagay Central, Inc. 10. Tolong Sugar Milling Co., Inc.

Source: Quirino, History of the Philippine Sugar History, p.159.

All of these 10 sugar mills were constructed during the latter half of the 1960s. Having access to obtain loans from the PNB at low rates, the relatives or members of these prominent families also heavily penetrated these new mills, such as Edgardo Ledesma and Ciro Locsin in Agro-

Industrial Development Co. of Silay-Saravia; Pedro Yulo and

Teodoro Benedicto in Southern Negros Development

Corporation.

Except maintaining dominance over the sugar industry. 118 these "beautiful people", as they were called by Bulatao, have extended their enterprises over other businesses, such as Cojuangco's communications ( TV and radio station);

Montelibano's hotels; Montinola's banks; Lopez's,

Elizalde's, and Locsin's mass media (newspapers and journals); Lopez's and Elizalde's public utilities (steel, power company, etc.) and so on.30

In addition, many banking, insurance, transportation, shipping and other commercial institutions were largely dependent upon the sugar industry, although they might not be directly controlled by these sugarmen. In short, according to the estimation of Francisco Sionil-Jose'

Solidarity, the sugar barons dominated 60 percent of the political-economic power in the Philippines by the 1970s.31

C. The plight of sugar workers

We mentioned earlier in the first chapter that sacadas

(migrant laborers) and dumaans (permanent laborers) are the two major types of sugar worker in the cane field. We also analyzed that sacadas and dumaans, situated at the bottom of the hierarchical system in the hacienda, were exploited by the hacenderos and labor contractors. The plight of these bottom laborers was getting worse after the war, while sugar hacenderos were increasingly better off. The

30. Bulatao, "Social Justice and the Sugar Industry," p. 6.

31. Gerry Bulatao, "The Swindle of The Century," in Liberation in Suaarland, p.57. 119

gap of the two classes in effect was great and growing

greater year by year after WWII. However, the problem of

sacadas did not publicly emerge until 1969 when a Jesuit

priest Father Arsenio Jesena, having worked as a sacada among sacadas for three months in Negros, publicized his report about the sacadas in sugarland.

In his truth-finding report. Father Jesena described sacadas' living situation in a hacienda where he was working, as follows:

There are 200 of us--men, women and children staying in two adjoining cuartels. There was not a single toilet. There was only one source of water- an old pump. Here everyone did his or her washing, bathing, laundering. We had no blankets, no mosquito nets. For food, three times a day we were served rice the cheapest, driest, coarsest, most unappetizing I have ever tasted. Many of the grains were unhusked, and there were pieces of gravel to be found among the grains of rice. We were also given fish- small, dry fish. Rough rice and dry fish, that was all. No liquid, no vegetable, a diet which gave no delight and no strength.32

The predicament of the sacadas is even more pitiful, as compared to some rich hacenderos who live in luxurious mansions, drive imported cars, play golf on weekends, take vacations overseas occasionally, and so on. How are these sacadas exploited by hacenderos and contratistas? Father

Jesena says that the sacadas are actually and directly controlled and exploited by the contratista, who is hired

by the hacendero. Generally, six means are exercised by

32. Arsenio Jesena, "The Sacadas of Sugarland," in Liberation in Sugarland. pp.25-26. 120 the contratista to exploit sacadas.33

1. The Anticipe (cash advance): To hire more migrant laborers during the harvesting season, the hacendero usually gives a cash advance to the sacadas through the contratista, without any rate of interest. But the contratista charges interest on the anticipo, and the interest rate can go as high as the contratista wishes.

2. The accounting system: Since many sacadas are illiterates, the contratista takes this advantage and puts down whatever he wishes in the payroll and in the sacadas' list of debts. According to Father Jesena, the hacendero has long been aware of his contratista's abuses and cheating over the sacadas, but he just ignores it.

3. The cantina (the hacienda store): This store is owned and managed by the contratista or his relatives, where the sacadas are compelled to get the goods they need, such as clothes, soap, milk, etc. The prices in the cantina are at least 100 percent higher than the prices of any ordinary store. Then, the contratista charges all these purchases to the sacadas' account.

4. Withholding of salaries: The contratista does not give salaries to the sacadas until the end of the milling season. The sacadas don't have much cash in hand, and they won't even know how much they have earned until the day

33. Jesena, "The Sacadas of Sugarland," pp.20-23. 121 they return to their home towns. When necessity comes, say, the illness or death of someone in the family, the sacada is forced to borrow money from the contratista at usurious interest.

5. Usury: When the sacada borrows money (actually it is his own money) from the contratista, the latter charges the former an interest of 300 percent. In addition, when the sadacas miss work, the contratista fines them 2 pesos per day, even when they are sick or wounded.

6. The cut of the contratista: In one hacienda, the hacendero pays 2.65 pesos per ton, but the sacada receives only 1.90 pesos per ton. The difference of .75 pesos is taken by the contratista. In another place, the situation is even worse, because the contratista takes a cut of 1.00 pesos per ton.

Without doubt. Father Jesena's report has been strongly criticized by some Filipino planters, because of his limited data as he confessed in his report.34 Yet, he also made it clear that "This is not a quantitative scientific report. This is a qualitative personal recounting of what I experienced and what I learned during

34. Father Jesena only mentioned that he worked on "several" farms, without naming them. Also, according to Nicolas Ledesma, the Negros Occidental Historical Commisssion, Father Jesena chose the worst plantation in the province, not even an average farm. (Quirino, History of the Philippine Sugar Industry, p.101.) 122 my stay in sugar land 35

After Father Jesena had done his job as a sacada in a

Negros sugar farm in June 1969, one anthropologist, Frank

Lynch, started doing a field survey about sugar workers in

Negros in July 1969. There are three distinctions between

Jesena and Lynch. First, Lynch's field study was partly financed by the sugar planters, whereas Father Jesena was not. Second, Father Jesena's report was a qualitatively personal experience of being a sacada,36 while Lynch's study was a quantitatively scientific survey of the sugar farms. Finally, Father Jesena's report merely focused on the sacadas (about 15%-20% of the total labor force), whereas Lynch's study covered general sugar workers including encargado, cabo, permanent workers (dumaans), and temporary workers (sacadas).

In his book, A Bittersweet Taste of Sugar. Lynch summarized sixteen points of his findings about sugar workers in Negros. Among the sixteen points, five of them are :

35. Jesena, "The Sacadas of Sugarland," p.19.

36. According to Father Jesena, only a sacada can really feel what a sacada feels. Thus, as a sacada, he obtained two essential sources of information about the sacada which other people could never enjoy. These two sources were; "(1) his own thoughts and feelings as he lives, works, and suffers as a sacada, and (2) the complete trust and openness which the other sacadas give him, enabling him to listen to the thoughts and feelings which the sacada will never share with an outsider." (Jesena, "The Sacadas of Sugarland," p.25.) 123

1. The findings are based for the most part on some 445 interviews with on-farm respondents and another 57 off-farm participants, conducted in July 1969. 2. Worker-respondents are notably low in educational attainment, the percentage of elementary school graduates among them being about 20%-- 17 percent for permanent workers, 22 percent for temporary workers. 3. Diets are deficient, especially in protein-rich foods, milk, and vegetables. 4. The average daily wages reported by cabos and workers tend generally to be below the minimum wages of 4.00 peosos, a finding which must be interpreted with care.37 5. Statistical analysis of reported daily wages lend no support to the common statement that small farms must pay low wages, or that farms of low production can't be expected to pay the minimum wage.38

In short, based on Jesena'a and Lynch's reports, we can find some violations of sugar workers' basic rights,

including low minimum wage, delaying pay of salary earned, reduced payment to women and to children, usurious system, payment cut, failure to provide adequate health care and proper housing, and cheating on the payroll by keeping two payrolls, one for official inspection with legal wages

figured and the other for owner's use with actual figures.

And these are not all the violations of sugar worker's basic rights. Other violations, according to a report of the Bacolod Social Action Center, include prohibiting

37. Lynch says that it is not clear what the average total daily earnings of sugarcane workers are, because the figures reported by respondents only represent cash received for a full day's work. The cash received does not count earnings received in kind, such as free housing, etc.

38. Frank Lynch, A Bittersweet Taste of Sugar, Quezon City: Ateneo De Manila University Press, 1970, pp.26-27. 124 workers from joining a union of their own, requiring

overtime work without overtime pay, failure of planters to enroll workers in the Social Security program, and

pressuring laborers to vote for specified persons during elections.39

This is the picture of the plight of sugar workers in the 1960s and early 1970s, a worse condition than the previous era. No wonder an Ilocano riddle is created to reflect the miserable life of the sugar worker, as follows:

Question: I Chop your feet,

I drink your blood.

What am I?

Answer: Sugarcane!

An issue is raised here: can sugar workers do anything about their basic rights? The answer is no, because everything is under the dominance of sugar planters. While without hope under the legal system, sugar workers begin to

seek something illegal. This is why sugar workers are in

need of change, both individuals and structures, because

"we are confronted with selfishness, and we are faced with

the reality of sin.", says a sugar worker.40 This is why

also many sugar workers began to join the underground

communist-led New People's Army from the late 1960s, in an

39. Bacolod Social Action Center, "People or Profit?," in Liberation in Sugarland, pp.45-46.

40. Felix Pasquin, "Voice of the Oppressed," in Liberation in Suaarland. p.12 5. 125 attempt to fight for change in their basic human rights.41

5. Conclusion of Part One;

Between the mid 1860s when Nicholas Loney started promoting the sugar industry on the island of Negros and early 1974, the Philippine sugar industry could be summarized as having the following four characteristics, which were also the four potential problems leading to the sugar crisis in the Philippines at the end of 1974.

First, the island of Negros was converted from a virgin island in the mid-19th century to a major sugar producer in the Philippines in the 20th century. About

2/3 of the whole population in Negros island are dependent upon the sugar industry directly and indirectly, and over half of the Negros total land is cultivated for sugar.

Sugar has become a monoculture in Negros, with few alternatives.

Second, under the stimulus of free trade and the quota system, the Philippine sugar industry increased dramatically during the period from the mid-1860s to 1974.

As a result, the archipelago's economy was closely dependent upon the sugar industry in particular and the

United States in general. However, due to ignorance in promoting mechanization, the Philippine sugar industry was

41. Father Jesena asked a couple of sacadas one day, "If the communists come , will you join them?" They said, "Yes." He asked further, "If they tell you to kill the hacenderos, will you do it?" And they said, "yes." (Jesena, "The Sacadas and the Sugar Industry," p.27.) 126 almost the most inefficient branch of the industry in the world by 1974, because of its high production cost and low yield per hectare.

Third, the plight of sugar workers under the feudal system became worse as time went on, whereas sugar planters became better off. The gap between the top and the bottom was greater and greater. The largest-foreign-exchange- earning sugar industry has made sugar workers the poorest people in the country. The problems of poverty and huge rich-poor gap were the most critical issues in the country, which led to social instability later in the 1970s and

1980s.

Finally, the sugar barons overwhelmingly dominated not only the sugar industry but also the political system in the country. Every postwar president elected. Including

President Marcos, had close ties with the sugar bloc. That

is to say, to control the sugar industry means to govern

the country. Based on this assumption. President Marcos

executed a bold policy by monopolizing the sugar industry

in January 1974, which was about the same time that

American free trade and the quota system ended and the

world sugar price climbed to a peak and then suddenly

dropped. Consequently, these three events resulted in a

crisis, a serious crisis in the Philippine sugar industry. PART TWO

THE FLUCTUATION OF WORLD SUGAR PRICES

In the ten years between 1974 and 1985, world sugar

prices experienced the greatest fluctuations in the history

of sugar industry. The world sugar price in the 1970s

averaged about 10 to 15 US cents per pound, in contrast

with 6 to 7 cents in the 1960s. Prior to 1974, the prices

of international sugar were generally steady, although they

alternated a little based on a five-year cycle.1 From

1974 to 1985, however, the world sugar price, breaking its

record, jumped to a historical high of 64 cents a pound in

November 1974, and then dropped to less than 10 cents in

1977 and 1978. Between late 1979 and early 1980, the

world sugar price once again climbed to about 30 cents a

pound, but then suddenly plummeted to 6 cents in 1982 and

further to only 4 cents in 1985.

Undoubtfully, the ups and downs of world sugar prices

1. Even though debate continues over the nature of the fluctuations of world sugar prices, it is widely held that world sugar prices go up and down almost every five years. For example, in late 1963 the world sugar price jumped to about 25 US cents a pound from its normal price of 5 cents, and it soon fell back to the normal price in the next five years.

127 128 generate an impact on the welfare of sugar producers.

Other things may be equal, the higher sugar prices are the more profits sugar producers can obtain. This is especially true for those countries heavily dependent upon sugar exports, like the Philippines. In 1974, for instance, when the world sugar price was favorable, the

Philippine government earned US$737.3 million (roughly 27% of its entire foreign-derived income) by selling sugar abroad. In 1984, however, when world sugar prices plunged, the profits that the Philippines earned from sugar exports were down to US$246 million, only 4.6 percent of the country's total foreign earnings.

Therefore, it is evident that the decline of the

Philippine sugar industry was related to not only the feudal system and dependency on the American market, but also to the fluctuations of world sugar prices. Having investigated the internal factors causing the crisis of the

Philippine sugar industry, it is also important to explore external variables. The focus of Part Two is therefore on the external variable--the low world sugar prices, and its impact on the Philippine sugar industry. CHAPTER IV

INTERPRETATION OF LOW WORLD SUGAR PRICES (1975-1985)

AND ITS IMPACT ON THE PHILIPPINE SUGAR INDUSTRY

When the world sugar prices hit its unusual high in

November 1974, many people asked "Why?". Later during the period from 1975 to 1985, when the price plunged drastically a couple times, the same question remained unanswered. Even sugar specialists are puzzled by the extreme ups and downs of sugar prices in the world market.

The simplest surface explanation is the imbalance in supply and demand on world sugar markets. It is widely understood that as supply increases over demand, price drops; on the contrary, price goes up when there is a short supply. Unfortunately, world sugar trade has been rarely in balance since 1960, mainly because world sugar production has exceeded consumption. As a consequence, sugar prices on the world free market have been depressed in most years since 1960. These prices are sometimes even down to the level below the cost of sugar production even in the most efficient sugar-producing countries like the

United States. Yet, in spite of low prices, world sugar production has largely continued to expand since 1960,

129 130

The rate of sugar production is even faster than the pace of world sugar consumption. The following table (Table

22) indicates the trend of world sugar production, consumption and trade of sugar during the period from 1960 to 1983.

Table 22 World Sugar Production, Consumption and Trade, 1960-1983 (Thousand tons of raw sugar)

Year Production Consumption Total Trade Exports : Imports

1960 52, 299 49,218 19,324 19, 121 1961 54, 757 53,299 22,401 21 / 988 1962 51, 227 53,455 18,529 18, 297 1963 51, 894 54,343 16,869 16, 621 1964 59, 319 54,158 16,826 16/ 316 1965 63, 790 57,962 18,649 18/ 120 1966 62, 741 59,754 18,235 15/ 231 1967 65, 026 61,602 20,197 19/ 622 1968 65, 411 64,744 20,589 19/ 225 1969 68, 140 66,847 18,571 18/ 769 1970 71, 142 70,480 21,808 21 / 339 1971 71/ 975 72,457 21,035 20, 644 1972 73, 735 73,660 21,871 2 1 / 234 1973 75, 789 76,330 22,478 22 / 427 1974 76, 397 77,303 22,097 2 1 / 519 1975 78, 846 74,438 20,599 20, 495 1976 82, 400 79,241 22,794 2 1 , 783 1977 90, 350 82,592 28,471 26, 869 1978 90, 832 86,148 25,072 24, 807 1979 89, 327 89,998 25,985 25, 052 1980 84, 514 88,164 26,832 26, 755 1981 92, 522 88,406 29,122 28, 242 1982 101, 432 91,725 30,417 29, 338 1983 96, 815 92,569 28,778 27, 152

Source: Food and Agriculture Organization of the United Nations, Sugar: Major Trade and Stabilization Issues in the Eighties, Rome: Food and Agriculture Organization of the U.N., 1985, p.3. 131

Table 22 clearly shows that during the 23 years from

1960 to 1983 there were only seven years with a production deficit. These seven years could further be divided into

three periods, i.e. 1962/63, 1971/74, and 1979/80. In

each of the three periods, world sugar prices rose

strongly. However, in most years, sugar prices were depressed due to consumption deficit, as demonstrated in

Table 35. Why did it happen? There are four major

causes: adverse climate, increasing use of sugar

substitutes, failure of International Sugar Agreements, and

sugar subsidy policies in the developed countries (i.e. the

European Economic Community (EEC) and the United States).

It Adverse.Climate

First of all, climate is a variable that is not

controlled by human beings. In the last decade, bad

weather (e.g. drought, flood, typhoon, etc.) affected the

shortage of sugar production, which drove sugar prices up.

In May 1973, for instance, prolonged droughts were reported

in Central America, where Cuba--one of the world biggest

sugar producers, and Puerto Rico were not able to maintain

their regular sugar output. In November 1974, the

Philippine government ordered the suspension of sugar

trading and export in the wake of a chain of six storms

(typhoons) that destroyed sugarcane in the fields. In

1974, adverse weather conditions also occurred in Western 132

Europe, which sharply reduced the beet-sugar crop in that

area. In the mean time, the Soviet Union, traditionally

the world's largest sugar producer, imported more sugar in

1974, because of the failure of its own beet-sugar crop.2

It is thus clear that throughout the years 1973 and

1974, adverse weather conditions were regarded as one of

the major factors contributing to the shortage of sugar in

the world market. When demand exceeded supply, world

sugar prices therefore jumped to an incredible high of 64

cents a pound in November 1974. The same story appeared

again five years later. In 1980 when world sugar prices

climbed up once more to about 30 cents per pound, adverse

climate was perceived as one of the key factors causing the

deficit of world sugar production.

In 1983, bad weather happened again almost across the

whole world. The Soviet Union had not received enough

rain for months in its sugar-beet area in the Ukraine,

where lack of topsoil moisture led to delayed planting. At

the same time. Western Europe and Cuba were afflicted with

too much rain, which delayed the sugar harvest for two

months. On the other side of the world, drought hampered

sugar crops in Australia, the Philippines, and Thailand.

In addition, the crop in South Africa endured one of the

2. Normally, the Soviet Union produces more than 9 million tons annually. But, in 1974, the Soviets bought about 500,000 tons of sugar from the Philippines, Australia, and Peru. 133 worst droughts in its history. Fortunately, this time sugar prices did not rise strongly, because of plenty of stocks. It is estimated that about 1 to 2 million tons of sugar were drawn from the stocks.3

Nevertheless, in contrast with other factors, adverse climate is not a significant factor for the fluctuations of world sugar prices, although it always drives the price up.

2. -lJicr.easU g Use o f Sugar Substitutes

Sugar is a very crucial commodity for human beings, but demand nonetheless decreases when its price rises, especially when the price is comparatively higher than other basic commodities. Since 1970 when world sugar prices gradually went up from an average of 6 to 7 cents a pound in the 1960s to more than 10 cents, some agricultural scientists started doing research. One of the major purposes of this research is to find a substitute which is cheaper than sugar. This goal was achieved and sugar substitutes were introduced in the market. But, sugar experts probably did not expect that a back-fire would follow. As sugar substitutes became more popular, the consumption of sugar decreased. Sugar demand was down, but supply still maintained regular growth. As a consequence, the sugar price dropped.

3. Elizabeth Fowler, "Price Rises for Sugar Continue," New York Times, June 6, 1983, IV, P.9. 134

The earliest sugar substitutes included Isosyrup or high-fructose corn syrup (HFCS), Nutrasweet (a lov-calorie sweetener with the taste of sugar) and saccharin (an artificial sweetener), which have been marketed since the early 1970s. In 1981, Aspartame (APM), another low- calorie sweetener, also joined the market. All of these sugar substitutes are less expensive than sugar.

HFCS, however, is the one that creates a tremendous impact on sugar, since it can be used in soft-drinks.

Since the early 1970s, a couple of soft-drink companies have quietly tried to use the HFCS in their products. In

1980, for example, Coca-cola first announced that its secret recipe contained 50 percent high-fructose corn syrup. Four years later in November 1984, the Coca-Cola

Company further confirmed that they had switched to 100 percent high-fructose corn syrup from a mixture of sugar and HFCS, meaning a full year incremental demand of about

650,000 tons and corresponding drop in sugar use.

The increasing use of HFCS in soft drinks has

succeeded in penetrating the caloric sweetener market to

the detriment of the sugar market, especially in the

developed countries, including the United States, Canada,

Japan, and West European countries. In the U.S., for

instance, the share of market taken by high fructose corn

syrup has risen from 4 percent in 1975 to 23 percent in

1984. By 1992, HFCS, according to the Economic 135

Perspectives Inc., will occupy 31 percent of the sweetener market, whereas sugar will have only 42 percent of the market in 1992.4 In terms of per capita consumption in the U.S., the corn sweeteners have increased from 30 pounds in 1975 to about 60 pounds in 1984; while refined sugar has declined from about 85 pounds in 1975 to less than 70 pounds in 1984.5

There is one more aspect, relating to the increasing use of sugar substitutes, which needs to be pinpointed.

Since the mid 1970s, there has been an inclination for consumers in the developed countries to be more concerned about their diet and health, which leads to a decline in consuming sugar. This is an important factor contributing to the growth of HFCS.6 Accordingly, the food company, in addition to the beverage industry, also began to reduce the

4. Pamela G. Hollie, "The Sugar Industry's Slide: Rivals Gain Market Share," New York Times. December 7, 1984, IV, p.5.

5. Eric N. Berg, "The Sugar Industry Turns Up Its Sales Pitch," New York Times. November 17, 1985, IV, p.8. Another source says that the total HFCS consumption increased from 0.54 million tons in 1975 to 3.55 million short tons in 1983 or an increase of about 3 million short tons. (M. Elizalde, "The Philippine Sugar Industry in the mid-1980s," Fookien Times Philippines Yearbook 1984-84. p.216.)

6. This factor inter-acts and coincides with the high price of sugar in the developed countries. Thus, many food companies and beverage companies switch to cheaper sugar substitutes rather than high-priced sugar. The high price of sugar has to do with the sugar subsidy policy in the developed countries, which will be explored later in this chapter. 136 use of sugar. Breakfast cereals, baby foods and soups were among the first items to use less sugar. According to the

H. J. Heinz Company, for instance, all their baby foods have no sugar added since 1984, and the company is now

testing a new low-sugar ketchup.7 It is thus apparent

that the move toward consuming less sugar and drinking more diet soft drinks are eroding the sugar market.

Due to this trend, sugar consumption in the developed countries has declined since the mid 1970s. From 1975 to

1984, for instance, US sugar consumption dropped by 17 percent; in contrast, consumption of corn sweeteners rose by 150 percent.8 This indicates that sugar imports were cut during the same period. Between 1979 and 1983, US sugar imports declined by 40 percent, equivalent to an annual average decline of 0.45 million tones.9 Based on

this trend, the World Sugar Journal even predicts that sugar imports by the US may cease by 1990.

It is interesting to find out that as sugar

consumption is decreasing in the developed countries,

people in the developing countries are consuming more

sugar. Accordingly, sugar production in the

7. Pamela Hollie, "The Sugar Industry's Slide: Rival Gain Market," New York Times. December 7, 1984, IV, p.5.

8. Rosalinda Pineda-Ofreneo, "The Philippine Sugar Crisis in An International Setting," Journal of Contemporary Asia. Vol.15, no.4, 1985, p.464.

9. "A Bitter Taste of Sweet Sugar," World Sugar Journal. VIII, October/November 1984, pp.4-5. 137 industrialized world maintains very small growth, from an average of 38.2 million tons in 1979-81 to 41.0 million tons in 1990. The unindustrialized world, however, is producing more sugar, from an average of 48.9 million tons in 1979-81 to 69.0 million in 1990, as shown in Table 23.

Table 23 World Sugar Production, Consumption and Net Trade, 1979-81, 1983 and 1990

1979-81 1983 1990 : (Average) (1) : (2) : 1 ^ : World Total : a. Production 87.1 95.6 110 .0 : : b. Consumption 88.6 93.6 106.6 : 10.1 : : c. Total net : imports 23. 3 23.6 21.9 : 22.8 : : d. Net imports from : free market 19.0 19.2 17.3 : 18.2 : k _ _ ± : Developed Countries : a. Production 38.2 38.9 41 .0 : : b. Consumption 46. 5 46 .0 45.8 : 46.4 : : c. Total net : imports 13.3 13.1 10.8 : 11.1 : : d. Net imports from : free market 9.6 9 . 5 7.0 : 7.3 :

:Developing Countries : a. Production 48.9 56 . 7 69 .0 : : b. Consumption 42.1 47.6 60.8 : 63.7 : : c. Total net imports 10.0 10.5 11.1 : 11.7 : : d. Net import from : free market 9.4 9 . 7 10.3 : 10.9 :

Legend: (1) refers to the price based on consumption of constant prices. (2) refers to the price based on consumption of 10% production in prices from base period. (3) The unit of this table is million tons.

Source : Food and Agriculture Organization of the U.N., Sugar: Major Trade and Stabilization Issues, p.23, 138

Table 23 illustrates the fact that net sugar imports

in the developed countries are declining, from an average

of 13.3 million tons in 1979-81 to only 10.8 million tons

in 1990. When major sugar-importing countries like the

U.S. and Japan diminish their sugar imports, it generates a

great impact on sugar exporting countries such as the

Philippines, Brazil, Australia, Thailand, etc. In both

Japan and the U.S., sugar trade is only a very small

portion of their national trade. But, for those developing

countries like the Philippines, the sugar trade occupies a

major segment of their national foreign earnings. Thus,

when their sugar exports dropped, especially during the

period when world sugar prices were unfavorable, their

national economies were damaged too,

3. Failure of-International Sugar Acraements

There have been four post-war International Sugar

Agreements (ISAs). The 1953 and 1958 ISAs operated

consecutively and covered the period from 1954 to 1961,

whereas the 1968 Agreement covered the years 1969 to 1974.

The last ISA is the 1977 Agreement, which was negotiated in

two sessions in the spring and autumn of 1977, and

exercised effectively through the years 1978 to 1984.10

One of the key objectives of these ISAs is to stabilize

10. At the end of 1984, the United Nations called a conference in the negotiations of the 1984 ISA, which was not in effect until 1985. 139 sugar prices in the world market.11 But, only the first two ISAs were successful to maintain this function, while the latter two (1968 and 1977) were not. The 1977

Agreement, however, is the one that was operating during most of the period of the sugar crisis from 1975 to 1984.

Before introducing the 1977 ISA, it is necessary to explore the background of the International Sugar Agreements.

All these ISAs are based on export quotas, which are set as a proportion of basic export tonnages (BETs), a combination of the participants' concepts of a normal market and their aspirations. This is to maintain prices between pre-determined levels by raising or lowering the quantities of sugar exported by exporter members. In other words, in order to stabilize sugar prices, whenever there is demand pressure on the markets, exporting countries are responsible to increase sugar exports. When demand exceeds supply, sugar exporters store sugar in stocks.

The major goal of setting up export quotas is to balance sugar supply and demand, and as a result the sugar price would be stabilized in the world market.

Accordingly, each ISA established a price range closely connected to the quantity of export quotas. It is then

11. Other objectives include raising the level of international sugar trade, assuring adequate sugar supplies to importing countries, and balancing world sugar production and consumption. 140 clear that if all members comply with the regulations of the ISA, world sugar prices would be relatively stable.

This means that the success of the ISA is heavily dependent upon the authority of the ISA itself and the commitment of every ISA participant. In addition, the success of the

ISA is also linked to the participation of major sugar

importers like the United States and major sugar exporters

like the European Economic Community, Brazil, Cuba, etc.

The 1953 Agreement, for example, set the price range at 3.25 to 4.35 US cents a pound. Table 24 demonstrates the average world sugar price and BETs under the 1953

Agreement, and the price range set up by the Agreement.

Table 24 1953 ISA Price Range and BETs, and World Sugar Prices, 1953-1958

: 1954: 1955: 1956: 1957: 1958 *. ____ J______L _ J. __ _ _ _ i j___ _ ^ Price range 3.25 to 4.35 US cents a pound

Average 3.25 3.23 3.46 4.70 3.49 world price

BETs (million tons ) 4 . 44 4.44 4.44 5.53 5.53

Note: All prices in this table are current world prices, which are yearly averages for raw sugar. But the real price is always higher than that, because the real price is equal to the ISA price deflated by U.N. export Unit Value for Manufactured Products. In 1954, for example, the current price was 3.25 cents a pound as shown in the Table, but the real market price was more than 5 cents a pound.

Source: Food and Agriculture Organization, Sugar: Major Trade and Stabilization Issues, pp.11-12. 141

According to this table, in the first two years of the

Agreement (1954 and 1955), quotas were set at 80 percent of

BETs (4.44 million tons), and the average market prices for these years were 3.25 and 3.23 cents a pound, respectively.

In 1956, quotas were relaxed to 100 percent of BETs and the market price averaged 3.46 cents per pound. In 1957, prices rose to more than 5 cents a pound, because of short crops in Europe, and the fact that all limitations on quotas and imports from non-members were lifted in January.

In 1958, quotas were returned to 100 percent of BETs and the average price was 3.49 cents a pound. Therefore, except for the year 1957, the 1953 Agreement was very successful in maintaining sugar prices within the range.

The 1958 Agreement, covering the period from 1959 to

1961, was also generally successful in maintaining the stabilization of world sugar prices, although the price range was lowered to 3.15 to 4.00 cents a pound. But, after 1961 till 1968 world sugar prices fluctuated greatly.

In 1963, for example, the sugar price rose sharply to an average of about 10 cents a pound, but dropped to an average of 5 cents a pound in 1964 and thereafter averaged only 2 cents a pound until 1968.

The low sugar prices continued until 1971, despite the legalization of the 1968 International Sugar Agreement in

1969. The price range for the 1968 Agreement was 3.50 to

5.25 cents a pound. In 1969, the sugar price was below 142 the minimum price, but it moved into the price range in late 1969. In the following two years (1970 and 1971), world sugar prices stayed within the range. But after the beginning of 1972, the world sugar price began to climb until it reached a historical high of 65 cents a pound in

November 1974. The 1968 Agreement was then terminated at the end of 1973.

It is argued that the 1968 Agreement failed to keep sugar prices within the range, because it set the minimum price too low. This resulted in discouragement of sugar production, because producing sugar was just not profitable. This phenomenon then resulted in the fact that production was not able to match the growth in consumption between 1972 and 1974.12 Furthermore, after several years of low prices in the late 1960s, producers also lost incentives to maintain stocks. Therefore, when there was a shortage in the sugar market, there was a shortage in the stock too. This constituted a bomb on world sugar markets, and it exploded in November 1974 when the sugar price peaked at 65 cents a pound.

During the next three years from 1975 to 1977, the world sugar market was not managed by any ISA. During this period, world sugar production expanded significantly, because of two factors. One was the general fear of

12. The shortage of sugar production during this period was also related to the adverse weather in the world, as analyzed earlier in this chapter. 143

further sugar shortage, and the other was that the high

price of sugar was a major incentive for growers who wished to grab huge profits. Reaction became over-reaction. In

1977, world sugar production reached 90 million tons, compared to 76 million tons in 1974. Yet, sugar

consumption during this period did not grow at the same

pace with production. In 1977, for instance, world sugar

consumption was only 82.6 million tons, in contrast to 77 million tons in 1974. History repeats again. When

production exceeded consumption, the sugar price declined.

In 1977, the world sugar price plunged to an average of

only 8.1 cents per pound. This was the background to the

negotiations for the 1977 ISA.

The 1977 Agreement initially set the price range,

through export quotas and reserve stocks assigned to each

country, at 11 to 21 cents a pound, later raised to 13 to

23 cents a pound in 1980. This arrangement was greeted

with relief by exporting countries, including the

Philippines, Australia, Thailand, etc. During the life of

the 1977 ISA from 1978 to 1984, however, world sugar prices

remained within the price range only in 12 out of 84

months, compared with 13 above and 59 below. Judged from

this performance, the 1977 Agreement can not be termed a

success. The failure of the 1977 Agreement could be

explained by the following four reasons.

First, lack of general support from all ISA members is 144 a major factor. Unfortunately, the Agreement failed to regulate and manage supplies of sugar in the world market, because every participating country perceived its own interest as more important than following the Agreement.

For instance, when the 1977 ISA came into effect in January

1978, only 9 exporters and 3 importers of the original 53 signatories ratified the Agreement.13 The United States, one of the most influential members, did not ratify the

Agreement until November 1979, because the U.S. proposed a floor price of 14 cents a pound.14 In order to support the high price of American-produced sugar, in November 1977

President Carter imposed a fee of 3.3 cents a pound on all imported sugar and increased the tariff on it by 0.9 cents to 2.81 cents a pound.15 This policy was sustained even after the U.S. became a member of the Agreement.

Second, the 1977 Agreement did not succeed in managing sugar affairs with non-ISA members. The EEC is the best example. The Common Market traditionally imported sugar.

13. Its members increased later to a total of 59 in 1981, including 44 exporting and 15 importing countries.

14. In order to protect domestic sugar growers, US legislators delayed ratifying the 1977 ISA until 1979 when American sugar producers had sufficient backup legislation to protect their prices. See more in W. Robbins and A. Marro, "Conflicting Interests Over Sugar," New York Times, January 14, 1979, PP.l and 48, and W. Robbin and A. Marro, "Lobbyists Worked Offstage to Shape Sugar Laws," New York Times. January 15, 1979, PP.l and D4.

15. "Carter Adds to Sugar Import Fees," New York Times. November 9, 1977, IV, p.9. 145

But, due to its sugar subsidy policy, the EEC has

transformed its status from importer to exporter since

1976.16 Furthermore, since 1976, the EEC has increased

its sugar exports year by year, from 1.2 million tons in

1976 to 5.5 million tons in 1982. This has resulted in a

build-up of stocks and expanded exports into the world

sugar market. In the crop year 1980/81, for example, the

Common Market dumped about 8.6 million tons, including 5.4

million tons for export and 3.2 million of stocks, into the

world market.

This huge amount of sugar, unregulated by the 1977

ISA, disrupted the ISA's operation and the world sugar

price was then depressed. In fact, as a major sugar

exporter, the EEC was supposed to be a member of the 1977

ISA. But, the EEC refused to join the Agreement, because

the latter was not able to offer as large an export quota

as the former required. Without the participation of a

major sugar exporter like the EEC, the 1977 ISA thus failed

to balance sugar supplies and demands in the world market.

Third, the 1977 ISA contained several special

arrangements, under which the Agreement could not interfere

with the rights and obligations of its members. These

special arrangements were not charged against the quotas in

effect or export entitlements of the members concerned.

16. EEC's sugar policy and its influence on world sugar prices will be explored in the next section of this chapter. 146

The two most important special arrangements affecting the balance in supply and demand were (1) exports by Cuba to socialist countries and (2) status of, and exports by, the

Soviet Union. At the time of the 1977 negotiations, two things, relating to the special arrangements, occurred.

One is that Cuba planned to expand sugar exports to 10 million tons, and the other is that the USSR announced that it planned to achieve self-sufficiency in sugar as part of a medium-term for agriculture.17

The Soviet Union was traditionally Cuba's sugar buyer. Now it appears that Cuba needed to find other markets for its sugar surplus. There are two solutions.

One is to ask for a larger share of the free market, and the other is to sell sugar to socialist countries. Both of these two solutions in practice destroyed the balance of supply and demand in the world sugar market; as a result, world sugar prices were depressed. Unfortunately, the 1977

ISA, because of its own special arrangements, was not able to do anything about it.

In short, the failure of the 1977 ISA is because of the lack of general norms accepted by most sugar importing and exporting countries, the unwillingness of its members to fullfil their commitments, the failure of support from non-Agreement sugar producing countries, and the ISA's

17. Food and Agriculture Organization of the U.N., Sugar: Major Trade and Stabilization Issues Lb tJlS. Eighties, p.13. 147 incapability of regulating and managing the world sugar trade.

4. Sugar Policy In The Developed Countries

The developed countries in this section refer to the

EEC and the United States. These countries play significant roles in the structure of the world sugar market. The United States is a major sugar importer, since it shares about 9 percent of the entire world sugar consumption. In terms of the Common Market, it has been a major sugar exporter since 1976. During the ten years of the sugar crisis from 1975 to 1984, these two entities initiated new sugar programs, which were closely related to the low world sugar prices. Therefore, it is very important to examine sugar policies in these developed countries.

A. The European Economic Community (EEC)

The EEC, due to the fear of further sugar shortage in the world market, decided to expand sugar production in the mid 1970s. This expansion program was protected by the

Common Agricultural Policy (CAP). The CAP was originally established in 1967 to reconcile three principal problems;

(1) the variation in self-sufficiency among member countries; (2) the variation between costs of production and prices between member countries; and (3) the relationship of the EEC countries with their sugar- 148 producing overseas dependencies and ex-colonial suppliers.

The CAP was designed to achieve the following five objectives: (1) self-sufficiency, (2) supply availability throughout the EEC, (3) reasonable consumer prices, (4) a fair standard of living for the agricultural sector, and

(5) efficiency of production. These goals were achieved through a system of guaranteed common prices, specific national production quotas, and variable import and export subsidies. These principal features were maintained in

1975 when a new program was formed. The difference, however, is that the Common Market set a new goal to expand sugar production for export.

CAP for sugar is actually a political compromise, because the target price is based on the production costs in the most efficient producing area, northern France. The key component of the CAP for sugar is its price mechanism, which consists of "different but closely related target, intervention and threshold prices and a minimum price for sugar."18 These prices were set by the EEC Council of

Ministers annually, based on desired goals of production, distribution, consumer prices, and producer return. The price system is supported and secured by variable import

18. Foreign Agriculture Service, Report on World Sugar Supolv and Demand 1980 and 1985. Washington D.C.: Department of Agriculture, 1977, p.16. The basis of this system is the target price, and all other prices are calculated from the target price. The minimum price is guaranteed to farmers to ensure them a fair standard of 1iving. 149 and export levies.

Under this protection policy, non-EEC countries find it difficult to export their sugar to the Common Market, whereas EEC members are subsidized for their own sugar exports. The reason is clear. When international sugar prices are below EEC prices, EEC members definitely are in favor of purchasing overseas sugar. But, imported sugar is very uncompetitive with the EEC sugar, because all EEC sugar imports can be controlled by heavy levies while export surplus is subsidized. On the other hand, when world sugar prices go above EEC prices, EEC exports can be stopped by levies and imports are subsidized. Yet, as stated earlier, during the life of the 1977 ISA, world sugar prices were generally low, much lower than the EEC price. This is why the EEC was able to expand sugar production and increased its sugar exports in the last decade. Table 25 (next page) illustrates EEC's increasing sugar exports from 1.2 million tons (or 5.1% of world exports) in 1976 to 4.8 million tons (or 16.7%) in 1983.

The most significant influence of EEC's sugar policy over world sugar prices is that it exerted a downward pressure on sugar prices during the eight years of the 1977

Agreement.19 Because of this, the EEC has received major

19. In 1983, for example, the EEC drove prices down to 6 US cents a pound, as against the floor price of 13 cents set under the 1977 ISA. (Malcolm Subhan, "The EEC's Sweetener," Far Eastern Economic Review. 28 April 1983, p.69.) 150

criticism from the world. Australia, for example,

initiated its first action before GATT (General Agreement

on Tariffs and Trade) in September 1978, alleging that

EEC's increasing sugar exports had been dumped in

Australia's traditional market, Papua New Guinea.

Table 25 EEC Sugar Exports and World Exports, 1975-83 (Million Tons)

: Year : EEC Exports eWorld Exports ePercentage :

: 1975 : Net Importer: : 1976 : 1.2 : 22.7 : 5.1% : : 1977 : 2.4 : 28.4 : 8.4% : 1978 : 3.3 : 25.0 : 13.2% : 1979 : 3.4 : 25.9 : 13.1% : : 1980 4.2 : 26.8 : 15.6% : : 1981 : 5.3 : 29 .1 : 18.2% : : 1982 : 5.5 : 30.4 : 18.0% : : 1983 : 4.8 : 28.7 : 16.7% 1 ____ Source: Food and Agriculture Organization of the United Nations, Sugar: Major Trade and Stabilization Issues, p.16.

In its 1979 report, GATT affirmed that the EEC's

system of granting refunds on sugar exports did constitute a subsidy. It is estimated that the subsidy was as much as US$840 million in 1978 and nearly US$1 billion in

1979.20 GATT also made further serious allegations by

confirming that a significant increase in EEC's recent

sugar exports was directly caused by the subsidies and such

subsidies had contributed to depressed sugar prices and

20. Pineda-Ofreneo, "The Philippine Sugar Crisis in an International Setting," Journal of Contemporary Asia, Vol.15, no.4, 1985, p. 467 . 151 were a permanent source of uncertainty in the world market. 21

In April 1982, 10 major sugar exporters, including the

Philippines, worked together to take the issue back to GATT again.22 Their complaint concentrated on the unfair trade

induced by the Common Market's subsidies. Due to these subsidies, EEC exporters enjoyed a larger share of the world sugar trade. As a result, other sugar producers in the world were being harmed financially.

The United States, a developed country and a major sugar importer, is also a victim of EEC's sugar subsidy policy. On August 31, 1981, the Great Western Sugar

Company, a beet sugar producer and a sugar refiner, petitioned the US government to take action against the

EEC. The Company charged that the Common Market was dumping subsidized sugar exports on world markets, which depressed sugar prices in the U.S. as well as creating uncertainty and volatility in world sugar markets.

Great Western Sugar also contended that EEC's sugar subsidies caused American sugar producers to lose US$2

21. Brian Robins, "We Shall Not Be Moved, Say Australia's Hard-liners," Far Eastern Economic Review. 5 November 1982, p.72.

22. The other nine countries are Argentina, Australia, Brazil, Colombia, Cuba, The Dominican Republic, India, Nicaragua, and Peru. 152

billion in their 1981 revenue.23 Four months later in

January 1982, a study, done for the National Association of

Corn Growers, responded to Great Western's complaint.

According to this study, EEC's subsidized sugar exports

"have significantly damaged the American sugar industry and

curtailed use of corn by the domestic sweetener

industry."24 Therefore, the U.S. decided to impose a sugar

quota program again in May 1982 to regulate foreign sugar

exports to the U.S.25

B. The United States

As the largest sugar importer in the world, the U.S.

is closely connected to the world sugar market. About

half of the sugar consumed in the U.S. is imported from

foreign countries, mostly developing countries. Many

foreign countries like to sell sugar to the U.S., because

America's purchasing prices are always higher than world

free market prices. Prior to 1975, this guaranteed high

price was supported and secured by the quota system under

the U.S. Sugar Act. However, with the expiration of the

Act at the end of 1974, the U.S. became part of the free

market. In the latter half of 1974 and early 1975, both

23. "Europe Sugar Aid Assailed," New York Times, September 1, 1981, IV, p.4.

24. "E.E.C. Sugar Exports," New York Times. January 6, 1982, IV, p.11.

25. U.S. officials claimed that EEC's subsidized sugar exports over the past five years (1976-1981) were the major force compelling Washington's imposition of its sugar quotas. 153

the American sugar industry and former U.S. suppliers

benefited because of high prices and high demand for sugar

in the world market. The consumers, however, were

uncomfortable, since they paid a high price for sugar, a

basic commodity for human beings' daily lives.

Eut, when the price declined in late 1975, the

American sugar industry faced big losses, just like other

sugar producers in the world. The key factor is that the

world sugar price dropped below production costs, and the

gap in these two prices became larger and larger as the low

market price was sustained. Before 1975, when the local

sugar industry in the USA was protected by the quota

system, American sugar production cost was about the same

or a little lower than the world sugar price, so that

producing sugar in the U.S. was still profitable. 26 But,

when the world sugar price declined after 1975 and remained

low for a while, American sugar production costs turned out

to be comparatively high, because of inflation and high-

wage-paid laborers. Apparently, US domestic sugar became

uncompetitive with foreign sugar. Thus, the American

sugar industry suffered when the low-priced sugar was

26. In the 1960s, for example, the average production cost of sugar in the US was about 4 to 5 cents a pound, as compared to 6 to 7 cents per pound for the average free market price. 154

imported from world free market.27

In order to protect the domestic sugar industry,

representatives of the industry lobbied Congress and asked

the Administration to take action. Therefore, President

Carter imposed levies on all foreign sugar in 1977, and

again in 1981, President Reagan raised duties and import

fees on all imported sugar.28 In May 1982, President

Reagan further imposed a quota system by reducing sugar

imports.29 This is why the U.S. delayed joining the 1977

ISA by proposing a higher price range for world sugar. The

implementation of the American sugar price support program

mitigated the crisis of the domestic sugar industry,

because all sugar prices in the U.S. were maintained at a

high level. In 1982, for instance, the world sugar price

27. Hawaii sugar producers, for example, lost $38 million in 1977 when world sugar prices declined, as compared with the profit of $449 million they earned in 1974. In 1981, once again as prices fell, Hawaiian producers lost more than $50 million. (Pamela G. Hollie, "A Gamble On Sugar in Hawaii," New York Times. March 1, 1984, IV, p.l.)

28. One of the key factors which compelled the Reagan Administration to compromise its free-trade principles and restrict sugar imports, is a series of political deals with influential Democratic legislators from sugar-growing states in the south. In return for their support on Reagan's tax legislation in 1981, the President agreed to propose the price support program for sugar growers. (Richard Nations, "Less Sweet for Some," Far Eastern Economic Review. 14 May 1982, pp.98-99.)

29. On January 31, 1985, President Reagan signed a proclamation reducing the sugar duty from 2.815 cents a pound to 0.625 cents a pound, however. On March 29, 1985, the President again signed a proclamation reducing the import fee on imported raw sugar to zero. 155 was only about 6-7 cents a pound, but the American domestic sugar price was as high as about 20 cents a pound.

From the perspective of the U.S. federal government, the new sugar policy has generated at least two advantages.

One is that American sugar growers do not have to take out loans from the government when domestic sugar price is above 20 cents a pound. Yet, when the price is below 18 cents a pound, loans, estimated as much as $200 million, can be taken out by the growers.30 The other further advantage is that this $200-million loan, if not released, would be helpful for the US Administration, which is struggling to reduce projected deficits.

The price support program has created three shortcomings, however. First, American consumers are forced to bear the burden of the propping up of the domestic sugar price, because low-priced foreign sugar can not be imported under the imposition of the new quota program. Second, because of the high price of domestic sugar, American consumers decline to use sugar, which fuels the increasing use of sugar substitutes. Furthermore, the high sugar price is also reflected in prices paid by consumers both for manufactured products such as soft drinks and candy, and for refined sugar. It is estimated an increase of one cent a pound adds more than $224 million

30. Seth S. King, "U.S. Plans Quotas On Sugar Imports," New York Times. May 5, 1982, p. D14. 156 to the total annual cost of sugar users.31

Finally, American sugar suppliers such as the

Philippines, Brazil, Australia, etc., are financially affected, because they are not allowed to export as much sugar as they did before to the United States. Those countries heavily dependent upon sugar exports like the

Philippines are harmed even more, which will be analyzed in

Chapter VII. This is why the Philippines keeps asking the

U.S. to increase quotas and reduce duties on its sugar.32

The effect of the new quota system therefore creates one significant backfire--driving the prices down in the world sugar market. The reason is clear, since America's foreign sugar suppliers are forced to dump their sugar surplus on the world free markets. Their situations are similar to that of the European Economic Community. The difference, however, is that the EEC's sugar exports are subsidized, whereas American sugar suppliers' are not.

31. King, "U.S. Plans Quotas On Sugar Imports," p.D14.

32. In September 1982, when President Marcos visited the U.S., he asked two things about sugar to the Reagan Administration. One was to increase the quota from 13.5% to 25%, and other was a most-favored-nation treatment for Philippine sugar. On April 1, 1983, the Philippines was granted duty-free treatment on sugar imports for twelve months. See David Reinah, "Philippine Sugar Industry Market Considerations and United States Policy," in Carl H. Lande (éd.). Rebuilding A Nation. Washington: The Washington Institute Press, 1987, pp.147-48. 157

5. Impacts of Low World Sugar Prices on The Philippine Sugar Industry

Having analyzed the factors for the low prices in the world sugar market during the period from 1975 to 1985, it is important to investigate how it was related to the

Philippine sugar industry. In other words, how was the archipelago's sugar industry negatively affected by the low prices in the world sugar market during the last decade?

First of all, Philippine sugar production was significantly reduced. Realizing that the world sugar price was not favorable, the Filipino sugar growers began to cut their sugar production by transforming some of their sugar lands into other uses. For instance, in the peak year 1974, the Philippines produced nearly 3 million tons of sugar, but this figure fell to less than 2 million tons in 1984 when the world sugar price was below the production costs (see Table 2).

Second, because of the low world sugar price, the

United States imposed a new quota system in 1982 to limit the low-priced foreign sugar entering the American market.

As a result, Philippine sugar exportation to the U.S. was forced to be cut, just like other American sugar suppliers.

In 1974, the U.S. purchased more than 1.2 million tons of sugar from the Philippines, representing 80 percent of all

Philippine sugar exports. But, this figure fell to only

189,000 tons (9% of the total sugar exports) in 1981.

Table 26 (next page) shows this trend. Understand that 158

when the Philippines iss not able to export sugar to the

U.S. as much as before, the sugar surplus then goes to the

world market.33 The cut of sugar exportation to the U.S.

means the cut of foreign earnings to the Philippines,

principally because the U.S. usually purchases foreign

sugar with a favorable price.

Table 26 Philippine Sugar Exports to the U.S. and Its Total Sugar Exports, 1974-81

Year Exports to USA Total exports Percentage (2,000 tons) (1,000 tons)

1974 1,276 1, 542 80% 1975 329 972 33% 1976 961 1,466 64% 1977 1,234 2,442 50% 1978 626 1,124 54% 1979 405 1,150 36% 1980 414 1,735 24% 1981 189 1,278 9% 1982 349 --- 29%

Source: Beronio, Analysis of Alternative Domestic Sugar Policies. p.32. B. M. Elizalde, "The Philippine Sugar Industry in the mid-19809s," in Pookien Times Philippines Yearbook 1984-85. p.216.

Finally, when the Philippines was compelled to dump

its sugar on the world free market during the period from

33. Among the five major sugar exporters (Cuba, France, Brazil, Australia, and the Philippines), Brazil and the Philippines are the only two countries that sell 100 percent of their sugar exports to the ISA regulated free market. Cuba— the then largest sugar exporter, for instance, sold 57% of its sugar exports in 1980 to non-ISA member communist countries, while France— the second largest, sold 100% of its sugar exports to the EEC. (Beronio, Analysis of Alternative Domestic Sugar Policies, pp.25-26) . 159

1975 to 1984, the depressed sugar price on world markets

(which was sometimes even lower than the production cost of sugar in the Philippines) generated a further negative impact on the sugar sector. Therefore, Filipino sugar millers and planters found themselves in a very difficult financial situation, because producing sugar was no longer profitable. Their income was drastically decreased. In addition, the country's foreign exchange was significantly curtailed from US$757 million in 1974 to US$246 million in

1984, although the total volume of sugar exports remained the same. The following table (Table 27) demonstrates the relationship between the world sugar prices, value of

Philippine sugar exports and their contribution to the country's total foreign earnings.

Table 27 World Sugar Prices, Philippine Sugar Export Earnings and Its Contribution to National Foreign Exchange Earnings, 1974-1984

Average world Value of sugar % of total : Year sugar prices exports foreign : (US cents/lb) (US$ million) earnings :

1974 48.20 737.3 27.1 : 1975 20.49 580.7 25.3 : 1976 11.58 428.3 16.6 : 1977 a .11 523.3 16.6 : 1978 7.82 196.9 5.9 : 1979 9.66 211.5 4.6 : 1980 29 .02 624.0 10.8 : 1981 16.93 570.2 10.0 : 1982 8.42 426 . 4 8.5 1983 8.10 299.3 6.0 : 1984 6.50 246.0 4.6 :

Source: Aguilar, The Making of Cane Sugar, pp.53-55; Food and Agriculture Organization of the U.N., Sugar: Major Trade and Stabilization Issues, p.10 160

6. Conclusion

This chapter has analyzed four major reasons for the

fluctuations of world sugar prices during the period from

1975 to 1984, and the impacts of low world sugar prices on the Philippine sugar industry. These inter-acting factors can be demonstrated by Figure 3 (next page).

Figure 3 explains two things. One, only adverse weather drives the sugar price up, while the other three

factors depress the price. Two, the latter three factors are politically related, in contrast with the first nature- oriented factor. This indicates that the low prices of world sugar are due in large part to the political

intervention and manipulation of world sugar producers.

In sum, the low price of world sugar in the last decade was not caused by the Philippine government, but

the structure of the international sugar market. During

the 10 years of the sugar crisis, the direct impact of the

low world sugar prices on the Philippines was reduction in

total sugar production, the curtailed sugar exports to the

U.S., and the cut in sugar growers' income and in national

foreign exchange as well. Yet, the Philippines was not

the only country that suffered. Almost all major sugar-

exporting countries, including Brazil, Australia, Thailand,

etc., were financially harmed too. 161

: Adverse weather: JL______X

T ------V ------:High price :< ■TSugar production: : of sugar : :deficits : j . ______±

:Expanding sugar: :production :

:Failure off-- &EEC subsidizes-?- --)?US imposes sugar : :1977 ISA : :sugar exports : : levies and quotas:

••High domestic: : sugar price : X ------X

: Sugar supply : : exceeds demand: : Increasing use: X ______X : of sugar subs :

: Sugar consuming: -^declines : X ------X

:Lov prices : : of sugar : X ______X

Figure 3 Trend of Fluctuations of World Sugar Prices, 1974-1984 PART THREE

STATE DOMINANCE; MARCOS' CONTROL

ON THE PHILIPPINE SUGAR INDUSTRY

The year 1974 was one that Filipino sugar planters and

workers won't ever forget. Three significant events

occurred in the year 1974. First, in January President

Marcos monopolized the sugar industry by a presidential decree (no.388), a bold action given the balance of risks and benefits in the market. Although the monopolization

policy was officially dismantled in February 1984, Marcos and his cronies maintained their dominance of the industry

until his regime was overthrown in February 1986.

Second, in July the Laurel-Langley Agreement expired

(meaning the end of free trade), followed by the

termination of the Sugar Act of 1948 (meaning the end of

the quota system) in December. This indicates the

conclusion of a long period of dependency of the Philippine

sugar industry upon the American market. Yet, as analyzed

in Part One, this dependency had induced inefficiency in

the sugar industry, i.e. high production costs and low

yields per hectare.

Finally, in November 1974, the price of world sugar

162 163

climbed from its usual level of 10-15 cents per pound to a

historic high of 65 cents a pound, but the price soon

dropped dramatically beginning in March 1975. And it

continued to plummet in the following decade to an average

of no more than 10 cents a pound, in spite of its recovery

to 25 cents a pound in early 1980.

In consequence, these three events have resulted in

the downfall of the Philippine sugar industry by 1984 when

the policy of state control ended. The industry is no

longer profitable, and has become a burden and a problem to

the country. The foreign exchange earned from sugar, for

instance, dropped from a high of US$ 785 million (27% of

total export value) in 1974 to US$ 246 million (4.6% of

total export value) in 1984. Sugar production declined

too, from almost three million tons in 1975 to only 1.8

million tons in 1985. Also, hectarage planted to sugar in

Negros Occidental, a major sugar-producing province,

dropped 15 percent or 32,800 hectares in the 1984/85 crop

year compared to the previous year.l

As for the plight of sugar workers, it was an even

more severe issue in the Philippines, because of the

increasing poverty and the widened gap between the rich few

and the impoverished masses. Since the early 1980s when

sugar mechanization has been promoted, many sugar workers

1. Ramon R. Isbertl, "Emergency Employment Program For Sugar Industry Workers Set, " Business Day. February 8, 1985, p.3. 164

were confronted with one more painful problem— labor

displacement.2 Even for many sugar planters, their debts

to the banks went higher as time went on after the mid

1970s, and as a result many planters' farms were forced to

be closed due to their being unable to repay their loans to

the banks.3 Therefore, social tension appeared to be high

by the end of the Marcos regime.

Why did the once-golden sugar industry decline so

quickly? To explore the answer to this question is the

main objective of the dissertation. Three variables are

involved in the answer. We have analyzed the first factor

(i.e. feudalism and dependency) in Part One, and the second

one (the fluctuations of world sugar prices) in Part Two.

In Part Three, we are going to examine the influence of

Marcos' state control over the industry through the

nationalization policy, including state management

monopolization (chapter V), trade monopolization (chapter

VI), and price monopolization (chapter VII). Part Three

will conclude with chapter VIII, in which the consequences

and influences of this monopolization policy are

investigated.

2. It is estimated that about 60% to 80% of the sugar farm and mill workers will eventually be affected, either unemployed or underemployed.

3. According to Jose Galang, a correspondent of Far Eastern Economic Review. sugar farms declined 34 percent from 1971 to 1980. (Jose Galang, "Land Reform Seen As the Key to Recovery," Far Eastern Economic Review. 5 March 1987, pp.34-35.). CHAPTER V

MANAGEMENT MONOPOLIZATION

The management monopolization under the Marcos regime can be discussed from four perspectives: (1) institution control, (2) control of sugar mills, (3) extended control over sugar-related businesses, and (4) the fall of the old oligarchy--the case of the Lopez family. Chapter V will conclude with a section on the impact of management monopolization of the sugar industry, an attempt to analyze how the sugar industry was negatively affected because of the mismanagement and corruption under the state-controlled sugar administration.

1. Institution Control

Prior to 1974, the Philippine sugar industry was mainly administered by the Sugar Quota Administration

(SQA), and the Philippine Sugar Institute (Philsugin)— a research-oriented organization. The SQA was a semi- governmental agent, consisting of both government officers and representatives from the sugar industry. The SQA played a very important role in the sugar industry, because it was established to allocate sugar production quotas

165 166 among sugar planters. As analyzed earlier, the amount of sugar quota was very crucial to a sugar planter, since it meant how much profit he could gain from sugar production and how important he was in the sugar community. The power of distributing sugar production to sugar planters was completely transferred to the Marcos government when both the SQA and the Philsugin were abolished by President

Marcos. From 1974 onwards. President Marcos controlled the sugar industry through three important institutions:

Philippine Sugar Commission (Philsucom), the Philippine

Exchange Corporation (Philex), and the National Sugar

Corporation (Nasutra).

Creating new sugar institutions and abolishing old ones were thus the major means of the Marcos government to dominate the sugar industry on the management level.

In February 1974, the Philippine Sugar Commission

(Philsucom) was first created by Presidential Decree No.

388, but the Philsucom was only activated in July 1977 when

Roberto Benedicto, a sugar baron and a close friend of

President Marcos, was appointed as the Commissioner of

Philsucom. Also four more people were appointed as associate commissioners, including SQA chairman Jose

Ungson, Philsugin director Jaime Dacanay, cane planter

Armando Gustilo, and mill owner Fred Elizalde. This means

that SQA and Philsugin were abolished, and their functions

were replaced by the Philsucom. From mid-1977 onward 167

Philsucom became the sole administration that dominated the

sugar industry, and Benedicto vas the head of it.

Furthermore, Philsucom was invested with an

exceptional range of power--"authority to buy and sell all

sugar; to set the sale price paid to planters and millers;

to conclude long term international sales contracts; to conduct research; to purchase transport, milling and other

companies related to sugar production; and to arbitrarily assume control of any mill operating inefficiently."4

Philsucom's control in the sugar industry is demonstrated

in the third section of this chapter, under the subtitle--

Extended control over the sugar-related businesses.

In June 1974, as world prices of sugar appeared to be

favorable. President Marcos decreed the establishment of the Philippine Sugar Exchange Corporation (Philex). Being a subsidiary of the state-controlled Philippine National

Bank (PNB), the hastily-created Philex was aimed to monopolize all sugar trading. Before Philsucom was activated in 1977, Philex was the supreme agency, under

Marcos, dominating the entire sugar industry. This means, between June 1974 and July 1977 Philex was the sole agency

that bought sugar from the planters and sold it to domestic

traders and foreign buyers. Previously sugar was freely traded by sugar brokers and planters, but now it was entirely manipulated by the government.

4. McCoy, "The Philippine Sugar Crisis," p.11. 168

This transformation of sugar policy constituted a tremendous turning point in the Philippine sugar industry, since it meant the end of the free trade policy that had been in force since 1909. Due to the sugar monopolization policy, the Marcos government overwhelmingly dominated the industry's management, trade, and price setting from 1974 until February 1986 when Marcos left the political scene in the Philippines.

In November 1977, another sugar agent— the National

Sugar Trading Corporation (Nasutra)--was established to replace Philex. Philex was abolished due to its mismanagement and corruption; it was estimated that Philex lost more than one billion pesos (US$ 71.4 million) during its three years' monopoly operation.5 Actually, the newly-founded Nasutra was working as Philsucom's operating arm. The creation of Philsucom and Nasutra, under

Benedicto, therefore demonstrated Marcos' direct control over the sugar industry, politically and economically.

From the perspective of political control, Marcos achieved two things. Through management monopolization,

Marcos consolidated his role and dominance in the industry on the one hand, and took power away from potential opponents such as Lopez and Roxas within the sugar industry on the other. From an economic point of view, however.

5. Jose Galang, "The Monopoly Game," Far Eastern Economic Review. 1 March 1984, p.42. 169 the takeover guaranteed a new source of revenue to the

Marcos government, rather than a shared growth among sugar planters and workers. The management hierarchy of the sugar industry during the ten monopoly years can thus be

illustrated in the following figure (Figure 4).

: Marcos : i.______j.

------T : Benedicto: j . ______i.

__i__ — i------:PNB: iPhilsucom: X X X ------j

rPhilex: :Nasutra: ^ — — — — — — J. ^ — — — — — — — Before : : After Nov, Nov. 1977 ^------T------1977

: Sugar : :Sugar : : Planters t------tMillers :

-X. iSugar Workers and their families: X ______X

Figure 4 The Structure of The Sugar Industry, 1974-84 170

According to this figure, it is evident that the penetration of Marcos dominance over the sugar industry was very deep.6 Almost all sugar organizations, for example, the National Federation of Sugarcane Planters (NFS?), the

Philippine Sugar Association (PSA), the Association of

Integrated Millers (AIM), and the National Federation of

Sugar Workers (NFSW), etc., were under the control of the government, with the exception of the illegal National

Federation of Sugar Workers (NFSW). With the exercise of martial law, which began in 1972, the Marcos regime was armed with greater power to control the sugar industry.

The key factor is that all political activities, including freedom to join a union, under martial law were banned, in spite of the existence of underground communist organizations such as the NFSW.7 Yet, when the sugar

6. It is estimated that there are about 500,000 sugar workers in the Philippines, representing 7 percent of the agricultural labor force, and two million more people who depend upon the sugar industry, directly and indirectly. As for sugar planters, nearly 65 percent of them are small planters, owning less than 5 hectares of land. Yet, in terms of big planters (holding more than 50 hectares, or 123.5 acres), they only represent 7 percent of the total planters, but their land occupies 47 percent of the total sugar hectarage.

7. According to a report of the International Commission of Jurists, the martial law government under Marcos had violated a wide range of constitutional rights, such as the right of labor to strike, freedom of press, the right to elect government, freedom of speech and information through arrests of opponents and denial of access to media to those at liberty, and so on. (Henry Kamm, "Rights Group Assails Philippines Regime," New York Times, July 31, 1977, p.9). 171 crisis occurred in the mid 1970s and as it continued in the following decade, the illegal communist activities became very meaningful to sugar laborers who were politically and economically exploited under the de-facto system, primarily because of the government's failure to deal with the problem.

2. Control of Sugar Mills

Nineteen new sugar centrals (mills) were constructed after WWII shown in Table 28 (next page), as compared to 45 sugar mills prior to the war.8 Out of these 19 new sugar mills, 17 were established during the Marcos presidency, an active attempt to dominate the sugar industry.

There are at least four characteristics of the seventeen new sugar mills constructed during the twenty years of Marcos sovereignty. First, most of these seventeen sugar mills were controlled and managed either directly or indirectly by Marcos' cronies and relatives, in an attempt to dilute the power of the old elite in the

industry. For instance, in 1976 when the government planned to establish more new sugar mills, some 50 companies applied for permission but only five were approved by President Marcos. Out of these five mills.

8. After the war until the mid 1960s, 23 old sugar mills had been rehabilitated, before the establishment of new sugar mills. 172

Table 28 Sugar Centrals Established After WWII

lYear Sugar Centrals Province IDaily Capacity! I I(Metric Tons)

11962 1 Agro-Industrial Dev. INegros Oc. 1 3,000 1 1 of Silay-Sarabia 8 i 81963 8 First Farmers INegros Oc. 8 3,500 8 1 Milling Cor. 8 1 81969 8 Sagay Sugar Central 8Negros Oc. 1 4,000 819691 Batangas Sugar Cent. 8Batangas 1 4,000 11970 1 Southern Negros 8Negros Oc. 1 4,000 8 1 Sugar Central 8 ! 81970 8 Passi Sugar Central 81loilo 1 4,000 81970 8 Durano and Co. 8Cebu 1 2,000 819701 Calinog-Lambunao 8Iloilo 8 4,000 8 1 Sugar Mill 8 1 819701 Central Azucareray IBataan 1 3, 000 8 1 Refineria de Bataan 8 1 81970 1 New Frontier Sugar 8Iloilo 1 4,000 819711 Talong Sugar Central INegros Or. 1 3,000 119711 Dacongcogon Sugar INegros Oc. i 1,500 819711 Davao Sugar Central 8Davao 1 4,000 81972 1 Hilongos Dev. Cor. ILeyte 1 5,000 81974 1 Bicol Sugar Dev. Co. ICamarines SI 4,000 81976 1 United Sugar Milling INegros Or. 1 4,000 11976 1 Bukidnon Sugar Mill IBukidnon 1 4,000 81977 8 Cagayan Sugar Co. 8Cagayan 1 4,000 81977 1 North Cotabato Sugar IN. Cotabatol 4,000 8 1 Industry, Inc. ! 1

Source: Haves, The Philippine State and the Marcos Regime. p.173.

three (i.e. Northern Cotabato Sugar Industry, United Sugar

Milling Co., and Bukidnon Sugar Milling Co.) were directly connected with Benedicto; the fourth one, Cagayan Sugar

Co., was controlled by a retired General Eulogio Balao; and the last one was headed by Marcos' mother, Dona Josefa 173

Edralin Marcos, but it was soon moribund.9 Three out of these five mills' contracts (i.e. United, Bukidnon, and

Cagayan) were awarded to a Japanese firm--the Marubeni

Corporation--and these deals were done when Benedicto was

Ambassador to Japan. It is reported that the kickback from the Japanese company was 12 percent of the total project cost, or around $6 million per mill.10

Second, geographically speaking, most of these new sugar mills were not located in the traditional sugar- producing areas like Negros island; instead, new centrals were diversified to new areas, a further step to dissolve the political and economic power of the old elite of sugar families.11 For example, about half of the prewar sugar mills were located in the island of Negros; but only five of the 17 new mills were constructed there. The other twelve centrals were scattered around Iloilo island.

Northern Luzon, Cebu, and Mindanao, as shown in Table 28.

It is important to note that the expansion of new sugar mills in the 1970s was based on the beliefs that the

9. Bernard Wideman, "The Dizzy Pace of Expansion," Far Eastern Economic Review. 26 November 1976, p.55. Also, according to Wideman, investors only put up 2.5 million pesos (US$ 333,330) for these centrals costing US$ 65 million each; about 80 percent of the total credit were supplied by the Japanese Export-Import Bank, and some 75 percent of the US$ 65 million was Philippines' foreign exchange. (Wideman, "The Dizzy Pace of Expansion," p.55.)

10. Shoesmith, The Politics of Sugar, p.30.

11. Hawes, The Philippine State, p.93. 174

Philippines would be able to ship greater amounts of sugar to the U.S. market and that it would also gradually diversify its markets. However, these two beliefs were shaken as early in 1975, when both sugar prices and sugar production began to decline.

The third important aspect of the new sugar mills is the larger capacity of sugar milled in each central. That is, the size of each postwar sugar mill established during the Marcos presidency is comparatively greater than those mills constructed before the war. For instance, the average daily capacity of each postwar mill is 4,000 metric tons, in contrast with an average of 2,000 metric tons for each prewar sugar mill. In the sugar industry, the value of a sugarman is determined by the size of his farm (with the exception of Negros island where a sugarman's value is determined by the size of his quota). Even on Negros island, a sugarman's quota is generally based upon the size of his farm. Therefore, it is clearly understood why

President Marcos helped the establishment of large new sugar mills and diversified them to new areas during his presidency.

Finally, the government-funded PNB,as a major financial supporter of the sugar industry, also got involved in managing and taking over some sugar mills with financial problems. Actually, almost all sugar mills were financed by loans from foreign banks, which were guaranteed 175

by either the PNB or DBP (Development Bank of the

Philippines). Yet, as the low market prices continued in

the following years, their debts to the banks

simultaneously increased.

As a result, the PNB gradually took control over those mills with severe financial crisis in one of two ways. For mills that were not able to repay debts, the PNB installed

its own comptroller to handle the mills' finances; for

other mills with heavier losses, the PNB foreclosed

mortgages on milling equipment, and took a controlling

share of stocks.12 In the year 1974 alone, for instance,

two sugar mills (Bicol Sugar Development Co. and Davao

Sugar Central) were purchased by and converted their

management to the PNB.13

Ten years later, on December 13, 1984, the Bulletin

Today, a pro-Marcos newspaper, reported that the PNB had

already foreclosed about 14 sugar mills.14 The PNB had

assigned the Philippine Sugar Corporation, created by the

government in 1983, to manage and operate these mills prior

to their eventual disposal to interested private buyers.

The same report also predicted that "more mills are facing

12. Shoesmith, The Politics of Sugar. p.22; Nagano- Kano, The Structure of the Philippine Sugar Industry, p.33; Hawes, The Philippine State, p.94.

13. Nagano-Kano, The Structure of the Philippine Squar Industry, p.33.

14. J.C. Concepcion, "Philsucom Confirms Output Fall," Bulletin Today, 13 December 1984. 176

foreclosure by the PNB because of the worsening predicament

of the industry."15

In short, toward the end of the Marcos regime, most

sugar mills were either under the control of or associated

with the Marcos bloc, a group of new elites created after

Marcos became the President of the Philippines.

3. Extended Control Over Sugar-Related Businesses

"Crony capitalism" is a term used by many Philippine

specialists to describe thesystem of political economy

established by Marcos during his twenty years' presidency

in the Philippines. In the early period of his

presidency. President Marcos promoted an idea of social

equality, a policy to take away the power and wealth of the

old oligarchy in the Philippines. Yet, since the early

1970s, a new oligarchy has been created, including such

powerful individuals as Benedicto, Disini, Enrile, Oreta,

Cuenca, Romualdez, and so on.

These people may theoretically be referred to as the

"core combination" in astratified society like the

Philippines.16 According to the analytical framework of

15. Concepcion, "Philsucom Confirms Output Fall,".

16. In their book--The Political Economy of Change (Berkeley: University of California Press, 1969), Warren Ilchman and Norman Uphoff define five sectors in each stratified society, i.e. core combination, ideological bias, stability group, extra-stability group, and unmobilized sectors. 177

the political economy as defined by Warren Ilchman and

Norman Uphoff, they enjoyed privileged positions vis-a-vis

the Marcos regime, but they also lost their privileges when

Marcos was not in authority.17 Roberto Benedicto, an old

fraternity brother from the president's law school days at

the University of the Philippines, represents a good

example of crony capitalism in the sugar industry in

specific and in the country in general.

Benedicto's position as the Commissioner of the

Philsucom made him one of the wealthiest individuals in the

Philippines. Before Marcos was elected as President,

Benedicto was not a widely known person in the country.

But after that, Benedicto became the most powerful and

richest sugar baron in the archipelago. His wealth

extended from the sugar Industry to other areas of

business.

In the area of banking, for example, the family of

Benedicto owned two banks, the Republic Planters' Bank

(RPB) and the Traders Royal Bank (TRB). The RPB was set up

in May 1978 to provide financing particularly for the sugar

industry. These two banks were interlocked with the

Philippine Savings Bank which was in turn connected to the

International Corporate Bank and to the Insular Bank of

17. Ilchman and Uphoff, The Political Economy of Change. p.44. 178

Asia and America.18 Also, the RPB-TRB had the same directors with Planters' Products fertilizer, Koppel

Agricultural and Industrial Machineries, Asia Industries,

General Power and Diesel, Commonwealth Foods, Universal

Molasses, Tanduay, and Elizalde International.19

Besides, Benedicto was also a czar in the communication field. He was the head of Kamlaon

Broadcasting System (KBS) and Banahaw Broadcasting System

(BBS), with a total of 15 radio stations and 2 television channels under the control of KBS. Benedicto also stretched his business to the service area, such as the

Hotel Enterprises Corporation, Hyatt Regency, a shipping firm Northern Lines, etc.20 Since some of these enterprises were registered in the names of Benedicto's friends or associates, it was difficult to prove his ownership.

Benedicto was not only Marcos' "sugarman" in West

Visayas, but also a "political man" in the region. Since the creation of Marcos' political party— the Kilusang

Bagong Lipunan (KBL)--in 1977, Benedicto was the party's

18. John F. Doherty, "Who Controls the Philippine Economy; Some Need Not Try As Hard As Others," in Belinda Acquino (ed.). Cronies and Enemies: The Current Philippine Scene. Honolulu: University of Hawaii, 1982, p.19.

19. Doherty, "Who Controls the Philippine Economy," p. 20.

20. Doherty, "Who Controls the Philippine Economy," p.20; Wideman, "The Dizzy Pace of Expansion," p.54. 179 chairman and treasurer in the area of West Visayas.

Through his wealth and power, Benedicto brought a lot of loyalty to President Marcos, and Marcos' influence was thus consolidated in this sugar-producing region.

As for Philsucom, after it was established, the Marcos government began to use it to reorganize the sugar-related

industries. The refinery industry appears to be an example. There were only six sugar refineries in the

Philippines by 1978. But Philsucom constructed three more

in the middle of 1979, i.e. Bukidnon (Mindanao), Calinog-

Lambunao (Iloilo), and Balayan (Batangas).21 These three

sugar refineries, according to Gary Hawes, were constructed

on a turnkey basis by foreign contractors.22 And there is

no doubt that they were controlled and managed by

Philsucom, since most of the officials of the new

refineries were from the board of Benedicto's Republic

Planter's Bank.23

In addition, Philsucom reorganized the alcogas program

by the creation of the Philippine National Alcohol

Commission (PNAC). Through the enactment of Presidential

Decree No.580, Philsucom was further designated "to provide

the establishment of additional distilleries and to develop

21. Nagano-Kano, The Structure of the Philippine Sugar Industry, p.34.

22. Hawes, The Philippine State, p.96.

23.Shilah Ocampo, "Cracks in the Sugar Bowl," Far Eastern Economic Review. 1 May 1981, p.42. 180 and promote the supply of sugarcane and other feedstock for the production of alcohol."24 Accordingly, tne Victorias

Milling Company alcohol distillery was officially assigned to manufacture anhydrous alcohol for the alcogas project, while many of the country's 19 distilleries stopped operating in the mid 1970s because of the high costs of production. Therefore, distilleries were also under the authority of Philsucom after 1974.

Besides, by 1980 Philsucom had accomplished its monopoly over sugar logistics by purchasing the following businesses: dredgers, warehouses(e.g. the Nawaco warehouse complex in Negros), railroads( e.g. the Philippine Railway

Company in Panay), shipping lines (e.g. Visayan Stevedore

Transportation Company, or VISTRANCO, and the Guimaras Bulk

Terminal), and so on.25 The biggest buy probably was the purchase of eight of a planned seventy-six mechanical harvesters by 1980, each of which cost 1.4 million pesos

(approximately US$ 200,000 each at the 1980 exchange rate).26 Thus, while many sugar planters and workers were

24. Nagano-Kano, The Structure of the Philippine Sugar Industrv. p.34.

25. McCoy, "In Extreme Unction," pp.146-147. The VISTRANCO was an adjunct of the state-controlled Luzon Stevedoring Cor., a subsidiary of the Philippine National Oil Cor. In 1978, when Philsucom got the VISTRANCO, the latter's name was then changed to Republic Transport and Shipyard Corp. The new company is now engaged in handling bulk sugar and molasses in Luzon and Visayas. (Nagano-Kano, The Structure of the Philippine Sugar Industry, p.39.)

26. Hawes, The Philippine State, p.96. 181 struggling for survival during the sugar crisis, Philsucom was the only entity in the sugar industry to prosper and to make new investment, because of its role of monopolization in the industry.

4. The Fall of The Old Oligarchy; The Lopez Family

President Ferdinand Marcos successfully worked with

Fernando Lopez twice in the presidential elections of 1965 and 1969. Marcos and Lopez were also the first candidates that ever won the presidency and vice-presidency for a second term in postwar Philippine history. Marcos' triumph was believed to have built links with the Lopez clan. Eugenio Lopez, elder brother of Fernando, was then a multimillionaire and was generally reckoned as the wealthiest man in the Philippines before martial law.

The Lopez family's businesses were in sugar, real estate, land transportation, schools, hospitals, mass médias, public utility, and so on.27 Thus, for generations, the

Lopez name in the Philippines was synonymous with wealth and power.

However, in the early part of their second term in the presidency, Marcos split up with Lopez. The conflicts were due to different principles, with Marcos emphasizing

27. As introduced in Chapter I, the first Lopez, a native of Iloilo, started his sugar business on Negros island during the mid-19th century, and over the years the Lopez family built it into one of the great Philippine fortunes. 182 social equality and Lopez stressing constitutionalism.28

The result is that Fernando Lopez was deposed by President

Marcos in the early 1971. From 1971 onward, the power and wealth of the Lopez family were gradually dispossessed by the Marcos authoritarian regime. The following three businesses of the Lopezes’ were taken over under the martial law government, an example showing the decline of the old oligarchy. The takeover of the Lopez interests was also symbolic of the real nature of the Marcos government.

First, the Manila Chronicle, a major newspaper that had been the Lopezes' political voice, was closed. It was followed by other opposition newspapers, as soon as martial law was declared at the end of 1972. Later the

Chronicle's presses were leased by a new newspaper. The

Times Journal, owned by Governor Benjamin Romualdez, the brother of Marcos's wife, Imelda. The terms of the lease however, as the Lopezes charged, were imposed, not negotiated.29

Second, this pattern of takeover was repeated in June

1973, when the Lopezes' broadcasting network, with a total of five television channels and 22 radio stations, was taken over by a smaller network owned by Roberto Benedicto.

28. Joseph Lelyveld, "Rich Family Loses Power in Bitter Feud With Marcos," New York Times. April 22, 1975, p. 2.

29. Lelyveld, "Rich Family Loses Power," p.2. 183

The said rental of the lease was determined by Mr.

Benedicto. In 1977, Benedicto belatedly paid a rental of

$68,000 a month, but the Lopezes accused that this was less than the monthly interest payment of $95,000.30 This transfer of the Lopezes' broadcasting system to Benedicto made the latter the new head of broadcasting in the

Philippines.

The last and the biggest takeover was the Lopezes'

Manila Electric Company, a key enterprise of the Lopez empire, which provided 80 percent of electric power in the

Philippines. The Manila Electric Company was managed by an American corporation. General Public Utilities, prior to

1962, and after that it was entirely owned by the Lopezes.

Due to their successful management of Manila Electric and by maintaining effective control over the Public Service

Commission, President Marcos, under the enforcement of martial law, imposed a much stiffer policy on rate increases for the Manila Electric Company. Because they were not allowed to get increases they had counted on, the

Lopezes had problems in handling their debts.

Negotiations for the takeover started in January 1973, two months after Eugenio Lopez Jr, son of the elder Lopez,

30. Fox Butterfield, "Once-Powerful Families in the Philippines Lose Heavily Under Government Pressure," New York Times. January 18, 1978, p.6. 184

vas arrested.31 Negotiations were under the supervision

of Governor Romualdez, who made a series of visits to San

Francisco to confer with the elder Lopez, Eugenio Lopez,

Sr. They did not make an agreement until the end of 1973.

Based on the agreement, the interests of the Lopezes in

Manila Electric would be eventually transferred to the

consumers who used the utility's services, and the new

foundation would be responsible to pay Lopezes' debts.

The Lopezes retained their property as collateral.

It was estimated that the Lopezes surrendered a

controlling interest in the company with assets worth more

than US$ 400 million.32 Later, the elder Lopez insisted

that the anticipation of his son's freedom was the major

incentive behind the selling of his interests in Manila

Electric, but the young Lopez was not released until one

year after the agreement.

While the old oligarchy was gradually declining, the

new elite dominated by Marcos was rising. The Marcos

31. Arrested with him was Sergio Osmena 3nd, the son of Marcos' opponent in the 1969 election. Lopez and Osmena were charged in connection with a series of alleged attempts to assassinate President Marcos in the months before martial law.

32. According to Antonio V. Ayala, a director of the new foundation who was involved in the negotiations, the terms of the deal were similar to the agreement under which the Lopezes took over the utility from its American owner. Also, the Lopezes had, in the 12 years of ownership, an average rate of return on their investment of 29 percent. See more in Lelyveld, "Rich Family Loses Power in Bitter Feud With Marcos," p.2. 185 family and their cronies drained the archipelago's economy while enriching themselves and then transferred billions of dollars abroad. For example. President Marcos' official salary was 100,000 pesos or roughly US$ 5,000 a year, but

Marcos' fortune during twenty years in power was too huge to be fully estimated. In late 1985, a few months before

Marcos' overthrow, a US Senate Intelligence Committee disclosed the fortune of the Marcos family by indicating that "The Marcos family wealth totals a few billion dollars, made up of real estate, banks, stocks and jewels, but the assets are hidden behind layers of offshore corporations, attorneys and nominees."33 Besides, the same report also stated that Mrs. Marcos headed more than

30 government corporations, among a total of 303 government corporations in the Philippines, and most of them were not able to be audited in 1984 because of significant financial problems.34

In short, the size of the Marcoses’ personal fortune was closely connected to the corruption of the Marcos regime. The Marcoses arose during their reign in the

Philippines, whereas the Lopezes declined in the meantime.

33. Jeff Gerth, "Marcos Fortune: Questions Arise About Graft," New York Times. November 20, 1985, I. p.12.

34. Gerth, "Marcos Fortune," p.12. 186

5. Impacts of Management Monopolization on The Sugar Industry

It is argued that President Marcos' management and dominance over the sugar industry has failed at the end of his reign in the Philippines. Corruption, mismanagement, and irregularities had been the major issues and critiques toward the state-controlled sugar institutions, and toward the Marcos regime as a whole. Previously, the sugar industry was managed by personnel from the industry, but after 1974 a lot of inexperienced bureaucrats were introduced into the industry's administration. As a result, mismanagement and corruption constituted two key internal factors causing the failure of Marcos's sugar monopolization policy as well as the decline of the industry. The following cases and examples demonstrate how the sugar industry was mismanaged and how the state- controlled sugar agencies were corrupted.

First of all, Philex, the earliest sugar trading institution since monopolization, was abolished in 1977 because of mismanagement and corruption during its three and half years' operation. In November 1974, for example, when world sugar prices were high, Philex was ordered by

President Marcos to suspend trading and export of sugar in the wake of a chain of six storms that destroyed sugarcane in the fields. The Marcos government kept stopping all sales of sugar until February 1975, when the raw sugar 187 price had slightly dropped to around 50 cents a pound.

Analysts criticized that the policy of suspension was based on a miscalculation that the price would return toward the

65 cent high of late 1974, but in fact it never rose.

Later when the price continued to fall, the government found that about 1.5 million tons of sugar--more than half of the total production--was piled up unsold or unshipped, a grave loss to the government foreign exchange and sugar producers as well.

In March 1976, 21 months after Philex was created, a report stated that "markets were available if properly exploited but the Philippine Exchange (Philex) proved insufficiently experienced to handle the trade well, leading to widespread calls for the return of the businesses to private hands."35 Thus, it is argued that the first stage of the sugar crisis in 1975 was not substantially caused by the end of US quotas, but by the mismanagement of the PNB-controlled Philex. In addition,

Philex was accused of converting sugar profits to a special fund subject to the disposition of the president for

"public purposes", rather than sharing with sugar producers

including planters and workers. The same charge was later extended to its successor, Nasutra.

Consequently, due to this corruption and

35. "Ivan Scales Manila's Sugar Mountain," Far Eastern Economic Review. 25 March 1976, p.58. 181

mismanagement, it is estimated that Philex lost 828 million

pesos in 1976 and 960 million pesos in the first half of

1977.36 Furthermore, by its abolition, Philex had

outstanding loans of 2.78 billion pesos, and sugar planters

were forced by Nasutra to pay for the Philex deficit by

deductions from the amounts due to them.37 This caused

strained relations between the planters and the Philsucom-

controlled Nasutra at the beginning of its creation.

Second, despite the slump in the world sugar price

since early 1975, the Philippine government expanded more

sugar hectarage and approved the establishment of four more

new sugar mills in 1976 and 1977, as shown in Table 28.

This was another policy mistake, since political

considerations and miscalculations were behind the

expansion policy. When world sugar prices are high and

there are forecasts of a long-term world sugar deficit, the

policy of expansion might be justifiable. But the

situation of world sugar prices and market had changed

drastically; and the state-controlled Philsucom was too

rigid to make a change on its sugar policy.38 In order to

finance the establishment of new mills, the PNB and

36. Ocampo, "Cracks in the Sugar Bowl," p.41.

37. Jose Galang, "The Bitter Harvest," Far Eastern Economic Review. 18 April 1985, p.62.

38. In fact, when the sugar crisis occurred in mid- 1975, some Filipino sugar planters began to move into other crops such as corn, in contrast with the government's continued expansion policy on sugar. 189

Benedicto's Republic Planters' Bank were authorized to lend loans to millers, mostly associated with Marcos and his cronies.39

However, as the sugar crisis continued in the 1980s, many sugar planters stopped planting because of low prices in the world sugar market. Millers shared a similar bitter story, since 13 out of the top 20 sugar milling companies

(measured in revenue terms) reported losses in 1982, and 10 in 1983.40 Both PNB and RPB were affected by the loss of these huge loans borrowed by the sugar millers and planters. At the end of 1985, a couple of Philippine local banks, including Benedicto's RPB and TRB (Trader's Royal

Bank) were reported having financial trouble.41 Benedicto was then forced to personally leave the scene in mid-1985, but his influence still remained a part in the Philippine sugar industry.

Third, Nasutra was established in late 1977 to replace the corrupted and inefficient Philex. Yet, as a successor of Philex, Nasutra did not make any improvement or renovation. Its accounts, for instance, were hardly

39. According to industry estimates, total loans to the sugar industry amounted to some 8 billion pesos (US$ 432.4 million), with some 6 billion pesos owed by 15 sugar mills constructed during Marcos' 20-year-long presidency. (Galang, "The Bitter Harvest," p.62.).

40. Galang, "The Bitter Harvest," pp.61-62.

41. Guy Sacerdoti and Jose Galang, "The Seeds of Change," Far Eastern Economic Review. 31 October 1985, p.105 190 believable, because auditing vas never properly done. In effect, at the time of its birth, Nasutra*s financial status was not clarified to many sugar planters and millers. It seems, based on Nasutra's performance, that one of Nasutra's major jobs was to deal with Philex' deficits and debts. One example is, as introduced earlier, that Nasutra made sugar planters pay for the

Philex deficit by deductions from the amounts owed to them.

In addition, in 1979 Nasutra paid 1.3 million pesos for stocks of 872,552 tons of sugar. In terms of its financing source, Nasutra was authorized to borrow 2.8 billion pesos from foreign and domestic banks to pay for the stocks and to fund trading losses and costs of 1.15 billion pesos and to pay Philex trading expenses of 362 million pesos.42 However, according to Ocampo, two other

Philex debts were not included in Nasutra's payments, i.e.

(1) unpaid port duties of 648 million pesos up to May 1980, and (2) loan interest payments of 360 million pesos a year,43 It is not clear why these two items were excluded, nor where the money for the two items was supposed to come from.

Yet, it is significant to note that Nasutra's financing scandal and corruption was surveyed by a Batasang

Pambansa (national assembly) subcommittee, which completed

42. Ocampo, "Cracks in the Sugar Bowl," p.42.

43. Ocampo, "Cracks in the sugar Bowl," p.42. 191 a probe into the sugar industry in February 1985. According to this confidential government report on the sugar industry, Nasutra was charged with under-reporting its profits during the six years between 1978 and 1983 by an astonishing 3.44 billion pesos (US$ 430 million), and

Nasutra was further accused of overstating its advances to producers by 1.25 billion pesos.44 Once again, Nasutra failed to explain what happened to these unreported funds.

The connection between these funds and the former two financial items unpaid by Philex, therefore, remained unproved.

The same report by the assembly subcommittee also charged Benedicto with smuggling sugar into the

Philippines, which depressed domestic sugar prices.

Between 16 December 1983 and 9 March 1984, Benedicto brought into the country some 287,230 tons of sugar worth

US$ 54.4 million. The group of legislators reported that

"taxes and duties totaling nearly 700 million pesos on the shipments were not paid and that illicit profits from these transaction reached 230 million pesos."45 As for the purpose of the alleged smuggled sugar into the domestic market, Benedicto's logic was said to be "to force local prices to very low levels and compel producers to agree to

44. Sacerdoti and Galang, "The Seeds of Change," p.105.

45. Galang, "The Bitter Harvest," p.62. 192 the restoration of graft, corruption and other

irregularities in domestic trading under the control of

Nasutra/PhiIsucom officials."46 Benedicto denied the charges, however, later when he appeared before the same subcommittee on 14 February 1985. Instead, he argued that the sugar that was brought in was refined and re-exported

in its entirety.

Finally, the expansion policy in the 1960s and the

first half of the 1970s delayed the policy of mechanization

in the sugarcane field, which was not promoted until the very late 1970s. As analyzed earlier, prior to Marcos'

sugar monopolization policy, the Philippines was almost the

least mechanized of the world's major sugar producers,

because of its high production costs and low yields per

hectare. Many sugar specialists had warned the Marcos

government to support sugar mechanization as soon as

possible. In fact, from the experience of Hawaii's and

Australia's sugar industries, mechanization has

successfully helped farmers to increase yield per hectare

and reduce production cost. Unfortunately, the Marcos

regime, instead of promoting mechanization on the existing

farms, decided to increase sugar production by expanding

more sugar hectarage and establishing more new sugar mills.

As a result, as world sugar prices continued to

plunge in the late 1970s and 1980s, the average Philippine

46. Galang, "The Bitter Harvest," p.62. 193 sugar production cost turned out to be higher than the market prices. In 1985, for example, it cost 12 cents for the Filipino planters to produce one pound of sugar, but the world sugar price was only 4 cents a pound, even cheaper than a bag of sand.

Another factor for the belated mechanization policy is that the Benedicto-controlled Philsucom was afraid of facing a major problem of mechanization: displacement of sugar workers. In November 1979, as Benedicto officially announced mechanization of the sugar industry, he also claimed, when asked about labor displacement, that "The idea of massive displacement of labor due to mechanization is a misconception. We have not displaced any one on our farm. On the contrary, with full mechanization, they are earning more."47 Yet, according to sugar specialists, if sugar mechanization is wholly implemented, about 40% to 60% of sugar laborers would be dislocated. The problem therefore is that many sugar workers, especially unskilled workers, would have few options for alternative employment.48 And this will cause grave instability and chaos in society, especially on the island of Negros where

47. Sugar land. 1980 (No. 5), pp.14-16; McCoy, "The Philippine Sugar Crisis," p.24.

48. As evidenced by a recent field study about sugar workers's situation, most sugar workers have no private housing, no savings, few non-farm skills and minimal education. (Violeta Lopez-Gonzaga, Mechanization and Labor Employment^ Bacolod City: ALPHA Publishing Corporation, 1983, pp.21-31.) 19 4 sugar is the island's monocrop, and about half of the

island's population depends upon sugar employment.49

It is argued therefore that had the Philippines encouraged sugar mechanization earlier, say in the 1950s or

1960s, to reduce sugar production cost, the government would not have lost so much foreign exchange when the world sugar prices dropped. It is also true that had the Marcos regime achieved the dispersal of the labor force earlier through sugar mechanization, the government would not have

feared to deal with the problem of labor displacement in the 1980s.50 But, when the crisis came to a head in the

1980s, the choices for the sugar industry were reduced to two, either mechanization or bankruptcy.

49. The social impact of massive labor displacement will vary from region to region. In Luzon and Mindanao, for example, it will not be serious since many of the plantations have compensated for initial labor shortages by early mechanization or employment of migratory workers. (McCoy, "Rural Philippines: Technological Change in the Sugar Industry," in R. J. May and Francisco Nemenzo (ed.). The Philippines After Marcos, p.188.)

50. In effect, as early as the mid-1970s, certain Filipino planters desired to displace the excess workers by promoting mechanization, but their plan was strongly opposed by the Marcos government because of "the possible effects it may have on social order." (Shoesmith, The Politics of Sugar, p.20.) CHAPTER VI

TRADE MONOPOLIZATION

The main objective of this chapter is to show how

President Marcos and his cronies dominated the sugar trade, externally and internally, and how the sugar industry was negatively affected by this trade monopolization.

1. External Trade Control

A. Performance

Prior to 1974, Philippine sugar exports had long been allocated and managed by a semi-governmental organization.

The Sugar Quota Administration (SQA), consisting of personnel from both government and the sugar industry, was the institution taking care of the process of sugar allocation among producers. The major task for the SQA was to establish the mill district and to determine the quota for each central and each farm.l

Because of the hierarchical structure in the sugar

1. Usually one mill district consists of a central and dozens or even hundreds of sugar farms which deliver sugarcane to the central. From 1974 to its abolition in 1977, SQA maintained its function, but it was directed and controlled by Philex and Philsucom. After 1977, Nasutra took over the authority to distribute sugar allocation to sugar growers.

195 196 industry (i.e. a small number of large farms and many small farms), the majority of sugar quotas were acquired by a few prominent families. In 1937, for example, the Lizares family was allocated 10 percent of the total sugar quota due to their ownership and management of the Bacolod-Murcia

Milling Co., the Talisay-Silay Milling Co., and Central

Azucarera del Danao.2 Other big families, such as the

Araneta family, the Montilla family, the Lopez family, etc., shared a similar story. Thus, the principle of sugar allocation basically relied upon the production and the size of each farm, meaning the more sugar production the larger the sugar quota.

However, a new system was created in 1974 when the sugar industry was monopolized. The Marcos government became the single sugar buyer and seller. For sugar exports, Philex/Nasutra bought all sugar from planters and sold it abroad to any contracted countries, keeping private brokers outside of the scene. Before 1974, under the administration of SQA and the protection of the US quota system, the management of sugar allocation and the sugar export market were generally steady and consistent. After

1974, however, because of the control exercised by the inexperienced bureaucrats, the termination of the US quota system, and the plunge of world sugar prices, Philippine

2. Nagano-Kano, The Structure of the Philippine Sugar Industry, p.9. 197 sugar exports were poorly traded. The government- manipulated sugar industry then became a target of criticism until the end of the Marcos regime.

President Marcos, for example, decreed a prohibition on selling sugar abroad in the 50 cents and 60 cents range, when the world sugar price returned to the normal level around 15 cents a pound in February 1975. One month later when Philippine sugar reentered the world sugar market, the price of world sugar dropped to less than 10 cents a pound. And this low price was sustained for the next four years. The consequence of this embargo policy included not only a huge loss of foreign exchange (about US$ 250 million), but also a stockpile of unshipped sugar (1.5 million tons) placed in such far from unsatisfactory areas as swimming pools, school gymnasiums, tennis courts, and so on. The Philippine government was thus responsible for the failure to keep the sugar trade flowing in 1975.3

Realizing that the world sugar price would not return

in the near future, the Marcos government began actively to search for foreign sugar markets after 1976. During the years 1976 to 1982, the authoritarian government did make some achievements in negotiating new markets for its sugar.

Most of these negotiations were made directly by the PNB.

3. The Philippines' 1975 sugar exports were sold mostly to Japan (56%), and the U.S. (25%); in contrast to the sales pattern of 1974 when 75% was bought by the U.S. and 20% by Japan. (Shoesmith, The Politics of Sugar, p.24.) 198

The following table (Table 29) shows Philippine sugar

exports to various markets in the years 1976 and 1977. In

addition to these big buyers (i.e. USA, USSR, PRC, and

Japan) in Table 29, the other importing countries included

France, Finland, the United Kingdom, Switzerland, and Hong

Kong.

Table 29 Philippine sugar Exports and Destinations (Volume and Percentage), 1976-77

Destination Volume: 1976 Volume : 1977 I (metric tons) (metric tons) I 1 USA 961,074 (65%) 11,260,454 (50%) I USSR 235,927 (16%) ! 645,156 (21%) ! PRC 78,543 (5%) I 268,653 (10%) I Japan 90,479 (6%) I 232,282 (9%) I Algeria 36,229 (2.4%) 31,000 (1.2%)I British 32,463 (2.2%) I Rumania 30,400 (2.0%) I New Zealand 12,600 (0.8%) Malaysia 35,893 (1.4%) I Indonesia 12,075 (0.5%)I S. Korea I 5,700 (0.2%) I Total 1,477,714 (100%)12,491,212 (100%) I

Source : Santiago D. Gamolo and Lrineo L. Jimenez, "The Philippines' Sugarcane Industry: General Perspective," in Sugarcane Production in Asia, Tokyo: Asian Productivity Organization, 1980, p.131.

Political reasons were involved in the sales of sugar to the PRC and the USSR. Manila established official diplomatic relations with Peking and Moscow in 1975 and

1976, respectively. Both the PRC and the USSR started to buy sugar from the Philippines then, with a favorable price 199

in the beginning. The price of sugar sold to the Soviet

Union in 1977, for instance, was higher than the market

price of about 7 cents a pound, when the contract was

negotiated.4 As for the Chinese deal, it was at a

"friendship price" of 12 cents a pound (which was two or

three cents over the current world price), in addition to a

barter arrangement with Peking of 200,000 tons of sugar in

exchange for crude oil from the Shengli field.5 These two

sugar deals, done by the First Lady, Imelda Marcos, were a

result of the so-called "Sugar Politics" between the

Philippines and the two communist giants.

The most important foreign buyer, however, was still

the United States. As shown in Table 29, the United

States continually remained the largest foreign market for

Philippine sugar, despite the end of the quota system and

the favored tariff system. In fact, Filipino sugar

producers also perceived the U.S. as their most stable

market, regardless of the plunge of world sugar prices.

Equally, the United States found the Philippines, America's

biggest overseas sugar supplier, a particularly reliable

source. Therefore, the Philippine government persisted in

4. "Soviet Signs a Contract With Philippines to Buy 60,000 Tons of Sugar," New York Times. January 19, 1977, IV, p.5.

5. "Easing Philippine Sugar Problems," Far Eastern Economic Review. 4 February 1977, p.43; Rodney Tasker, "State of the Economy," Far Eastern Economic Review. 11 February 1977, p.20; "Soviet Signs a Contract with Philippines," New York Times. January 19, 1977, IV, p.5. 200 searching for American buyers, even though the American quota system had ended.

The American deals were achieved in April 1976, after

Filipino sugar growers had seriously suffered the disastrous drop in the world sugar price in 1975. The

Marcos government successfully signed contracts with two

American refiners which ensured a regular outlet for a large part of the archipelago's sugar export. The first one was the Sucrest Refining Corporation, which committed itself to a five-year contract with the Philippine National

Bank. According to the agreement, Sucrest would buy

650,000 tons of raw sugar in 1976, 930,000 tons in 1977, and 1 million tons in 1978, 1979 and 1980. The other

American firm was Great Western United Refining Company of

Texas, which would purchase 500,000 tons a year for five years since 1976. The two refiners and marketers of sugar thus tied up roughly a fourth of American imported sugar requirements during the five years.

However, when the Marcos government announced these two big sugar sales to the American refiners, it failed to explain how much the refiners would pay for the Philippine sugar.6 Two basic methods of price-setting seemed to be

6. These two American deals caused a backfire from the Dominican government. On April 13, 1976, one week after the Philippine-American refiners' contracts were signed, the Dominican government accused the Philippines of having driven down the sugar price by selling sugar to the U.S., and setting the stage for a worldwide price war.(New York Times. April 14, 1976, p.57.) Two weeks later on the 26th 201 involved in these two deals: "one involves setting floors and ceilings on prices, with the buyers paying an average market price at the time of each delivery; and the other involves revenue-sharing, in which the producer provides the raw commodity while the refiner pays for the transport, processing and marketing. Both share the profits by some formula."7

Another source notes that the contracts were signed under this condition--"Philippine sugar is sent to the company for refining, after which the sugar is sold at prevailing world market prices, and the profits shared between PNB and refiner— after the refiner has taken his cut for cost of refining."8 Also, according to Shoesmith, the Philippines "is responsible to transmit the sugar to the U.S., and Northern Lines, owned by Benedicto, is assigned to take charge of delivering the sugar stocks to the U.S."9 Considering the fact that Sucrest's refining facilities are concentrated on the Atlantic coast (meaning higher cost of transportation), the profits of these two deals were insignificant.

of April, the Dominican government made a second appeal to the Philippines, suggesting that the Philippines should cancel the contracts. (New York Times. April 27, 1976, p.59.)

7. H.J. Maidenberg, "Deals Confusing Sugar Markets," New York Times. April 3, 1976, p.33.

8. Shoesmith, The Politics of Sugar, p.25.

9. Shoesmith, The Politics of Sugar, p.25. 202

In 1981, when the five-year contracts were to be

terminated, the Philippine government made another four- year agreement with four foreign buyers. They are

Sucrest, Rionda and a Mr. Chan, all of New York, and E.D. and F. Man of London.10 These four buyers were committed

to purchase 500,000 tons a year, at an average of 23.5

cents a pound. In addition, the Philippines' 1981 sugar

exports included 330,800 tons to the Soviet Union, 200,000

tons to Indonesia, 156,000 tons to South Korea, 120,000

tons to Japan, and 92,000 tons to the PRC.11

In the year 1982, with the exception of continued access to the USSR (218,000 tons), the PRC (159,000 tons),

and Indonesia (86,000 tons), the most valuable sugar deal

to the Philippines was the United States' initiation of a

new quota system, although it did not satisfy the Filipino

planter because of the limited quota.12 Under the new

10. Ocampo, "Cracks in the Sugar Bowl," p.42. Also, according to Ocampo, all these four buyers were associated with the Marcos regime. Sucrest, for example, is owned by Antonio Floirendo, the Mindanao banana magnate, who is close to Marcos. Chan is believed to be Jose Mari Chan, who is in partnership with Ramon Nolan, both of whom were known to the president. Chan and Nolan also own a trading company, Guimaras, which is in the same building as Sugar Brokers run by Benedicto, the chairperson of Philsucom.

11. Guy Sacerdoti, "Short-Term Sweeteners Can't Prevent a Long-Term Caning," Far Eastern Economic Review. 5 November 1982, p.71.

12. The new sugar quota system also hurt other Asian and Latin American countries whose export earnings had already plummeted due to a world sugar glut. The adoption of U.S. new quota policy was believed to be under the pressure of domestic protectionism from influential sugar 203

American policy, Manila qualified for 13.5 percent of US sugar imports, equaling a total of 342,000 metric tons for the period October 1, 1982 to September 30, 1983, at a price of 19.92 cents a pound,13

Once again, this price was higher than in any other foreign market, giving great flexibility to Filipino exporters in negotiating with their American counterparts.14 Aside from these contracts, the state- controlled sugar agencies were criticized for having no major achievement to speak of. For example, Philsucom was not even able to maintain healthy growth for the industry.

Therefore when the world sugar market remained unfavorable, the Philippine government decided to make a shift in its sugar allocation in 1979 by increasing domestic sugar consumption (46 percent of total production), leaving only

50 percent for export, and 4 percent for stocks (reserve sugar).

B. Criticisms of external trade control

During the ten years' (January 1974 to February 1984) monopoly of sugar exports, the PNB-controlled Philex and farmers. (Richard Nation, "Less Sweet For Some," Far Eastern Economic Review. 14 May 1982, p.98.)

13. Nation, "Less Sweet For Some," p.98.

14. The main reason for the high price is that the U.S. wants to block entry of low-priced sugar in order to force American local refineries to purchase from American sugar producers. This is the so-called "price support" program. 204

Nasutra were always targets of criticism. The criticism came both internally and externally. In 1984, for instance, the United States expressed serious displeasure with the corruption in the Marcos-controlled sugar industry by opposing a World Bank loan to the Philippines.15

Corruption, together with mismanagement, were perceived as major factors contributing to the decline of the Philippine sugar industry during the Marcos sovereignty. The problems of corruption and misdoing on the management level have been explored in Chapter V. This section of Chapter VI will investigate the problem of corruption and mismanagement on the level of monopolizing sugar trade.

The biggest problem of external trade is focused on sugar exports, which were entirely managed under the control of the Marcos state, leaving private sugar brokers out of the scene. The sugar embargo policy, ordered directly by President Marcos, from November 1974 to

February 1975 is the best example. President Marcos initially held an optimistic expectation that world sugar prices would return. But, unfortunately, Marcos experienced the bittersweet taste of sugar in 1975, when the prices continued to fall and huge stockpiles of sugar remained unsold. The Marcos regime was thus responsible for not keeping the sugar trade flowing freely, which

15. Nayan Chanda, "Vote of No Confidence," Far Eastern Economic Review. 13 September 1984, p.16. 205 caused a huge loss in Philippines' foreign reserve.

In addition, after the SQA was abolished in 1977, the power of distributing the sugar allocation was removed and replaced by the government. This means that the state- controlled Philsucom was then authorized to decide how much sugar allocation one sugar planter could obtain. Obviously, this is a major mechanism used by President Marcos to establish his political and economic influence in the sugar industry. The Marcos regime can thus be charged with granting sugar allocation for political favors. The growing prosperity of Benedicto's and his associates' businesses in the country are the evidence (see Chapter V).

Another criticism of the monopoly of sugar exportation is that the Marcos government used the sugar trade for political purposes. The sales of sugar to the PRC and the

USSR are the cases. In 1977, for instance, after newly established governmental relations with the Philippines,

Moscow and Peking bought from Manila 645,156 tons of sugar and 268,653 tons, respectively, and these two deals did help in releasing the burden of stockpiled sugar in the

Philippines. But, both the USSR and the PRC are among the

largest sugar producers in the world; they do not need to

purchase sugar from the Philippines. The Soviet Union has steady sugar imports from Cuba, actually. Thus, just a few days after the contract was signed, the Soviets even 206 claimed that "The Philippine sugar may be for reexport."16

As for the Chinese deal, as discussed earlier, it was a barter arrangement between PRC oil and Philippine sugar.

As the honeymoon passed, both the PRC and the USSR diminished importing sugar from the Philippines. In 1982, for example, Moscow bought only 218,000 tons of Philippine sugar, and Peking 159,000 tons. The Marcos government then realized later in the early 1980s the importance of negotiating long-term contracts with other foreign buyers such as the United States, Japan, some European countries, and so on.

The third criticism is that the state-controlled PNB rarely clarified the profits of selling sugar abroad. It means the government talked about only losses in the sugar trade, but kept the benefits a secret. Therefore, it is difficult to estimate how much the government really earned from sugar, and sugar producers' profits were exploited accordingly. In 1976, for example, the PNB claimed it lost 420 million pesos during the first nine months of the year, but failed to release an estimated figure of 1 billion pesos it made in 1974 and 1975.17 It is argued that these profits were absorbed by the Marcos regime for

16. "Soviet Signs a Contract with Philippines to Buy 600,000 Tons of Sugar," New York Times. January 19, 1977, IV, p.5.

17. Bernard Wideman, "Marcos Cuts His Losses," Far Eastern Economic Review. 17 December 1976, p. 51. 207 the so-called "public purposes", rather than shared with

Filipino sugar planters and workers.

Yet, when the government continually lost earnings from sugar in the following years, the PNB compelled sugar producers to share the losses. Two methods were used by the PNB. One is that when Philex was abolished in 1977 with a huge outstanding debt of 2.78 billion pesos, Nasutra forced sugar planters to pay for the Philex deficit by deductions from the amounts due to them.18 The other method was to lower the composite (or purchasing) price, a payment that the PNB paid to sugar producers when the former bought sugar from the latter. In the crop year

1976/1977, for example, when the world sugar price was less than 10 cents a pound, the PNB only paid 79.50 pesos per picul (or 8 cents a pound) to Filipino producers, a price even lower than the average production cost of sugar--90 pesos per picul. Unlike the U.S., western European countries, and some Third World countries (e.g. Brazil,

Thailand, etc.) where the government subsidized sugar growers during unfavorable market years, the Marcos regime made sugar producers participate in the burden.

One more criticism is that the Marcos government generally sold sugar abroad at a low price, sometimes even lower than the current world sugar price. It is known that world sugar prices fluctuate all the time, but the

18. Galang, "The Bitter Harvest," p.62. 208 state-controlled PNB is accused of being too rigid and inexperienced to hold up-to-date world sugar information.

After the sugar embargo policy in March 1975, for example, the government sold sugar at 30 cents a pound while the prevailing price of February 1975 was 50 cents a pound.

Another recent case was the Philippines' 1981 sugar deal to four foreign buyers with 500,000 tons a year for four years. The sale price was contracted at 23.5 cents a pound, while the world price of sugar then (1980) was at about 30 cents a pound. It is argued that these foreign buyers were even able to resell the sugar at well above the price paid as the world market recovered. Even with the sale price of 23.5 cents a pound, Nasutra was accused of not raising the composite price to share the benefits with

Filipino sugar planters. Thus some growers and millers lodged a suit in the Supreme Court challenging Nasutra's

"high-handed" transactions.19

Finally, what was the gain enjoyed or the loss suffered by the sugar growers as a consequence of the government's ten-year monopoly on the sugar trade? In

1984, a group of economists from the University of the

Philippines published a study on the evaluation of the gains or losses of sugar producers due to the monopoly of export trade during the crop years 1974 to 1983. Their

19. Henry Kamm, "Philippine Planters and Workers Fight Sugar Controls," New York Times. February 5, 1981, p.A7; Ocampo, "Cracks in the Sugar Bowl," p.42. 209

research made estimates under the assumption that the ten

years had been under the system of free trade. They then

calculated the gains (or losses) of sugar producers based

on two alternative marketing strategies.

The first estimate is based on the assumption that

Filipino producers would trade sugar at the monthly average

of the current "free trade" price, which means U.S. #11

spot prices as taken from International Sugar Yearbook.20

Table 30 Gains (Losses) of Sugar Producers Due To Monopoly of Export Trade, 1974-1983 Assumption I

II"- - ' I (Period (Free TradeIMonopo lyI Difference IGain/ I IPr ice IPr ice (pesos) ILoss 4— ------— — -----+ ------IPhilex 1 1 1 I 1 110/17/74-5/5/75 1334. 23 1180 00 1 -154 23 1-1,941 71 15/5/75-3/22/76 1138. 65 1130 00 1 - 8 65 1 -136 7 y 13/22/76-12/2/76 1108. 03 1125 00 [ + 16 97 1 +291 61 112/2/76-6/13/77 1 81.77 I 90 00 I + 8 23 1 +175 71 INasutra 1 1 1 1 1 16/13/77-3/30/79 1 71. 86 1 90 00 1 + 18 14 I +733 0 1 13/30/79-8/31/79 1 76. 48 1 90 00 1 + 13 52 1 +114 8 1 11979-1980 1199. 17 1135 00 1 -64 17 1-1,638 21 11980-1981 1239. 69 1172 50 1 -67 19 1-1,647 41 11981-1982 1107. 30 1168 00 1 +60 70 1+1,058 81 11982-1983 1145. 93 1168 00 1 + 22 07 1 +422 71

ITotal Loss (Phil ex and Nasutra), 1974 -1983 -2,567 4 B

Note: a. The price unit of free trade and monopoly is pesos per picul, b. The unit of gain/loss is million pesos. Source: De Dios, An Analysis of the Philippine Economic Crisis, p.44.

20. Emmanuel S. De Dios, An Analvsis of the Philippine Economic Crisis. Quezon City: University of the Philippines, 1984, p.43. 210

The crop year 1982-1983, however, was not estimated in the same assumption. This was because in that year the

U.S. allocated a renewed quota of 343,000 metric tons to the Philippines at a price of 19.92 cents a pound. This price was much higher than the U.S. spot price, and therefore a weighted average of the two prices was used.21

According to this estimate, Filipino sugar growers suffered a net loss of 2.6 billion pesos during the ten-year monopoly, as demonstrated in Table 30 (last page).

The second estimate assumes that "producers, if left alone, would have made the same trading decisions as

Nasutra, i.e. entered a four-year contract starting in

January 1982, to export 620,000 metric tons at an average

23.5 cents per pound."22

According to this assumption, the loss to producers due to government trading monopoly of exports was as large as 5.4 billion pesos during the ten year period, as illustrated in Table 31 (next page). The key factor for the big loss is because the monopoly price exceeded the free trade price in only four of ten time periods, and these positive differences were very little.

21. De Dios, An Analvsis of the Philippine Economic Crisis, p.43.

22. De Dios, AD Analysis of the Philippine Economic Crisis, p.43. 211

Table 31 Gains (Losses) of Sugar Pr oducers Due To Monopoly of Export Trade, 1974-1983 Assumption II

Period IFree Trade [Monopoly DifferenceiGain/ IPr ice IPr ice (pesos) ILoss 4— '------IPhilex I I 110/17/74-5/5/751334.23 1180.00 -154.23 -1,941.7 15/5/75- 3/22/76 1138.65 1130.00 -8.65 -136.7 13/22/76 -12/2/76 8108.03 1125.00 +16.97 +291.6 112/2/76 -6/13/771 81.77 I 90.00 + 8.23 +175.7 INasutra I I 16/13/77 -3/30/791 71.86 I 90.00 +18.14 +753.0 13/30/79 -8/31/791 76.48 I 90.00 +13.52 +114.8 11979-19 80 1199.17 1135.00 -64.17 1-1,638.2 11980-19 81 1235.11 1172.50 -62.61 1-1,525.2 11981-19 82 1175.36 1168.00 -7.36 I -128.4 11982-19 83 1237.82 1168.00 -69.82 1-1,337.3 I------. 1 1 I ...... Ill 4 ITotal loss of producers from 1974 to 1983: ■5,372.4 I

Note: a. The price unit of free trade and monopoly is pesos per picul, b. The unit of gain/loss is million pesos. Source: De Dios, An Analvsis of the Philippine Economic Cr isis, p.44.

2. Internal Trade Control

A. Performance

Before the end of the American sugar quota system,

Philippine sugar was mainly produced for exportation.

Domestic consumption of sugar only took a small portion of the whole production. But due to unfavorable world markets during the latter half of the 1970s, domestic consumption of sugar was gradually increasing.23 For

23. According to Philsucom officials, the growth in domestic sugar consumption could be attributed to the following factors: (a) growth of the industrial based sugar products, (b) population growth, (c) increase in the number of middle-class families, and (d) opening of new industrial plants and markets for sugar-based products due to improved 212

example, the amount for internal sugar consumption

augmented from 556,241 metric tons in 1966 to about 1

million metric tons (35% of the total production) in 1978.

In the 1980s, the domestic sugar consumption has

become more significant, taking almost 40 percent of the

country's entire sugar production. Sixty percent of the

total domestic sugar allocation is consumed directly by

households, and the remaining forty percent is for the

industrial sugar-based products. Therefore, it is equally

imperative to explore how domestic trade and marketing were

handled by the government in the name of sugar

nationalization.

Under the state control over the domestic sugar trade, sugar producers could no longer sell sugar directly to the domestic private traders, but had to sell sugar to Philex, and later, to Nasutra. The governmental agency then allocated the sale of sugar to about 250 government accredited domestic traders, whose volume of business generally relied upon their financial capacity, storage and transportation, facilities for warehousing, geographical areas of distribution, and so on.24

These domestic traders were primary distributors of sugar for the local market. They obtained their stocks

infrastructure in the country. (Gamolo and Jimenez, "The Philippines' Sugarcane Industry," p.128.)

24. Aguilar, The Making of Cane Sugar, p.61. 213

from the mill warehouses and/or refineries upon presentation of delivery orders issued by Nasutra.

Industrial users were also allocated by Philsucom or

Nasutra for the manufacture of sugar-containing products, such as soft drinks, milk, confectioneries, pharmaceuticals, and so on. The flow of domestic sugar can be demonstrated by Figure 5 (next page).

The most critical point in Figure 5 is the distribution of the sugar allocation from Nasutra to domestic traders and industrial users. This is also a key part of the argument that Marcos and his cronies used sugar allocation as a means of dispensing political favors or distributing largesse. Unfortunately, no official information on the domestic sugar allocations can be secured, nor can the criteria for allocation be identified.

These charges against the Marcos regime can't therefore be properly investigated, although it doesn't mean they are not likely to be true, at least in part.

There is some other evidence demonstrating Marcos' political intervention in dominating the domestic sugar trade and market, however. First of all, about 40 percent of domestic sugar consumption is allocated to industrial users for industrial purposes through refineries. As analyzed in Chapter V, most domestic refineries are under the control of Philsucom. In addition, the country's distilleries, who manufacture anhydrous alcohol, are 214 dominated by Philsucom too. The links between Nasutra and industrial users are therefore evident.

(5) ------>;Traders & ■tNASUTRA: : Industrial i. T-i<------tUsers (4)

(2); :(3) (6 ) : >: Export : : Market : (7: ± ±

T------V-- - ( A ) : Des ignatedt------>t-—Vt : Banks,e.g.: :Mills:<- -fMill : :PNB, RPB, :<------^----- : Warehouse : retc. : (B) ±______A ± ______X

(1 ) (8 )

: Domestic : ■>:Market : X ______X

: Planters : i ------i

Figure 5 Sugar Flow Chart

Legend : (1 cane transport (2 submit warehouse receipt (3 issue liquidation payment orders (LPO) ( 4 apply for allocation (5 issue allocation/grants withdrawal permits (6 show withdrawal permits (7 withdrawal by Nasutra (8 withdrawal by traders and industrial users (A pays proceeds of LPO (B presents LPO

Source: Gomolo and Jimenez, "The Philippines' Sugarcane Industry," p.128. 215

For sugar traders, they, of course, have to build certain ties with Nasutra too, in order to obtain grants of sugar allocation. At least, they need to be credited by the government. In fact, the method that Nasutra used to sell sugar to the domestic market was through a "network of selected traders", an operation that deregulated the trade in the domestic sugar market.25 Because of the political involvement, the Filipino economists from the University of the Philippines even argued that paper traders could turn around and sell their allocations to actual traders, resulting in either a redistribution of income from actual traders to paper traders, or some combination of both.26

Thus, it is not a surprise that Nasutra was charged in the early 1980s with misusing and abusing its power by a sugar planters' association--the New Alliance of Sugar

Producers.27

B. Losses of Producers Due to Domestic Control on Sugar

The economists' 1984 study also included an evaluation on the gains (or losses) of the domestic sugar trade during the ten-year monopoly period. When they assessed the difference between the domestic monopoly price and the free

25. Galang, "The Bitter Harvest," p.62.

26. De Dios, An Analvsis of the Philippine Economic Crisis, p.46.

27. Galang, "The Bitter Harvest," p.62. 216 trade price, they found that Filipino sugar producers lost roughly 9 billion pesos during the monopoly years. Table

32 shows the details of their evaluations.

Table 32 Gains (Losses) of Sugar Producers Due To Monopoly of Domestic Trade, 1974-1983

I Year (Domestic sugar (Difference between Gains/Losses I ( (consumption (domestic price & (million ( ( ( (free trade price pesos) ( I ---- (------(------(1974-75 ( 874,986 ( 284.43 -3,927 ( (1975-76 723,168 -72.06 -60.26 -755 ( (1976-77 911,650 -60.26 -30.86 -655 8 11977-78 874,203 ( +10.15 + 140 8 [1978-79 1,086,708 ( +10.15 +25.02 + 301 ( (1979-80 1,103,176 ( ------111.30 -1,937 ( 11980-81 1,041,312 -156.30 -2,568 8 (1981-82 1,050,706 +20.78 + 348 ( (1982-83 1,100,000 + 2.85 + 49 ( I------(Total loss of producers from 1974 to 1983: -9,009 (

■ ■ Note: a. The unit of domestic sugar consumption is metric ton. b. The price in the third column is pesos per picul. Source: De Dios, An Analysis of the Philippine Economic Crisis, p.46.

As for Nasutra's operating performance, it is another example of mismanagement and corruption under the state- dominated sugar administration. According to the economists' estimation, Nasutra lost over 1 billion pesos during the years 1978 to 1981. The following table (Table

33) demonstrates the details of Nasutra's losses in each of these four years. 217

Table 33 Nasutra's Operating Performance, 1978-1961

Year Income Expenses Net income/loss : (million pesos) (million pesos) (million pesos) :

1978 2,983.86 3,568.48 -584.62 1979 3.694.49 4,297.76 -603.27 : 1980 6,932.32 6,890.72 + 41.60 : 1981 7.113.50 6,977.18 +136.32 : Total 20,724.17 21,734.14 -1,009.99 :

Source; De Dios, An Analysis of the Philippine Economic Crisis. p.47.

3. Conclusion

In conclusion, four points can be made, concerning the monopoly on the internal and external sugar trade during the Marcos presidency.

First, the total loss of Filipino sugar producers due to trade monopoly in the ten years' period is estimated at anywhere from 11.6 billion (2.6 + 9.0 billion) pesos to

14.4 billion (5.4 + 9.0 billion) pesos. Without any subsidy from the Marcos regime, Filipino sugar producers were asked to share the losses with the government, while

Marcos and his cronies enjoyed all the profits from the sugar trade during the monopoly years. From this point of view, the economics professors in the University of the

Philippines have made at least one valuable point. That is, Filipino sugar growers would not have suffered such a big loss during the nationalization years from 1974 to

1983, if sugar had been under the system of free trade managed by private brokers and traders. 218

Second, sugar allocation, either for exportation or domestic uses, was previously handled by the Sugar Quota

Administration, a semi-official institution consisting of representatives from both government and the sugar industry. Before the end of the American quota system, the value of a Filipino sugarman was dependent upon the size of his quota allocated by the SQA. Therefore, the power of distributing sugar allocation was extremely crucial, because the more quota one obtains the more cash one could earn. However, after the sugar industry was monopolized, this power was taken over by the Marcos regime, and as a result sugar allocation became a means of dispensing political power. This is why by the end of the sugar monopolization period, the Benedicto-controlled Philsucom became the center of benefits while many sugar farms were either foreclosed or heavily indebted to the banks.

Third, corruption and mismanagement were a continuing problem for Marcos' sugar monopolization policies. The

President could neglect domestic opponents, but he could not ignore criticism from outside, including the U.S., the

World Bank, and the IMF, mainly because they are the major money-lenders and cash donators to the Marcos regime.28 In

28. According to the statistics, during the years from 1972 to 1982, the World Bank and International Development Association (IDA) loaned more than US$ 3 billion to the Philippines. Most of these loans were designed for the development of agriculture and rural areas. (W. Bello, D. Kinley, and E. Elinso, Development Debacle, San Francisco: Institute for Food and Development Policy, 1982, Table 1) 219

1984, the World Bank and the IMF initiated a joint group to investigate the performance of Philippine agriculture, including the sugar industry. In their study, they strongly criticized Marcos' monopoly control of the sugar industry, and demanded privatisation of the industry. They also stressed "transparency" within the institutional structures, meaning "strict accountability to avoid the charges of corruption and mismanagement of funds which have plagued the monopolies since their inception."29 These two foreign institutions' grave concern, together with domestic pressure, resulted in the structural reform of the

Philippine sugar industry in 1985.

Finally, trade monopolization proved to have failed in

February 1984, when President Marcos dismantled the monopoly on the sugar industry. But, privatisation of the industry was not completely achieved until 1985, because

Philsucom and Nasutra still maintained their dominant roles in the industry. However, under the pressure of the IMF and the World Bank, the Marcos regime finally agreed to reorganize the sugar industry in 1985.

While Philsucom remained itself as the supreme regulatory institution in the industry, Nasutra was abolished in December 1985 and replaced by another newly created institution, Philippine Sugar Marketing Corporation

29. Sacerdoti and Galang, "The Seeds of Change," pp.103-104. 220

(Philsuma). On 4 October 1985, the President further decreed to shuffle the members on the board of Philsucom by appointing four new representatives.30 In addition,

Philsucom was asked to divest its subsidiaries, which included RPB, a transport company, a railway, sugar terminals, drydocking facilities, sugar godowns, three sugar refineries, and fifteen sugar mills managed by the

National Sugar Corporation.

30. Benedicto left Philsucom already in early 1985. The four new members were Caesar Virata (Finance Minister), Vicente Valdepenas (National Economic and Development Authority Minister), Emil Javier (National Science and Technology Authority head), and Bias Ople (Labor and Employment Minister). CHAPTER VII

PRICE MONOPOLIZATION

Price control is another major mechanism for the

Marcos government to dominate the sugar industry. As

described earlier, after the Philippine sugar industry was

nationalized in 1974, the government, represented first by

Philex and then Nasutra, became the sole sugar buyer and

seller in the country. The government bought sugar from

the planters, and then sold it to domestic traders and

international contractors. Under this framework, Filipino

producers received a value from Philex/Nasutra, as they

turned sugar over to the state-controlled sugar agent.

This value was called the composite price, which was actually based upon the weighted average price of three different classes of sugar (i.e. export, domestic, and

reserve), and all these four prices were decided by the

Marcos regime. The objective of this chapter is to examine

how the prices of these different classes of sugars were

set and what the effects were on the sugar industry during

the 10-year long sugar monopolization.

221 222

1. Performance

As for the price of export sugar, it refers to the sale price of Philippine sugar to international buyers.

Before 1974, the export sugar price was usually higher than the world market price, because of American's favorable tariff system. After the end of the U.S. quota system,

Philippine sugar exports were forced to enter the world free market, and to compete in price with other sugar- exporting countries.

When the sugar industry was nationalized, the government set the export sugar price at the level of the export sugar price from the preceding period. But, the real selling price is determined by the government at the time when contracts for sugar sales are signed. The export sugar price varies, obviously, depending on the terms of the contracts and the current world sugar prices.

It can be steady, if these contracts are long-term oriented. Sugar sales to the U.S. are examples. On the contrary, export sugar prices can also be unsteady, if contracts are short term.

This further indicates that the most significant factor contributing to the price of Philippine export sugar is the fluctuation of world sugar prices. In other words, when the world sugar prices are good, the Philippine export sugar price generally remains high although it may not be as high as the level of the world price. When the 223 price of world sugar drops, it results in the decline of the Philippine export sugar price. For example, in

November 1974, as the world sugar price climbed to its historical high of 678 pesos per picul (or 6 7 cents per pound), Philex sold sugar to the U.S. at 470 pesos a picul

(or 47 cents a pound). On the contrary, when the world price plunged to around 10 cents a pound, Philex' selling price to international buyers fell to the same range too.

For domestic sugar, like many other products, its price has long been regulated by the government. Since the independence of the Philippine Republic, there has always been a Price Fixing Committee (or other similar institution) in the central government, with the power to increase or decrease price ceilings and mark-ups. In addition to stabilizing domestic prices, one of the main objectives of price control has been to undertake the prevention of monopolization, manipulation, private control, and so on. For example, in 1947 President

Quirino set up the Price Stabilization Corporation to exercise this function, although it was not very successful.1 Since taking power in 1965, President Marcos basically continued this policy in controlling the domestic sugar price, in spite of the creation of Philex and

Philsucom in 1974.

1. Hartendorp, History of Industry and Trade of the Philiooines. p.6 43. 224

The difference is, however, that the state-dominated sugar agent was given supreme power to tighten price control enforcement in the domestic market. President

Marcos might be successful in making the domestic sugar price steady, but in the mean time he also made Philsucom the monopoly machine in the sugar industry. Under the monopolistic structure, the domestic sugar price is fixed at a certain level by Philsucom, with the approval of the

President upon recommendation of the commissioner of the

Philsucom. The commissioner’s suggestion is usually based upon the cost of producing sugar and living expenses of sugar producers, including the costs of labor, fertilizer, pesticides, and so on.

Compared with the prices of export sugar and reserve sugar, the domestic sugar price is the only one fully under the control of the government, without being affected by international variables. During the ten years' monopoly, the domestic sugar price was generally lower than the export and reserve sugar prices by twenty percent. This low domestic sugar price was favorable to the domestic consumers. It was not, however, beneficial to the sugar producers, because the low domestic sugar price distorted the composite price on the low side, a value that planters received from the government.

Reserve sugar is used for contingencies in both domestic and export markets. It is to say that any 225 shortage of supply in the domestic and export markets is usually met by the reserve sugar. There is no significant difference in the purpose of reserve sugar between the pre­ monopoly period and post-monopoly. During the monopoly era, however, reserve sugar was mostly sold abroad to meet foreign market demand, and therefore the price for reserve sugar was determined to be equivalent to the export sugar price. Sometimes, the Philippines even bought foreign sugar to meet its sugar quota under the International Sugar

Agreement (see Chapter IV). In November 1983, for example, the Philippines purchased between 400,000 tons and

600,000 tons of sugar at market prices of about 11 cents a pound, totalling around US$ 100 million.2 Because of its holding long-term contracts to export sugar at 20 cents a pound and more, the Philippines obtained profits actually by reselling the sugar it had bought.

Finally, as regards to the composite sugar price, it is calculated from the weighted average price of export, domestic, and reserve sugar. The weights represent each sugar class' percentage allocation, which is determined by the government through Philsucom. In the crop year 1978-

79, for example, export sugar was allocated 50 percent of total production, whereas domestic sugar had 46 percent, and reserve sugar 4 percent. Accordingly, the composite

2. "Philippines Buys $100 million of Sugar," The Wall Street Journal. November 25, 1983, p.21. 226 price in that year (99.2 pesos per picul) was derived from multiplying the average price of export sugar (90 pesos per picul) by a 50% weight, domestic sugar (110 pesos per picul) by 46%, and reserve sugar (90 pesos per picul) by

4%. The following table (Table 34) shows the prices of three classes of sugar and the composite price in the crop years 1979 to 1982.

Table 34 Prices of Various Classes of Sugar, 1979-62

Classes of Sugar: Crop Yeaj :s % and Price 1979 1980 1981 1982

% of total : 50% 50% 52% 56% Export Sugar Pr ice : 90.00 135.00 172.50 168.00

% of total; 46% 46% 44% 40% Domestic Sugar Price: 110.00 110.00 110.00 165.00

% of total : 4% 4% 4% 4% Reserve Sugar Price : 90 .00 135.00 172.50 168.00

% of total 100% 100% 100% 100% Composite Price: 99.20 123.00 145.00 166.80

Note: a. The price unit in this table is pesos per picul, b. The percentage of each class of sugar is determined by the government.

Source: Ronilo Beronio, Analvsis of Alternative Domestic Sugar Policies in the Philippine Sugar Industry, p.17. 227

The composite price is the price that the Filipino sugar planter receives from the government through

Philsucom-assigned banks, such as the PNB, Benedicto's RPB, and so on. It is also the price equivalent to the value of crop loans which generally cover 100 percent of the planter's production costs. Most planters, especially those small planters in Negros island, exist on crop loans, and they are accustomed to living on next year's income.3

More importantly, the composite price is the value closely connected to the daily lives of sugar planters and workers, because the planter obtains money first and then is able to pay wages to the worker.

Therefore, this is a very critical price. When the composite price is more than the production cost, sugar producers enjoy the profits from sugar-planting. On the other hand, sugar growers suffer when the composite price is under the production cost. Thus, most criticisms against Marcos' price policy are related to the composite price. The following table (Table 35) demonstrates the different prices of composite sugar, world sugar, and the

Philippine sugar production costs during the years 1974 to

1984 .

3. Wideman, "Philippine Sugar Crisis Looms," p.54. 228

Table 35 Comparison of The Composite Prices, World Sugar Prices, and Philippine Sugar Production Costs, 1974-1984

Year Compo site Price World Price Production Cost: (per picul) (per picul) (per picul ) :

1974 134 pesos 650 pesos Var ies : 1975 106 pesos 204 pesos from 1976 108 pesos 115 pesos 60 pesos : 1977 79 .50 pesos 81 pesos per picul : 1978 90 pesos 78 pesos to 1979 90 pesos 96 pesos 120 pesos :

1980 123 pesos 290 pesos Vari es from : 1981 145 pesos 169 pesos 120 pesos ; 1982 168 pesos 84 pesos to 150 pesos : 1984 40 pesos per picul :

Sources: Compiled from the following sources: a. Nagano-Kano, The Structure of the Philippine Sugar Industry, p.30 b. Shoesmith, The Politics of sugar, p.23. c. Aguilar, The Making of Cane Sugar, p.53. d. Beronio, Analysis of Alternative Domestic Sugar Policies. p.17. e . Far Eastern Economic Review: 26 November 1976, pp.48,54; 17 December 1976, p.50; 1 May 1982, p.42; 18 April 1985, p.62.

2. Criticisms. Qf Price Conttol

Price monopolization of sugar generated tremendous benefits to the Marcos government, but it also brought a lot of criticisms at the same time.

A. The gap between the sale price and the composite price

The first criticism is on the difference between the composite price and the price sold abroad by the government. Since the value of sugar exports plays a significant role in the fluctuations of the composite price, the sale price to foreign buyers becomes very 229 crucial. When the export price is good, the composite price is supposed to be raised. But, the argument is that the gap between these two prices appeared to be high during the favorable market years. In the first half of 1974, for instance, Philex sold sugar abroad at 470 pesos per picul, but only paid 134 pesos per picul to the Filipino planters.

The total difference between these two prices reached as high as 1 billion pesos, which was believed to be absorbed by the Marcos regime for the so-called "public" purposes.4

This exploitation was repeated again in 1977, when

Philsucom was reactivated as the supreme sugar institution

in the country. In 1977, when the US raised its buying price from 7 cents a pound to about 11.25 cents a pound,

Philsucom still continued paying a loss-making level of 7.9 cents a pound (or 79.5 pesos per picul) to the Filipino planters.6 In 1979, as Nasutra emerged as the sole trading arm of Philsucom, the same story happened again.

The 1980-81 crop year's composite price was only 145 pesos

per picul, but Nasutra sold overseas at 172.5 pesos per

picul. The difference in these two prices was definitely

taken by the Marcos government.

As analyzed earlier, the Philippine export sugar price

was very closely linked to the fluctuations of world sugar

4. McCoy, "The Extreme Unction," pp.145-146.

5. "Manila: Aid For Growers," Far Eastern Economic Review. 1 July 1977, p.42. 230 prices. Therefore, as the world price plunged, there was no significant difference between the composite price and the export price. But, the critical argument is that the government-manipulated sugar institution failed to share the sugar profits with sugar producers when the export sugar price was favorable.

B. Low sale price to foreign buyers: Second, because of their inefficiency and inexperience, Philex and Nasutra are blamed for selling sugar abroad with a price generally below the current world market prices. This problem has been analyzed in Chapter VI, but it is now time to emphasize its connection with the composite price. Being a primary factor in determining the value of the composite price, the low sale price to foreign buyers has directly resulted in the low composite price, a major financial source that sugar growers rely upon for the basic needs of their daily lives. In November 1974, for example, when the world sugar price jumped to 678 pesos per picul (or 67 cents a pound), Philex sold sugar abroad for only around

470 pesos per picul. This problem occurred again several times later in the years of 1975, 1979, and 1981. The consequence, obviously, is the cut in sugar planters' income, which is sometimes even lower than the expenses in producing sugar.

C. Low domestic sugar price: One more criticism against Marcos' price policy points to the low domestic 231 sugar price, another variable contributing to the low composite price. During the 10 years' monopoly, the price of domestic sugar was generally designed to be 20 percent lower than the export sugar price. In the favorable market years such as 1974, the low domestic price was not a problem, because Filipino consumers enjoyed the benefit.

However, when the prices dropped after 1975, it became a serious issue. Under the pressure of the sugar industry, the Marcos government did make some efforts to increase the domestic sugar price a couple of times to offset losses being incurred by the PNB as a result of depressed world prices.

In December 1976, for instance. President Marcos decreed to raise the domestic sugar price from 60 pesos per picul to 75 pesos per picul.6 In July 1977, as the sugar crisis continued. President Marcos made a further decree to lift the price of domestic sugar. By presidential decree, domestic sugar price ceilings were raised from 1.60 pesos to 1.80 pesos per picul for brown sugar, 1.80 pesos to 2 pesos for washed sugar , and 2.05 pesos to 2.25 pesos for refined sugar.7

In February 1982, once again Nasutra was ordered by

President Marcos to raise the domestic sugar price from the

6. Wideman, "Marcos Cuts His Losses," p.50.

7. "Manila: Aid For Growers," Far Eastern Economic Review. 1 July 1977, p.41. 232 previous 110 pesos per picul to 165 pesos a picul.8 That year's elevating domestic sugar price was very meaningful and valuable to Filipino sugar producers, because it made the 1982 composite price the highest in the 1980s. The year 1982 was also the one that the difference between the export sugar price (168 pesos per picul) and the domestic sugar price (165 pesos a picul) appeared to be the lowest

in the 1980s.

In theory, the elevation of the domestic sugar price should be favorable to sugar planters, while unfavorable to domestic consumers. The Marcos regime received criticism

from both sides, however. For sugar growers, the raising of the domestic price was supposed to lead to an increase

in the composite price, an outcome available to mitigate

their financial burden. But the government did.not always

follow the rule. For example, when President Marcos

increased the price of domestic sugar in December 1976, he also confusingly announced the lowering of the composite

price from 108 pesos per picul to 79.5 pesos a picul, which

was even lower than the average sugar production cost

(about 90 pesos per picul) in the archipelago. Thus, the

8. Actually, this raise in the domestic sugar price was because of the pressure from the sugar industry. After a series of strikes of sugar millers and planters in 1981 and early 1982, a Tripartite Conference (i.e. the government, the mill, and the plantation owners) was called in February 1982. After the conference, the domestic sugar price was increased by 50 percent, from 110 pesos to 165 pesos per picul. 233 plight of sugar growers did not improve at all. On the contrary, their situation worsened.

In regard to domestic consumers, their complaints were focused on the bad timing of raising the domestic sugar price. It is true that Marcos lifted the domestic sugar price at a time when sugar prices all over the world plummeted. The Filipino consumers were not pleased because they felt their money was used to pay for redundant sugar mills and for subsidies to an industry whose difficulties were the result of Marcos' political ambition and intervention, not just of worldwide price trends.9

Marcos' policy on the domestic sugar price was therefore like a double-edged sword; both sides are hurt when it is used.

D. Low composite price: Fourthly, the composite sugar price was criticized for being too low to cover the expenses of producing sugar. During the ten years' monopoly, the composite price was generally designed to be a little higher than the production cost. This made sugar producers able to survive, but just barely. But, during unfavorable market years, the value of the composite price

9. "Philippine Sugar Commission Replaces Philex," in Philippine Liberation Courier. August 1977, p.6; Shoesmith, The Politics of Sugar. pp.65-66. Many other countries (e.g. the U.S., Thailand, the EEC) also raised domestic prices through either price support or subsidy program during the unfavorable years. But, the consumer's complaints in those countries were not focused on their governments' political manipulation, but on the performance of the sugar industry itself. See more in Chapter IV. 234 became even more critical and debatable. The planters asked to be paid more to cover their expenses, but the state-controlled Philsucom paid less.

In the crop year of 1976/77, for instance, Marcos lowered the composite price to 79.5 pesos per picul, which was much below the average sugar production cost of 90 pesos per picul.10 Worse than that, from September to

December 1976, the PNB even stopped paying money to the planters for their milled cane.11 As a result, thousands of plantation workers in Negros Occidental were not paid for their work either. In 1986, the same story was repeated again, since the planters were not paid by Nasutra for more than six months.12

In order to deal with the problem in the sugar industry. President Marcos did make some efforts to increase the composite price. In late 1977, for instance.

President Marcos, under the severe complaints and pressure of the industry, elevated the composite price to 90 pesos per picul, and thac price lasted for two years. In the

1980s, Marcos raised the composite price again to the average of 120 pesos per picul. But, this was not helpful

10. Philippine sugar production cost in the 1970s varied from 60 pesos per picul to 120 pesos per picul.

11. Shoesmith, The Politics of Sugar, p.18.

12. Sacerdoti and Galang, "Sugar's Rebirth Calls for Painful Contraction," Far Eastern Economic Review. 31 October 1985, p.109. 235 to alleviate the sugar crisis in the Philippines, because of inflation and the comparable increase of the production cost in sugar. In early 1985, for example, Philippine sugar production cost was estimated as high as 300 pesos per picul, but planters only received 80.92 pesos per picul from the government.13

It is important to make it clear that production cost varies between mechanized sugar farms and unmechanized farms. But, the critical point is that since sugar mechanization began to be promoted in 1979, the Benedicto- associated sugar farms were the first chosen to be mechanized in the country.14 This was principally because of their comfortable access to financial assistance from the banks. Thus, the production cost in these mechanized sugar farms are generally lower than those unmechanized farms. Therefore, the low composite price has mostly harmed those planters with unmechanized farms, rather than

Benedicto and his cronies whose farms were mechanized.

E. Low wages: The final criticism refers to the problem of low wages, which has long existed in the sugar industry. The wages sugar plantation workers received

13. Glang, "The Bitter Harvest," p.62.

14. When talking about sugar mechanization, it is focused on the area of West Visaya, including Negros island which is the base of Benedicto's sugar business. Another sugar producer in the archipelago. Northern Luzon, started mechanization much earlier. As Marcos' home area, the planters there were not in opposition. 236 from their planters never reached the government-set minimum level. It was true in the 1950s, 1960s, and 1970s, and it is still true in the 1980s.15 Although the planters argue that they provide, in addition to wages, other facilities including free housing, medical care, insurance, etc., they generally fail to pay the legal minimum wage to the workers.

The key point is that the low wages workers obtain are never comparable with the huge profits of sugar, nor sufficient to supply the basic needs of their lives. In other words, sugar workers' income never reflects what they are supposed to be paid. If compared with the rich planters, the low-wage-paid laborers are even more pitiful and miserable. The following table (Table 36) shows the difference between the real daily wage and the government- determined wage from 1950 to 1985.

Table 36 Daily Wages of Sugar Workers, 1950-1985

Year Real Wage Legal Minimum Domestic sugar (pesos) wage (pesos) price(a picul)

1950s 1.0-1.5 2.50 15 pesos 1960s 2.0-3.0 4.0-4.5 25 pesos 1970-74 3.0-4.0 5.0-7 .0 130 pesos 1975-79 4.0-5.0 7.0-10.0 150 pesos 1980-85 10-15 20.0-30.0 160 pesos

Source: Compiled from various sources.

15. In 1971, it was reported that "over 20 percent of workers may be underpaid or receiving less than the legal minimum wage." (B. Ronquillo, "Souring Gains," Far Eastern Economic Review. 10 April 1971, p.62.) 237

According to this table, it is clear that the real wages of sugar workers are always 40 to 50 percent below the legal minimum wage. In the 1950s, for instance, when the sugar price was 15 pesos per picul, the Minimum Wage

Law specified 2.5 pesos a day, but workers only received

1.0 to 1.50 pesos daily. As the price of sugar continued to climb, the worker's wage was not proportionally elevated at the same time. By the end of the 1970s, when the sugar price jumped almost ten times (from 15 pesos per picul to

150 pesos a picul), the worker's daily wage was lifted

only four times (from 1.0-1.50 pesos to 4.0-4.50 pesos), as shown in Table 36.16

The issue of low wages became more acute when the

sugar crisis took place in the mid 1970s and early 1980s,

because the factor of inflation was involved. Increases in

the daily wages were eaten away by inflation. According

to Philsucom's statistics, during the years 1979 and 1981,

all food items rose by an average of 36.1 percent, fuel and

oil by 90.4 percent, labor for sugar production by 97.8

percent, fertilizer by 60 percent, clothing 46.7 percent,

and all other items by 40.4 percent.17 Thus, even though

16. The difference of wages is mainly dependent upon the areas. Also, skilled sugar workers such as tractor drivers are generally paid higher than the unskilled workers. Workers usually earn more during the milling season than the leisure season.

17. Beronlo, Analysis of Alternative Domestic Sugar Policies. p.36. 238 sugar workers' daily wage had increased from 8.14 pesos in

1975 to 10 pesos in 1981, or a 23 percent rise, the daily wage in 1981, when deflated by the consumer price index, was actually lower than its 1975 level by 33.5 percent.18

As a consequence, the wage-dependent sugar workers are never able to maintain the subsistence of their families.

In 1975, a survey conducted in seven milling districts showed that 86 percent of sugar workers were not satisfied with their total family income, which was perceived to be inadequate for food (74%), clothing (82%), shelter (68%), education (81%), and recreation (81%).19 This situation worsened with the passage of time. For example, in 1979,

Mario Salazar, a typical sugar worker in Negros Occidental who made 50 pesos per week, said in an interview that his

50 pesos "are Inadequate to feed his family of six."20

Although workers' wages are paid by the planters, the minimum legal wage has always been determined by the government. Although the worker's real wage is low, the government has the authority to raise the legal minimum wage which stimulates the elevation of the worker's real wage. In 1974, when the price of sugar was good, a church- related workers organization--Justice for Sugar Workers

18. Aguilar, The Making of Cane Sugar, p.35.

19. Aguilai, Thf> waking of rane sugar, pp,33 and 36,

20. Brannon Jones, "Feeding The Workers," New York Times. July 11, 1979, p.21. 239

Committee--requested President Marcos to increase the legal minimum vage from 7 pesos a day to 16 pesos daily, so that sugar benefits would pass on to the worker.21 The

President did not respond to this request until the late

1970s when he lifted the legal minimum wage to about 10 pesos a day and further to 20 to 30 pesos daily in the

1980s, as shown in Table 36.22 Unfortunately, it was too little and too late to revive the entire industry.

3. . CQn.clua.Laa Prior to the monopolization policy, all sugar profits were harmoniously enjoyed by the millers and sugar planters; the planters then paid wages to the workers.

After the sugar industry was nationalized, the state- controlled Philsucom joined the sharing group, although the sugar earnings were reduced. The critical point to remember, however, is that Philsucom became the body which determined who got what. This means that the income of sugar growers was no longer dependent upon how much they earned, but how much the government gave them.

Thus, it is evident that the plight of sugar workers was related to not only the plunge of the world sugar

21. Shoesmith, The Politics of Sugar, p.59

22. Many planters oppose President Marcos' policy to raise the minimum wage, however. They argue that when the prices of world sugar continue to decline, sugar is no more profitable. Therefore, they are not able to pay a higher wage to the workers. 240 price, but also the' price policy initiated by the Marcos regime. The argument is that the state-dominated

Philsucom was legalized to take the profits from sugar production. This means that the Marcos government grabbed the major part of the sugar profits through regulating the price program, leaving the residue to the planters and workers. CHAPTER VIII

OTHER ISSUES IN THE SUGAR INDUSTRY

In this chapter, we are going to explore three significant issues--worsened sugar workers' conditions, labor displacement, and growing communist insurgency.

These issues are closely connected to Marcos' dominance over the sugar industry. By the end of the Marcos regime, these three by-products of the sugar monopolization policy became the most severe problems in the sugar industry and in the country as a whole. These three things are also the evidence demonstrating the collapse of the Philippine sugar industry as well as the decline of the Marcos regime.

These three problems are most significant on the island of

Negros where more than 60 percent of the nation's sugar is produced, thus the subject of analysis in this chapter is concentrated on Negros island.1

1. The communist insurgency, of course, is nation­ wide, not concentrated on Negros island, but I will discuss only the latter because of its connection with sugar.

241 242

1. Plight of Sugar Workers

The plight of sugar workers in Negros island prior to

1970 has been analyzed earlier in Part ONE. This section, however, will attempt two other goals. The first one is to examine sugar workers' living environment and conditions during the ten-year monopolization period. The other goal is to make a comparison of the status of sugar workers between pre-monopoly and post-monopoly.

Before the emergence of the sugar crisis in 1974, the plight of sugar workers was primarily linked to the quasi- feudal-hacienda-based economic system in the sugar industry. As explored earlier, under the hierarchial and feudalistic structure, sugar workers were dominated by their planters, politically and economically. They were dependent upon their landlords under the life-support system. Sugar workers were poor, because they were exploited by their hacienda owners under the system.2

Prior to 1974, the two groups , rich planters and poor workers, were clearly distinguishable in the sugar

industry. Although the planter was blamed for the exploitation of the workers, the former was at least able

2. In 1976, the Department of Labor did a study on the status of the sugar workers of Negros. In this research, feudalism was identified as one of the key factors contributing to the plight of sugar workers. The study pointed out that unless this social structure was changed, the lot of sugar workers would worsen and the Labor Code would remain irrelevant.(Shoesmith, The Politics of Sugar, p. 18.) 243

to provide a welfare floor on the farm. During the years

of the sugar crisis, however, both planters and workers

suffered. Many planters, especially small planters, were

not even able to pay wages to their workers. This means

that the rich became poor and the poor poorer. When

planters obtain no profits from sugar, they still can live

on their savings and properties. As sugar workers' income

is cut, it means more poverty, more malnutrition, and more starvation.

Therefore, poverty appeared to be the most severe

issue in the industry during the last decade of Marcos sovereignty in the Philippines. In 1875, only one year after the sharp slump of world sugar prices, a survey made by the Department of Labor described the condition of sugar workers in Negros island as follows: "87 percent of its workers had free housing on the hacienda; 78 percent borrowed money from the planter; 43 percent of workers were children of sugar workers; and 40 percent had no skill for alternative employment."3

Five years later, in 1981, another study identified seven poverty groups in the area of Western Visayas.

These seven poverty groups occupy 58 percent of all rural households in the region. Out of these 7 groups, landless sugar workers are ranked as the poorest, representing 49

3. McCoy, Priests on Trial, p.69 244 percent of all poverty groups.4 And of the landless sugar workers, 75 percent are found in the province of Negros

Occidental. Thus, it is clear that sugar workers, dependent upon the once golden crop, have become the most impoverished in the country. And, West Visayas, once the richest region, has become one of the poorest areas in the archipelago.

These two studies have portrayed a general picture of poverty in the island of Negros. They failed, however, to specify the difference between two classes of sugar workers, i.e. skilled workers (e.g. mechanic, drivers, machine operators), and unskilled workers (cane field laborers). This weakness is overcome by Dr. Violeta

Lopez-Gonzaga, who did a field study on Negros workers in

1982. According to Lopez-Gonzaga, skilled workers, comprising a small segment of the hacienda work force, are very fortunate in their employment situation, because most of them (about 90 percent) have regular, full-time work.5

On the contrary, unskilled workers, representing the major portion of the labor force in the sugarcane field, are less

4. The other six poverty groups are: Diversified crop, shifting cultivators with 1 hectare or less of land (29%); Upland palay farmers with 1 hectare or less of land (2%); Refined palay farmers, double crop (4%); Refined palay farmers, single crop(3%); Artisanal fishermen (7%); and Upland coconut farmers (5%). (Aguilar, The Making of Cane Sugar, pp.9-10)

5. Lopez-Gonzaga, Mechanization and Labor Employment, pp.14-15. 245 regularly employed. Lopez-Gonzaga found out that only 48 percent of unskilled workers are fully employed, or 60 percent are regularly employed,6

As for the income, there exists a gap too between the two classes of sugar laborers, not to mention the huge gulf between big planters and landless workers. Based on Lopez-

Gonzaga 's study, around 40 percent of skilled workers make

501-700 pesos per month during the milling season

(September-early May), whereas 48.96 percent of unskilled workers earn only 300 pesos and below monthly in the same period.7 During the off-milling season (May-September ), the income gap becomes even greater, and both groups of workers are worse off. According to the same study, while

38 percent of the skilled workers could still make a monthly income from 501 to 700 pesos, about 85.57 percent of the unskilled workers make no more than 300 pesos each month.

There is one more statistics to demonstrate the gap between the two classes of sugar workers. On an annual basis, Lopez-Gonzaga's study shows that the mean income of skilled workers' households from all sources is 9,469 pesos, while the average income of unskilled workers'

6. Lopez-Gonzaga, Mechanization and Labor Employment, pp.14-15.

7. Lopez-Gonzaga, Mechanization and Labor Employment, p .17. 246 households is only about 5,942 pesos, or 37 percent less.8

In short, during the milling season, the income gap between the two classes of workers is 1.6 to 1.7, whereas this gap widens from 2.2 to 2.3 during the off-milling season.

Apparently, Dr. Lopez-Gonzaga's research has discovered a significant fact: poverty does not really fall on the skilled workers, because they have better access to secure stable jobs and higher income. On the other hand, the unskilled workers and their families are those who suffer poverty, because of their unsteady job opportunities and lower income.

There are two indicators most commonly used to demonstrate the poverty of sugar workers in Negros island.

One is their poor living conditions, and the other has to do with malnutrition. It is understood that as the sugar crisis was sustained in the late 1970s and early 1980s, the problem of poverty worsened. According to Dr. Lopez-

Gonzaga's 1982 study, the percentage of rent-free housing among sugar workers increased to 89 percent from 87 percent

in 1976. Moreover, about 52 percent of workers lived in

temporary houses (i.e. made of native materials), whereas

38 percent were in semi-permanent structure, and only about

10 percent resided in permanent houses made of strong

8. As analyzed in Chapter 6, although average family annual income increased by about 50 to 72 percent from 1978 to 1982, it was actually declined by 40 percent because of inflation. (Aguilar, The Making of Cane Sugar, p.39.) 247

materials.9

In terms of the facilities in the house, they are also

very simple. "Almost all (97%) use wood for cooking fuel.

About 61 percent of the households use kerosene lamps for

lighting, while 39 percent have access to electricity. As

for toilet facilities, 27 percent use open pits and 62

percent have none in their dwelling units. Thus, only 11

percent has access to sanitary toilet facilities (water-

sealed and Antipolo system)."10

The poor housing conditions did not improve at all,

but continued for the next few years. In May 1986, three

months after the end of the Marcos regime, a correspondent

visited a sugar worker in Negros island, and described the

letter's housing facilities as follows: "There were no

chairs - or beds. The family sits and sleeps on the floor.

Light came from a small oil lamp: there is no electricity.

Or running water: the community toilet, bathhouse, and

laundry is the river."11

The problem of malnutrition, another indicator of

poverty, is probably even worse and more acute. With low

income and unsatisfactory living conditions, it should not

9. Lopez-Gonzaga, Mechanization and Labor Employment, p. 28.

10. Lopez-Gonzaga, Mechanization and Labor Employment, pp.28-29.

11. Lucy Komisar, "A Bittersweet World," Commonweal 23 May 1986, p.301. 248 be a surprise to find hov bad malnutrition is in the sugar- producing provinces. At the end of the 1960s, Frank Lynch and Father Jesena did research on the sugar workers' situation, including the problem of malnutrition. In the

1970s and 1980s, this problem has worsened.

In 1975, for instance, a study showed that due to diseases and malnutrition "each family has lost at least 1 child, while 29 percent has lost 2 or more children. Some

78 percent of the children died during the first 3 years of life. Only 40 percent reports having been able to consult a doctor before the child died."12 Seven years later in

1982, another institution made a further survey of the problem of malnutrition among Negros sugar workers and their children. A couple of important findings are illustrated in the following three tables.

Table 37 Malnutrition Rate Among Children 0 to 7 Year Old, By Age Group and Degree of Mainourishment, 1981

rUnder 1 yr :l-4 yrs:5-7 yrs: Total(1-7)

Children ; : : : malnourished % : 63.4% : 70.3% : 72.0% : 69.4% to total weighed

Percent children by degree of mainourishment to total children weighed

Severe(1st degree) ; 6.7% : 5.6% : 6.0% : 5.9% Moderate(2nd dgr. ): 20.5% : 25.6% : 27.5% : 25.0% Mild (3nd degree) : 36.2% : 39.3% : 38.5% : 38.5% ______X ______i ------X ------X______Source: Aguilar, The Making of Cane Sugar, p.41.

12. AMRSP, n.d., p.74 in Aguilar, The Making of Cane Sugar, p.43. 249

Table 38 The Leading Causes of Infant Mortality and Their Rates in Negros Occidental, 1981

Causes of Infant Mortality Rate per 1,000 Live Births

1, Pneumonia 29.15 2. Gastro-Enteritis 18.82 3. Prematurity 7.55 4. Congenital Anomalies 5.43 5. Bronchitis 4.77 6. Tetanus Neonaturom 3.97 7. Asogyxua Neonaturom 3.44 8. Lepsis Neonaturom 2.45 9. Meningitis 1.06 10. Measles 0.36

Source: PDS (1982), p.43 in Aguilar, The Making of Cane Sugar. p.42.

Table 39 Ten Leading Causes of Mortality of All Population and Their Rates in Negros Occidental, 1981

Causes of Mortality Rate per 1,000 population

1. Pneumonia 0.81 2. Tuberculosis, 0.52 3. Gastro-Enteritis 0.31 4. Bronchitis 0.12 5. Congenital Anomalies 0.06 6. Tetanus 0.05 7. Malignant Neoplasm 0.05 8. Influenza 0.04 9. Measles 0.04 10. Dysentery, All forms 0.02

Source: PDS (1982), p.44A in Aguilar, The Making of Cane Sugar.p.42. 250

As shown in Table 37, about 70 percent of all children under seven are suffering various degree of mainourishment.

Comparatively speaking, it is found that the condition of children's health in the province of Negros Occidental has worsened as time goes on. The rate of infant mortality, for example, increased from 74.65 per 1,000 live births in

1976 to 81.24 in 1981. The leading causes of death for children under 1 year old include Pneumonia and Gastro­ enteritis, as illustrated in Table 38. More importantly, if compared with all other regions in the Philippines,

Western Visayas, including Negros island and Panay island, has the highest infant mortality rate.13

In May 1985, Steve Lohr, a New York Times correspondent, visited Bacolod City, capital of Negros

Occidental. In his report, Lohr starts with a description of the death of children:

Almost every day here and in most of the surrounding towns one sees the funeral processions..... Along the roadside, about a dozen people walk slowly, two of them carrying an infant's coffin. The children, most of whose parents are impoverished sugar workers, died of starvation or, more commonly, of tropical diseases worsened by severe malnutrition.14

One year later in May 1986, another correspondent

13. National Economic Development Authority (1982: 2) in Aguilar, The Making of Cane Sugar, p.42.

14. Steve Lohr, "Rebels and Hunger Stalk Province in Philippines," New York Times, May 6, 1985, I, p.2. 251 visited a worker's family in a village not far from Bacolod

City. The worker, when interviewed, said "Three children died in this house, two of diarrhea, the other of measles; there are three left."15 Komisar further reports that in the town of Kabankalan, "about 50 percent of the funerals are for children."16 Lohr's and Komisar's reports are not new, but an extended and exaggerated miserable story of

Negros children.17

One important question is raised: Does this miserable story have anything to do with the existing system? The answer to this question is positive, of course, as demonstrated by Aguilar's work. Aguilar, after a comparative study between the poor housing conditions and mainourishment, concludes as follows:

One who visits the families of the sugar workers on the haciendas of Negros is shocked by the deplorable conditions of (their) housing but he is shocked even more by the visible signs of malnutrition especially among the children. The bloated stomachs, the open sores, the listlessness, the lack of energy are themselves eloquent testimony of how cruel the system actually is.18

15. Lucy Komisar, "A Bittersweet World," Commonweal. 23 May 1986, p.300.

16. Komisar, "A Bittersweet World," p.301.

17. In the mid-1970s. Father Brian Gore, a missionary priest, told a scholar who interviewed him that over half of his burial services were for infants, children of poor plantation workers who had died of malnutrition and related diseases. (McCoy, The Priests on Trial, p.108.)

18. Aguilar, The Making of Cane Sugar, p.41. 252 2..— Labor Displacement The second major issue in the sugar industry is labor displacement. This has to do with sugar mechanization, which was officially promoted from late 1979.19 The idea of sugar mechanization emerged in the early 1970s before world sugar prices plummeted, but it was not implemented until the early 1980s. Mechanization has been proved effective in other sugar producing areas such as Hawaii,

Australia, etc., to increase the efficiency of the sugar industry (i.e. increase sugar production per hectare and decrease sugar production cost).20 However, during the unfavorable years in the 1980s, the Philippine sugar industry has not yet fully enjoyed the benefits of sugar mechanization, but has experienced the backfire of the project, i.e. labor displacement.21

As a matter of fact, in January 1982 when the Ministry of Labor did a study on the conditions of sugar workers, it

19. In November 1979, Philsucom chairperson Benedicto said, "mechanization is the only option for raising the profitability of the sugar industry.", and he also announced that "Philsucom is launching a program this year to start the mechanical harvesting of sugarcane." (Suqarland; 1979, no.5, p.6 in Third World Studies Program, Political Economv of Philippine Commodities. p.160.)

20. We have analyzed the effect of sugar mechanization earlier in Chapter III. The focus of this section is thus on the issue of labor displacement.

21. As a major portion of production cost, labor force is the only item that is flexible to be cut in order to reduce the cost of sugar production when mechanization is carried out. 253

expressed a deep concern over the potential impact of

mechanization:

The overdependence attitude (of workers) that permeated has become a burden to the industry which at this point in time is no longer viable in sustaining the required rate of growth...... One alternative that planters consider to achieve this is mechanization and this is where some social imbalances shall emerge. From the general view of the sugar industry the imbalance would mean labor dislocations, more underemployment, and more unemployment.22

This official internal memorandum did not specify the degree of labor dislocations, however. But, since early

1982, a couple of scholars started to visit sugar haciendas and to do field study toward the impact of mechanization on sugar workers. One of the most significant studies is Dr.

Lopez-Gonzaga's Mechanization and Labor Employment (1983).

Lopez-Gonzaga conducted a comparative study in two

haciendas, and examined how mechanization affected the employment of sugar laborers.

In Hacienda Y, where the use of modern farm implements was introduced in 1981 and became fully mechanized in 1982,

the labor requirement decreased from 60 percent to 80

percent depending upon various work-tasks. The transition

of labor requirement from traditional farm to mechanized

farm is shown in Table 40 (next page).

22. McCoy, "Rural Philippines: Technological Change in the Sugar Industry," in R. J. May and Francisco Nemenzo (ed.). The Philippines After Marcos. London: Croom Helm Ltd., 1985, pp.188-189. 254

Table 40 Modern Implements Used And Their Labor Requirements, Hacienda Ï

:Area per day Size of work force Implements used :(hectares) Conventional .‘Mechanized (1980) : (1982)

Planting machine : 5 30 : 6 Fertilizing : 6 20 : 4 Cut-away : 7 3 : 1 Chipper : 7 3 : 1 Weeder rake : 8-10 30 : 1

Source: Lopez-Gonzaga, Mechanization and Labor Employment. p. 60.

In contrast with Hacienda Y, Hacienda Z' s labor force declined even more when it was fully mechanized in 1983, as shown in Table 41.

Table 41 Modern Implements Used and Their Labor Requirements, Hacienda Z

Implements used Area per day Size of work force : (hectares) Conventional Mechanized :

Planting machine 1.5 20 6 : Fertilizing 6.0 25 1 Ripper 6.0 18 1 : Chipper 4.0 16 1 : Weeder rake 6.0 60 1 : Trash rake 20.0 40 1 :

Source: Lopez-Gonzaga, Mechanization and Labor Employment, p. 70.

In both Hacienda Y and Hacienda Z, women workers and child workers have been gravely affected due to sugar mechanization. In Hacienda Y, the number of women and youngsters has been reduced from 72 in 1980 to 41 in 1982,

whereas in Hacienda Z the figure has declined from 110 in 255

1980 to as low as 28 only in 1983.23 If distinguished by the class of workers (i.e. skilled and unskilled), it is found that more than 4 out of 5 unskilled workers feel that mechanization could create a negative impact on their work, and as a result more than 70 percent feel their households will suffer.24 On the other hand, the majority of skilled workers (67 percent) feel that mechanization has a beneficial effect.25 In short, unskilled workers, women workers, and young workers are those who have been mostly affected due to sugar mechanization.

Yet, it is worth noticing that the years 1982 and 1983 were only the beginning of the project of sugar mechanization. Many sugar farms are still just on the way to using modern machines, and the Hodge system, mechanical implements imported from Australia, is being largely used by Negros sugar planters. Although there are some constraints to mechanization (e.g. weather, soil, capital, depreciation, etc.), the project of mechanization is welcomed by the planters and encouraged by the government.

But, the problem is that when all sugar farms are fully mechanized by the Hodge system by 1990, about 80 to 90

23. Lopez-Gonzaga, Mechanization and Labor Employment, pp.61 and 72.

24. Lopez-Gonzaga, Mechanization and Labor Employment, pp.61 and 72.

25. Lopez-Gonzaga, Mechanization and Labor Employment, p.57. 256 percent of all laborers are expected to be dismissed.26

The problem of sugar displacement is aggravated by the plunge of the world sugar prices during the first half of the 1980s. It was discussed earlier that 14 sugar mills were closed by 1985, partly because of mismanagement and partly because of low sugar prices in the world market. In

1985, for example, when world sugar prices dropped to only

4 cents a pound, many sugar centrals stopped milling operations in March, which was two months earlier than usual off-season (i.e. May). As a result, it is estimated that about 150,000 sugar workers were laid off in that year alone.27

This job crisis is further exaggerated because of the failure of the Marcos regime to deal with the problem.

President Marcos and Philsucom chairperson Benedicto even denied that there was a crisis in the sugar industry. The government did not initiate any emergency program for hundreds of thousands of displaced sugar workers until

1985. In early February 1985, Labor Minister Blass Ople chaired an inter-agency meeting to discuss a package of emergency employment measures specifically for Negros

island. This program includes two basic thrusts. The

first one is to encourage dismissed workers to plant food

26. McCoy, "In Extreme Unction," p.166.

27. Ramon Isberto, "Sugar Milling Season Ends," Business Pay. March 14, 1985. 257 and cash crops (e.g. rice, corn, etc.) in idle sugar lands, the other involves refashioning government projects and activities to create short-term jobs (e.g. public works and road building projects) for the unemployed. This emergency program should be effective to deal with the issue of unemployment in the sugar industry. But, the problem is that, even if it was implemented, it came too late to revive the whole sugar community.28

Consequently, it is apparent that as the requirement of labor force decreases in the sugarcane fields, social problems (such as crime, poverty, mainourishment, children's withdrawal from schools, etc.) increases simultaneously.

3. .flroylnq Communiât Insurgency As poverty and unemployment worsened, the society turned out to be unstable. Sugar workers are the victims who suffer most. They survive on endless loans from the hacienda, and repayment is not possible since about 80 percent of household income is spent on food alone. The status of sugar workers is actually "born in debt, live in debt, and die in debt.", as one sugar expert comments.29

28. This program was not yet approved by President Marcos by March 14, 1985, and it is unknown what happened after that. But, President Marcos was overthrown one year later in February 1986.

29. McCoy, Priests on Trial, p. 56. 258

Especially, as many sugar workers have or will be displaced

in the 1980s, their economic situation continues to decline. From a political perspective, sugar workers have very little voice to respond, because of limited political activities allowed under the martial-law government. What can they do, then? The Philippine communist party offers an exit, if an extreme one, to the oppressed and displaced workers.30

The earliest Philippine communist party, Partido

Komunist ng Pilipinas or PKP, was founded in 1930, and it formed an armed force, the HUKBALAHAP or the Huks, during the Japanese occupation. During the Fifties, the Huks suffered defeats.31 In 1968, the PKP disintegrated. One clique, led by Taruc and Lave, decided to liquidate armed opposition and switch to parliamentary reform as the party's dominant strategy, and this clique finally surrendered to Marcos in 1974 when Congress was dissolved under marital law, the other one, led by Amado Guerrero,

insisted on the fundamental political line that "only

30. The communist movement is not the only option, however. Those who do not join the communists either steal or starve, as one sugarcane field supervisor states, "once the hacienda is fully mechanized, the workers in this area will have only two choices--steal or starve." (McCoy, "In Extreme Unction," p.166.)

31. There is a well-known book. The Huk Rebellion. Berkeley: University of California, 1977, written by Benedict Kerkvliet, which examines the rise and development of the Huks. This section is not concentrated on the Huks, but on the New People's Army. Thus, the story about the Huks is omitted. 259 through revolutionary armed struggle could the decadent semi-colonial and semi-feudal system be overthrown and an independent and democratic society be established."32

Accordingly, the Party was reorganized in December 1968 under the name of the Communist Party of the Philippines, or the GPP. Three months later in March 1969, the New

People’s Army (NPA), was created as the CPP's armed force.

Since then, the NPA has grown speedily and become a severe threat to the Marcos regime and the archipelago as a whole.33 And this menace is becoming greater and greater with the passage of time. For instance, at the time of its creation, the NPA had only 60 men and 35 rifles, and it was confined to a single district in Tarlac, a province in

Central Luzon. Three years later in September 1972, when

President Marcos proclaimed martial law, he described the strength the threat of the NPA in the following words:

The New People’s Army, the most active and the most violent and ruthless military arm of the radical left, has increased its total strength from an estimated 6,500 (composed of 560 regulars, 1,500 combat support and 4,400 service support) as of January 1, 1972 to about 7,900 (composed of 1,028 regulars, 1,800 combat support and 5,025 service support) as of July 31, 1972, showing a

32. Philippine Research Center, New People’s Army of the Philippines. Boston: United Labor Press, 1981, pp.4-5.

33. In October 1985, General Fidel Ramos, then Acting Chief of Staff, said at this nes conference that "The communist insurgency is the foremost threat to the Philippines today..... ’’ (Seth Mydans, "Philippine General Says Up to 12,500 Rebel have Joined the Fight," New York Times. October 26, 1985, I, p.3.) 260

marked increase in its regular troops of over 100 percent in such short period of six months.34

President Marcos claimed that the proclamation of martial lav was mainly caused by the threat of the NPA, although most Philippine specialists do not believe so since some other factors (e.g. extending Marcos' presidential tenure) are involved too. Did the enforcement of martial law generate any effect on the development of the NPA? Yes, it did, but the outcome was the opposite of what Marcos expected. After the exercise of nine-year-long martial law, the NPA claimed in 1981 that it "controls 28 guerrilla fronts covering 400 municipalities with a population of at least 10 million (about one-fourth of the total population) in 43 provinces throughout the islands."35

After President Marcos terminated martial law in

September 1981, the Philippine communists grew even faster, of course. It seems that nobody wonders why the NPA grew so quickly and strongly while martial law was not in effect. In 1983, only two years after the suspension of martial law, the NPA's strength, having 20,000 guerrillas and 10,500 rifles, became even more remarkable, as compared

34. Vital Legal Documents in the New Society. Manila: Central Book Supply, n.d.. I, pp.7-22.

35. Philippine Research Center, New People's Armv of the Philippines, p.5. 261 to only 1,000 guerrillas and 600 rifles in 1972. Table 42 shows the increasing strength of the CPP and the NPA from

1968 to 1983.

Table 42 CPP and NPA Growth over 1968 to 1983

1968-69 1972 1976 1980 1983

CPP members 100 2,000 2,000 19,000 30,000 :

CPP regional committees 0 6 9 12 17 :

NPA guerri­ lla fronts 2 10 21 28 45 :

Municipa'ties influenced 7 43 135 376 530 :

No. of NPA ri fles 35 600 1,500 4,000 10,500 :

No. of full & part-time 50 1,000 1,500 8,000 20,000 : guerrillas

Source: Internal CPP cadre re-training teaching materials (November 1986) in James Clad, "Betting on Violence," Far Eastern Economic Review. December 17, 1987, p.35.

The NPA continued to develop after 1983, obviously.

It is estimated that by the end of 1984 the CPP already possessed 12,000 high-powered rifles, 21,000 regular or part-time guerrillas and 60,000 revolutionary mass organizations.36

Why can the NPA expand so quickly and steadily? The

36. Clad, "Betting on Violence," p.35. 262 answer is not difficult to find. Simply speaking, the

Marcos regime is responsible, because it is during Marcos' last 15 years in the Philippines that the NPA grew from almost nil to the present strength with more than 21,000 regular and part-time guerrillas. If put into detail, many factors are involved, such as poverty, social injustices, unemployment, military abuses, inadequate health and other public services, etc.37 All these factors exist on the island of Negros as well as many other regions in the archipelago, as analyzed above. This means that the

Marcos government provided an environment generating strong popular support for the growth of communist guerrillas.

The NPA itself also develops its own strategies contributing to its development. In the very beginning of its formation, the CPP highlights three political

37. Gareth Porter, The Politics of Counter insurgency in the Philippines. Hawaii; University of Hawaii, Center for Philippine Studies, 1987, p.15. Yet, Porter puts a heavy emphasis on military abuses as the major factor for the growing communist movement. This perspective is shared by some people. For instance, one Filipino bishop, who is a bitter critic of both the NPA and the Marcos government, once told a military commander: "The biggest factor that makes the communists viable is your abuses, the way the military steals from people, robs them, kills them, tortures them. There are social injustices, but the main problem is your men." (E.S. Browning, "Philippine Communists Make Inroads," Wall Street Journal. July 12, 1983, p.43.) On the other hand, some perceive poverty and malnutrition as a driving force for the growing communist movement. As one planter said, "People are hungry and get sick and die. This is why people join the NPA. The basis is economic injustice." (Lucy Komisar, "A Bittersweet World," p.302.) 263 principles (i.e. party building, armed struggle, and united front) for its development, and these principles later become the NPA's theoretical and field foundation.38 There

is no doubt that these three strategies subjectively explain the rapid progress that the NPA has achieved during the last 15 years.

Party building, the first founding principle, stresses decentralization in internal organization. There are at

least three advantages under a decentralized party structure. First, it fits the Philippines' divided territory, which is composed of more than 7,000 islands.

Due to decentralization, every geographical area could form at least one party unit, so that leadership and supervision are authoritative yet flexible. Second, decentralization

is also helpful to develop flexible strategies in each different region and party unit. As a result, every party

unit may perform various expansion programs, specifically

for that region and party unit. Finally, under the

decentralized structure, the responsibility and duty of

every party unit is strengthened, which is able to make

each party member more loyal and more disciplined. In

fact, in contrast with soldiers of the AFP (Armed Forces of

the Philippines), NPA guerrillas are generally more

38. F. Nemenzo, "Rectification Process in the Philippine Communist Movement," in Lim Joo Jock and Vani S. (ed.). Armed Communist Movements in Southeast Asia. Hampshire, England: Grover, 1984, pp.71-101. 264 disciplined.

In the sugar industry, the National Federation of

Sugar Workers (NFSW), a left, militant organization, is established under a decentralized structure. The illegal

NFSW, based in Negros island and founded in 1971, is the most powerful sugar workers' institution against hacienda owners and the Marcos government as well. Although NFSW is not proved to have direct links with the NPA, its leaders and members are generally regarded as either communists or pro-communists.39

The second NPA task is armed struggle. According to

the NPA itself, "the armed struggle (also a mass movement)

supports the underground and open mass movement in the

rural and urban areas, while these in turn help to advance

the armed struggle."40 This is the so-called "dialectical

process", meaning armed struggles would mobilize more

people, and when these mass actions are deepened more armed

struggles continue. Since its birth in 1969, the NPA has

followed a policy of extensive guerrilla operations against

the Marcos government. Some of these military combats are

39. Father Niall O'Brien and Father Brian Gore, founding members of the NFSW, were imprisoned and later deported by the Marcos government in the early 1980s, because of charges of having connections with the NPA. Also, it is reported that about 80 percent or more of the Catholic church members in Negros are communists. (Komisar, "A Bittersweet World," p.300) This figure is very high; it may include all pro-communists and sympathizers.

40, Philippine Research Center, New People's Army of the Philippines, p.7. 265 on a large scale with more than 1,000 soldiers of the AFP

involved, whereas some are small with only a few people participating.41 Whenever the NPA initiates armed struggles against the AFP or the AFP attacks the NPA, civilians become victims. Many ordinary people's houses and farms are either destroyed or damaged during the

fights. The degree of damage depends upon how severe the fight is. In Negros Occidental, the southern part of the province has been the NPA's primary mass base. Thus, this area is the most troubled region in the sugar-producing province, because of its frequent armed struggles between the NPA and the AFP.

Finally, the united front is also one of the foremost principles that help the expansion of the Philippine communist movement. In April 1973, the CPP established the National Democratic Front or NDF. The NDF's main goal is to unite all opposition forces in the Philippines to compete with the Marcos regime. There are many opposition groups in the Philippines, but all of them fall into three categories.42 The first category is communist-oriented, led by the CPP and the NPA. The second is region-oriented.

41. In March 1985, for instance, a band of NPA guerrillas raided the Visayan Maritime ACademy (its board chairman was Roberto Benedicto) and seized more than 400 firearms, including rifles, carbines and submachine guns. (Steve Lohr, "Rebels and Hunger Stalk Province in Philippines," New York Times. May 6, 1985, I, p.2.)

42. Ben Kerkvliet, Possible Demise of the Marcos Regime, Honolulu: University of Hawaii, 1983, pp.10-17. 266 including the famous More National Liberation Front, or

MNLF. The last and the biggest category refers to some major opposition parties, such as the Philippine Democratic

Party (POP), the Social Democratic Party (SDP), the

Mindanao Alliance, and so on. Although every opposition group has its own ideology, they all share one purpose-- opposing the Marcos regime. This goal is thus utilized and heavily promoted by the NDF, the CPP, and the NPA. Due to their efforts, the NDF now claims it covers 13 illegal organizations, with a membership of one million and the support of 10 million Filipinos.43

The problem of the NPA is nation-wide, of course, not just in Negros island. There are no available sources to specify and compare the NPA's threat between Negros island and other regions in the country. But, the NPA's growth in the sugar-producing island is very significant. For example, in 1982 the number of NPA guerrillas in Negros

Occidental was only around 30 to 50, but this figure jumped to 1,000 in May 1985, showing a growth rate of 1400% in three years.44 In addition, it is believed that there are several thousand more sympathizers who are likely to offer

43. Clad, "Betting on Violence," p.37; Steve Lohr, "Inside the Insurgency," New York Times. November 3, 1985, VI, p.43.

44. Steve Lohr, "Rebels and Hunger Stalk Province in Philippines," New York Times, May 6, 1985, I, p.2. This size, especially the 1982 number, may be too small, because of the difficulty to obtain direct information about the illegal NPA guerrillas. 267 food and shelter to the insurgents.

Consequently, as many sugar experts and the AFP commanders indicate, the sugar crisis in Negros island is a major variable that stimulates the growth of the communist movement in the island.45

4. Conclusion of Part Three

Part Three, concentrating on President Marcos' dominance of the Philippine sugar industry, can be summarized in the following four points.

First, President Marcos reorganized the sugar industry through management monopolization, and established his own sugar kingdom represented by Roberto Benedicto, head of

Philsucom— the sugar monopoly machine. As a result, all sugar affairs and institutions were directed by the

Benedicto-led Philsucom. Originally, the stated purpose of reshaping the sugar industry was to promote and exercise

President Marcos' ideology--egalitarianism in the industry and in the whole country as well. But, it turns out that after the ten-year sugar monopolization, old oligarchies

(e.g. the Lopez family) fell indeed, but new elites (i.e.

Marcos, Benedicto, and their cronies) arose. The huge gulf between the top few prosperous and the bottom mass improverished is not shortened, but rather enlarged.

45. Porter, The Politics of Counter insurgency in the Philippines. pp.20-21. 268

Second, monopolization of trade and price was also very significant. Philsucom, the center of policy making, regulated all trade and price-setting, including the price

Philsucom gave to sugar planters. It is because of this advantage in trade and price monopolization that the Marcos government enjoyed all the benefits of sugar. The sugar profit was then given out Marcos's cronies for political reward; Marcos' friends in return showed their loyalty and support to the regime. However, President Marcos and his cronies were not always the winners. They too experienced the bittersweet taste of the sugar industry, when the sugar crisis took place. Because of mismanagement and corruption, the inexperienced Philsucom and its bureaucrats

then became the targets of criticism.

Third, due to the decision to expand sugar production

in 1976, President Marcos approved more land (most of it marginal forest land) and more sugar centrals, rather than

promote mechanization on the existing cane fields.

However, the plan of increasing sugar production was

heavily hit, when world sugar prices declined drastically.

During the period of the sugar crisis, sugar production

decreased, farms were closed, and many sugar workers were

displaced. Yet, the government was so rigid that an

emergency employment program was not initiated until

February 1985, which was already too late to revitalize the

sugar industry. 269

Finally, the failure of the Marcos government in dealing with the crisis meant that many problems (e.g. poverty, unemployment, malnutrition, crime, and communist

insurgency) emerged, and all of them are interrelated and

interacting. Some of these problems (e.g. unemployment and high crime rate) first emerged during the period of sugar crisis. Other problems (e.g. poverty, malnutrition, and communist insurgency), though they originated earlier, were worsened during the monopolization period. It is thus clear that the Marcos government completely failed to manage the sugar industry, and the industry was in a state of near collapse in 1985, the time just before President

Marcos was thrown out of the Philippines. PART FOUR

ANALYSIS OF ARGUMENT

By the end of the Marcos administration in the

Philippines, the archipelago's sugar industry had almost collapsed. Producing sugar was no longer profitable, partly because of the low prices in the world sugar market and pattly because of the low composite price that sugar planters received from the government. Sugar farms and sugar production declined, which led to shortages of foreign exchange. Many sugar planters were heavily indebted, and it would not be possible for them to clear their loans to the banks in the near future.

As for sugar workers, the people directly working in the canefields, many of them were or were going to be displaced, as a result of sugar mechanization. The problem for these workers and their families, especially unskilled workers, is not only unemployment or underemployment, but also malnutrition, starvation, and poverty, since most of the unskilled workers lack alternative job opportunities.

Once they are dislocated from the sugar canefields, where do they go?

During the last decade of the Marcos regime, this

270 271 question remained unanswered. A growing number of sugar workers responded to this question by joining either the illegal New People's Army, or the anti-Marcos organizations. Thus, in the last 10 years of his regime.

President Marcos was troubled about not only the eroding sugar industry but also the increasing communist insurgency in the society. The Marcos regime was overthrown in early 1986, leaving the sugar industry in a state of near collapse.

Who was responsible for the decline of the sugar industry? To explore the answer to this question is the major objective of this section. CHAPTER IX

WHO WINS THE GAME?

There are four schools of argument concerning the issue of the declining sugar industry in the Philippines.

One school places primary blame on Philippine feudalism, a second faults Philippine and international capitalism, the third concentrates on the interventionist policy, and the fourth one points to the misuse of the state for Marcos' personal benefits.

1. Argument of Feudalism

The first school argues that the internal feudalistic structure of the sugar industry is the major factor.

Temario Rivera, for example, advocates that the semi- feudal mode is the overall pattern of development in the

Philippines. This school insists that exploitation is created as a result of the hierarchical relationship between the top planters and the bottom workers. This means exploitation started a long time ago during the

Spanish colonialism, not just during the Marcos

272 273 presidency.1

The internal tenancy system of the hacienda did not change at all during the Marcos era. Owners of haciendas are still those who control the sugar industry, although the very top sugarmen were replaced by Marcos' cronies.

The hacenderos, furthermore, have extended their economic privileges to the political and judicial systems in the society. As stated earlier, the big sugar barons are powerful enough to manipulate judges, not to mention the national and local elections. Thus social injustice is created, especially on the island of Negros. As a matter of fact, many people, particularly Catholic priests, perceive social injustice as one of the most distinctive features of Negros society.2

As for permanent workers on the hacienda, they are still dependent upon the hacenderos. Their status has remained unchanged since the beginning of the sugar industry, because most of them are the children of sugar workers. Their families have stayed on the haciendas for generations. Sacada or migrant workers, who were

1. The exploitative relationship between the hacenderos and workers has been analyzed earlier in Chapters II and III.

2. In February 1981, Father Edgar Saguinsin told a reporter that social injustice— disparity in society between the very few rich and the vast majority of poor workers— and the inequity in law are the most distinctive features in the province of Negros Occidental. (Henry Kamm, "Philippine Planters and Workers Fight Sugar Controls," New York Times. February 5, 1981, P.A7.) 274 introduced to the canefields one century ago, share the same story too. They are chained by the bondage of heavy debts. Every year during the milling season from October to May, they are forced to return to the canefields to pay for their endless loans through their labor. This landlord-peasant relationship continued to be exploitation- oriented during the Marcos presidency.

According to Tamario Rivera, the tenancy system, the pillar of the feudal mode, is most striking and instructive in the Negros sugar plantations, while it is not clearly typical of other parts of the country. For instance,

Negros sugar planters use at least three tactics to exploit the bottom workers: (1) the forced expropriation of peasant farms later to be legitimized by legal documentation, (2) cash purchase of small peasant farms, and (3) high interest loans to peasant proprietors with default provisions requiring forfeiture of land and years of debt-bondage.3

Rivera further argues that the feudal mode of production in the Philippines not only persisted after its initial institutionalization by the colonial regime; it also got reinforced. One source shows that by 1918, tenancy had risen to 22 percent, and it rose to 36 percent by the 1930s, and up to more than 40 percent by the late

1950s.4 Another study indicates that the rate of tenancy

3. Rivera, Feudalism and Capitalism, p.2.

4. Rivera, Feudalism and Capitalism, p.5. 275 in the sugar industry was 53.5 percent in 1971, the worst in the country followed by pineapples (48%), palay (36.8%), tobacco (34.2%) and so on.5 Accordingly, these data demonstrate that tenancy relations, the specific expression of a feudal or semi-feudal system in the country, have been preserved and reinforced long after the effective penetration of the capitalist mode of production. Even the government’s data show that the percentage of tenanted farms increased from 18.2 percent in 1903 to 35.1 percent in 1939 and 39.6 percent in 1960.6

Under the system, sugar workers are excluded from sharing all benefits, including welfare. For instance, the Marcos government commissioned a study on the status of

Negros sugar workers with regard to the Labor Code in July

1976. The study found that "the Labor Code has no effect on the welfare of the sugar workers, because the Labor Code has never been actually implemented in Negros."7 And the key barrier to the effectivity of the labor code is the feudalistic social structure existing in the plantations, as identified by the study. The study, conducted by the

Department of Labor, then concluded by pointing out that

5. Jean Rosenberg and David Rosenberg, Landless Peasants and Rural Poverty in Indonesia and the Philippines. Ithaca: Cornell University, Center for International studies, 1980, p.83.

6. Rivera, Feudalism and Capitalism, p.5.

7. Shoesmith, The Politics of Sugar, p.18. 276 unless the social structure of the sugar industry was changed, the lot of sugar workers would worsen and the

Labor Code would remain irrelevant.8

In my view, the internal feudalistic structure does appear to constitute a major factor explaining some aspects of the Philippine sugar industry, in particular why sugar workers are always exploited under the system and why the industry was worse than it might otherwise have been. A good example is that sugar workers were underpaid even when world sugar prices were favorable in the early 1970s.

Even if the world sugar price did not plunge during the monopolization period, sugar workers would still have been underpaid and exploited by their planters. Prior to 1974, workers were already on the edge of poverty, but post-1974 price drove many completely out of work, and forced many over the edge. This contributed to the growth of the CPP and the NPA.

Therefore, under the feudal system, it seems that sugar workers are losers all the time. This is not, however, an explanation of the current decline of the sugar industry, but instead explains only why the condition of sugar workers at the bottom of the system is always bad.

To explain the current decline, we need to understand the role of two other variables. One is the impact of price fluctuations in the world sugar market, and the other is

8. Shoesmith, The Politics of Sugar, p.18 277 the influence of domestic policy on the sugar industry.

Sugar workers snay lose all the time, but sugar planters are not always winners due to these other two variables.

2^^mument_Qf_DeDftndBJicv on International Capitalism

The second school insists that the Philippines' long dependency on the capitalist world sugar market is responsible for the decline of the sugar industry. This school originally derives from the Latin America-based dependency theory, represented by A. Frank, F. Cardoso, G.

Falleto, etc. It argues that the world economic system is dominated by the center countries, while the peripheral countries are economically exploited. Under the

hierarchical world structure, the peripheral or undeveloped

countries have little opportunity to compete with the

center or developed countries. The more flow of trade

happens between the center and the periphery, the more

exploitation the latter would experience. The classic

dependency theorist like A. Frank contends that only when

the link is broken can the formerly dependent economy begin

to grow.9

Can we apply classic dependency theory to the

9. This is the argument of the classic dependency theorists, which is different from neo-dependency theorists who advocate that a kind of distorted development in the Third World is possible while dependent upon the center countries. See Peter Evans, Dependent Development. Princeton; Princeton University, 1979. Philippine sugar industry? Before the mid 18th century,

the Philippine sugar industry was unknown to the western

world. Yet, since the mid 19th century, when the

Philippines started sugar exportation, the archipelago's

sugar industry was gradually integrated into the world market system. It means that the country's sugar earnings

began to rely upon the fluctuations of sugar prices in the world market after the mid 19th century. Prior to 1930,

Philippine sugar exports were delivered to various destinations. Between 1931 and 1974, except for the ten years during and after WWII, almost all Philippine sugar exports were shipped to the United States, with a favorable price generally higher than the world market price. In

other words, the Philippine sugar industry was almost entirely dependent upon the American market.

As for the role of sugar in the Philippine national economy, it was even more remarkable and crucial before

1974. In 1932, for instance, sugar accounted for a historical high of 35 percent of all foreign exchange earnings. Although this figure dropped to 27 percent in

1974, sugar still played a significant role in the archipelago's national economy.10

When this dependent relationship was terminated in

10. During the period from 1920 to 1940, sugar usually occupied about 30 percent of the total exports. After the War, sugar's role in the national economy fell a little to roughly 20 percent of whole exports, and it peaked to post­ war high at 27 percent in 1974. 279

1974, the archipelago's sugar industry declined

drastically. First of all, the Philippines was not able

to obtain as much earnings as before, because the U.S. cut

its sugar imports from the Philippines. Second,

Philippine sugar had to compete with other exporters on

world markets, where the price mechanism is heavily

influenced by the economic policies of the center

industrialized countries. During the decade from 1975 to

1985, world sugar prices were generally low, so that

producing sugar was no longer profitable. Thus,

Philippine foreign exchange was curtailed too, from US$737

million in 1974 to only US$246 million in 1984.11

Therefore, the year 1974 constituted a watershed for the industry. The sugar industry was in a very different

position between pre-1974 and post-1974, The blame for

this fall, according to the dependency school, goes to the dependent relationship on the center countries of the world

market system, as opposed to the feudal mode.

Jonathan Fast and Jim Richardson are two of the major

scholars who advocate the capitalism argument in their

portrayal of the Philippine sugar industry. In their book-

-Roots of Dependency. Fast and Richardson assert that:

Our analysis of the Philippines during the last century leads us to the firm view that

11. This resulted in a gradual declining contribution of Philippines' agricultural exports to the archipelago's national economy year by year, from 27 percent in 1974 to only 10 percent in 1983. 280

the dominant forces at work were not feudal but most decidedly capitalist. The most advanced sector of the economy, the sugar industry for example, was clearly responding to factors of capital accumulation and world market forces which bore no relationship to any definition of feudalism.12

Their key argument is that since the commencement of sugar exportation, the implementation of commercial agriculture has happened in the Philippines, representing the most profound change in Philippine economic life. The introduction of commercial or capitalist agriculture resulted in the gradual penetration of the Philippine economy by the western powers. Although Fast and

Richardson did not connect capitalism with the recent decline of the Philippine sugar industry,13 they did emphasize the dominance of the capitalist mode of production in the sugar industry and other industries as well.

For Fast and Richardson, the year 1974 might not be very significant, because the pattern of western capital penetration and the emergence of an export economy was already established more than one century ago. The only difference is that the Philippines had just switched its dependency from the American capitalist hegemony to other

12. Fast and Richardson, Roots of Dependency, pp.vi-vii

13. When Fast and Richardson first published their book in 1979, it was probably too early for them to judge the whole sugar industry. 281 capitalist markets (e.g. Canada, Japan, etc.) after 1974, although Filipinos still perceived the U.S. to be their major sugar market. It is to say that the structure of the world sugar market is still under the dominance of the center countries, since the fluctuations of world sugar prices are mainly determined by the industrialized countries.

In my view, it is unfair to place all the responsibility on the dependence on the world market for the decline of the Philippine sugar industry. Although the world sugar prices were extremely low during the ten disturbing years, it does not explain the whole story.

The most significant reason is that world sugar prices drop all the time, almost once every five years, not just during the sugar crisis period from 1975 to 1984. For instance, since 1850 when the Philippines joined the world sugar market, world sugar prices had declined many times, as described earlier. Prior to 1974, the fluctuations of sugar prices across time did not affect the archipelago's sugar industry, nor the nation's economy. On the contrary, Filipino sugar planters and the whole country actually benefited from sugar trade before the industry was nationalized.

Some may contend that the pre-1974 Philippine sugar industry was protected by the United States, so that it was not connected to the fluctuations of sugar prices in the 282 world market. While it is true that the Philippine sugar

industry had been heavily dependent upon the American market during the period from 1920 to 1974, it is shaky to hold this argument.

The key reason is that during the same period American

purchasing prices, though a little favorable, were still

based upon the current sugar prices on world markets. The

only difference is that Philippine sugar exports to the

U.S. were duty free, according to the bilateral free trade

policy. But, between 1850 when the Philippines started

sugar exportation and 1909 when free trade commenced, the

Filipinos competed with other countries on world markets

and were able to export their sugar to various

destinations, just as they did during the last decade of

the Marcos regime. The difference, however, is that the

archipelago's sugar industry survived during the former

period, but failed during the latter era.

Thus, it is not fair to place all responsibility on

the decline of world sugar prices for the collapse of the

Philippine sugar industry, in spite of the fact that world

sugar prices were comparatively low during the

monopolization period. However, the dependency does

generate two negative impacts, which are closely related to

the decline of the Philippine sugar industry. One is that

due to long favored treatment, Filipinos lack the

willingness to mechanize, which creates an inflexible and 283 costly industry that is more vulnerable to world price drop and to mismanagement. The other is that it creates constraints of the post-1974 drop on Philippine policy­ making. In other words, there is little leeway for mistakes, especially the big mistakes and corruption of

Marcos' policies.

3. Argument of Free Enterprise

The third argument points to the interventionist monopolization policy, which is harshly criticized by many

Filipino sugar planters and advocates of the free market economy. Their key argument is that the collapse of the

Philippine sugar industry is a result of the monopolization policy. Before 1974, the sugar industry operated well under the principle of free enterprise. But, after the ten-year-long nationalization policy, the archipelago's sugar industry declined. The major factor for this turnover is in their view the government-involved monopolization policy. A principal evidence for this argument is shown in a study done by the economics professors in the University of the Philippines. According to their comparative-oriented study, Filipino sugar planters lost from 11.6 billion pesos to 14.4 billion pesos during the ten critical years, and this huge loss would not have happened if sugar industry had been freely traded 284 during the same period.14

But, my argument, in contrast to that of the economists, is that the monopolization policy is not the problem, the problem is management. I will present two cases in which interventionist policies (sugar monopolization policy in Brazil and sugar subsidy policy in the U.S. and the EEC) were also carried out during the sugar crisis period. Yet, their sugar industries did not collapse due to these interventionist policies.

First, the Philippines was not the only country undertaking nationalization policy over the sugar industry.

Other Third World sugar producers like Brazil, Taiwan, etc. share the same experience with their sugar sectors under the control of the state. For instance, since 1964 when the military seized power, Brazil's sugar industry has been transformed at the hands of the government.

Like the Philippines, the Brazilian government initiated an expansion program in the sugar industry in the mid 1960s.15 Similarly, sugar exports in both Brazil and the Philippines peaked in 1974, when world sugar prices surpassed all previous levels. That year the Brazilian government, like the Philippines, tremendously benefited

14. The detail of their study has been discussed earlier in Chapter VI.

15. For example, between 1965 and 1974, the volume of Brazil's sugar exports increased by about 250 percent, and the percentage of production devoted to exports expanded from 17.8 percent to 41.8 percent. 285 from sugar exports by earning US$978 million— an increase of 127 percent over the previous year.16 This was the first time since the 19th century that sugar, usually the second most important export, outranked coffee as Brazil's most profitable commodity export.

In addition, again as in the Philippines, Brazil benefited from the American preferential market between

1965 and 1974, and it delivered almost half (45.7%) of its sugar exports to the U.S. during the same period. When world sugar prices plunged later, Brazil, similar to the

Philippines, lost foreign earnings from sugar exports, from

US$978 million in 1974 to $229 million in 1978 and to $336 million in 1982.

Yet, the Brazilian sugar industry did not come to a state of collapse, after experiencing the storm on world sugar markets and losing its dependency on the American market. Why? Management is the key variable explaining the differences. In order to promote efficiency, the

Brazilian military government undertook a series of policies intended to rationalize and modernize the

Brazilian sugar industry in the early 1970s. The major mechanism of the modernization program was to "provide fiscal incentives for eliminating small, inefficient usinas

(millers) by merging two small usinas, by incorporating

16. Barbara Nunberg, "Structural Change and State Policy: The Politics of Sugar in Brazil Since 1964," Latin American Research Review, vol.21, no.2, 1986, p.60. 286 smaller usinas into larger ones, or in the case of usinas whose location precluded economic survival, by relocating such mills and their production quotas to another area or state within the same production regime."17

When the ambitious modernization program was accomplished in 1978, the total number of usinas in the country had been reduced from 249 to 206. Small-scale mills accounted for only 17.9 percent of production in

1978, in contrast with 59.4 percent in the crop year 1971-

72. Yet, in terms of the total national production capacity, it rose from 5.4 million metric tons in 1971-72 to 11.4 million in 1978. As for yield per hectare, it increased from 46.5 tons in 1974 to 55.1 tons in 1979, meaning the lowering of production cost.18

As compared to the Philippines, the Brazilian military regime's performance concerning the sugar industry was much more successful than the Marcos administration's. The

Philippine sugar industry under the Marcos regime, due to belated mechanization, had the lowest yield per hectare in the world (84.04 piculs or less than 5 tons per hectare in

1973), as described in Chapter III. Thus, when the world sugar price plummeted in the late 1970s and early 1980s, the Filipino sugar industry fell harder than the Brazilian.

Another factor explaining the survival of the

17. Nunberg, "Structure Change and State Policy," p.68.

18. Nunberg, "Structure Change and State Policy," p.71. 287

Brazilian sugar sector is that the government succeeded in

rotating or alternate-planting sugarcane with other food

crops on the existing sugar lands. As a result, the

Brazilian government did not experience either the problem

of labor displacement or social chaos when the sugar crisis

occurred.

In short, the monopolization policy per se is not

really a problem. The key point is management. When the

Philippines' sugar industry was filled with corruption and

mismanagement, the Brazilian sugar sector was engaged in

promoting the program of modernization. The comparison of

the sugar industry between the Philippines and Brazil

demonstrates the significance of management.

My second case is the subsidy policy during the crisis

era. The Philippines was not the only country that

experienced the bitter taste of low world sugar prices in

the last decade. Almost every sugar producer in the world

suffered, including many highly efficient producers like

Hawaii. Yet, countries like the EEC and the U.S. had

either a subsidy program or a price support program for

their sugar growers when world sugar prices were

unfavorable, as discussed in Chapter IV.

The main drive for these programs was that their

governments, under the pressure of popularly-elected

legislatures, desire to maintain sugar growers' living standards. For example, the U.S. federal government set 288 up a domestic minimum price of sugar at 20 cents a pound while world sugar prices were only about 10 cents a pound in 1982. Even Thailand, another sugar exporter in

Southeast Asia, created a subsidy program for the Thai sugar growers during the unfavorable years.19

In the Philippines, the highly personalistic and coercive authoritarian government of President Marcos, without any force of check-and-balance, failed to initiate any subsidy program for the sugar growers during the ten- year-long sugar crisis.20 The whole sugar industry was dominated by the Marcos government at the time when

Benedicto was appointed as the head of Philsucom.

President Marcos and his cronies had successfully penetrated their influence into the heart of Negros island-

-the largest sugar area in the country. Further, with the exercise of martial law, the island's political and judicial systems were almost entirely under the control of

Marcos and his cronies. They didn't feel it imperative to gain more support from the sugar planters and workers.

Thus, under this unhealthy political system, the people on

19. Ansil Ramsay, "The Political Economy of Sugar in Thailand," Pacific Affairs, vol.60, no.2, Summer 1987, pp.257-258.

20. As a matter of fact, due to export-oriented economic policy, throughout the 1970s all new economic incentives were in favor of foreign investors and exporters. Thus, tariffs were liberalized, wages were depressed and the power of unions to organize, bargain, and to strike was banned. (Hawes, The Philippine State, p. 40) 289

Negros island had very few communication channels through which they could make their voices heard.

It seems obvious that sugar became a money-making machine for a few under the Marcos presidency. The workers on Negros island were enslaved to produce sugar for exportation, rather than being really taken care of by the

Marcos regime. They are the people who contribute to sugar production the most, but they are also those who share sugar profits the least. During the ten difficult years, the Marcos government should have intervened in the sugar industry to help the growers through some support programs, but President Marcos intervened in the industry for himself instead.

4. Argument of Misuse of the Stafce for Personal gains

The final argument, also as I have said the mainstream argument, emphasizes the motivation of President Marcos'

involvement In the sugar industry. This school may be best represented by Alfred McCoy and Gary Hawes, but several other scholars hold a similar view.21 Most of these

21. In general, some Philippine specialists are likely to place most of the blame for the decline of the Philippine economy on the poor performance of the Marcos regime (i.e. corruption and mismanagement), topped with uncontrolled cronies. As Carl Lande and Richard Hooley have pointed out, "The root causes (of economic decline) lay in the mismanagement of macroeconomic policy and the resultant decline in industrial efficiency....The heart of the problem was the complete politicization of entreneurship." (Carle Lande and Richard Hooley, "Aquino takes Charge," Foreign Affairs. Summer 1986, pp.1089-90.) 290 scholars conducted research on the sugar industry covering the period of the Marcos presidency, except for McCoy's extended work covering the historical background of the

Philippine sugar industry. They all share one theme--that the Marcos regime is the most significant variable contributing to the decline of the archipelago's sugar industry. It is argued that the chief incentive of

Marcos's intervention in the sugar industry was to grab sugar profits and reshuffle the structure of the sugar industry for his own personal use, and the monopolization policy was just a tool to achieve his ambitious purpose.22

The most significant evidence for this proposition is that President Marcos took control over the industry at a time when world sugar prices were at their highest level, and saw to it that the millers and planters were not able to take advantage of this windfall.

Through price monopolization, for example, the government-dominated Philsucom paid a lower composite price to the Filipino planters while selling sugar abroad for a higher price. The difference, of course, was taken by the

Philsucom in the name of "public purposes". In the year

1974 alone, the total difference of these two prices reached as high as 1 billion pesos, as explored in Chapter

VII. This form of exploitation was repeated several times later in 1977, 1979, and 1981.

22. Hawes, The Philippine State, pp.127-128. 291

Prior to sugar nationalization, all sugar profits were shared harmoniously between millers and planters, based on a bilateral agreement.23 But, after the government's intervention, the same pie was cut by one more participant, and this third party was the one determining the rules of the game. It means that President Marcos legalized his sugar agent to grab profits from sugar planters.

Second, while President Marcos and his cronies stole the profits of sugar producers, the sum of sugar earnings was itself reduced because of Philsucom's mismanagement of the sugar trade. As analyzed in Chapter VI, due to the trade monopoly during the ten year period, the total loss of Filipino sugar producers is estimated at anywhere from

11.6 billion pesos to 14.4 billion pesos. This huge loss made Filipino sugar growers' Income doubly curtailed. The problem here, as I have stated above, is mismanagement, which is caused by inexperienced personnel. These people were newly introduced to the sugar administration after the sugar institutions were monopolized. Most of them are either Marcos' or Benedicto's cronies, whose role in the sugar industry is not really for the development of the industry but for the benefits of the Marcos regime. Thus, some scholars contend that Marcos' crony capitalism was a major cause for the decline of the sugar industry in

23. The sharing percentage between the planters and the millers usually varies at 70:30, or 65:35, or 60:40, depending on the geographical locations. 292 specific and the country's economy in general.24

One more evidence is that during the monopolization period, when the industry was eroding, Benedicto and his cronies were getting prosperous, not to mention Marcos' personal wealth and assets.25 Before his appointment as the chairman of the Philsucom, Benedicto was just one of the sugar barons in the sugar industry. But, after his assignment by President Marcos, Benedicto not only dominated the sugar sector, but also extended his fortune in such areas as communication (including two TV channels and fifteen radio stations), hotels, transportation, banks, and so on.26 While many sugar planters became debtors after the crisis, how could Benedicto become richer and

24. Robin Broad, Unequal Alliance; The World Bank, the International Monetary Fund, and the Philippines. Berkeley: University of California Press, 1988, p.217. See also Paul Gigot, "Crony Capitalism Slaps Philippines," Asian Wall Street Journal. November 8, 1983.

25. Marcos and his family's wealth and assets are not countable, but there is a recent clue to demonstrate his fortune. In mid October 1988, a U.S. federal grand jury, after a two-year investigation, charged Marcos, his wife Imelda Marcos and their various associates with theft, embezzlement, bribery and other crimes, which included the following assets: (a) Theft of US$103 million in Philippine Government funds which were transferred to the U.S.; (b) Fraudulent borrowing of US$165 million from Citibank and Security Pacific National bank; (c) Illegally transferring art works valued at US$5.9 million that were know to have been stolen property. See more in Nayan Chanda, "Justice, but Not Blind," Far Eastern Economic Review, 3 November 1988, pp.14-15, and his "Paying the Piper," Far Eastern Economic Review. 3 November 1988, pp.14-15.

26. The detail of Benedicto's businesses is dis-cussed in Chapter V. 293 richer? Nobody can give the best answer to this question, but Benedicto and his patron— President Marcos.

As for Philsucom— the supreme sugar institution--, it shares a similar story with its head, Roberto Benedicto.

During the ten disturbing years, Philsucom extended its business from sugar farms and mills to sugar logistics

(e.g. dredgers, warehouses, railroads, shipping lines, etc.), as discussed in Chapter V. It is believed that the state-controlled Philsucom was the only entity in the sugar

industry to prosper and to make new investments during the ten disturbing years, while many sugar planters and workers were struggling to survive. Once again, the reason for this sharp contrast has nothing to do with monopolization per se but rather with President Marcos' manipulation of the sugar industry.

4. Conclusion

The four schools of argument that have been analyzed

in this chapter have their own variables to explain the

fall of the Philippine sugar industry. Feudalism, the

first school, emphasizes the rigid hierarchical structure

in the sugar economy. This internal tenancy system has

lasted from the commencement of the sugar industry until

the present, although it was reinforced during the Marcos dominance. It is because of this unhealthy social system

that exploitation happens. It explains why sugar workers 294 always get so little out of the system. It does not explain, however, why the Marcos government adopted the policies it did toward to the industry. As I have argued, the feudal pattern, while real, is not directly related to government policy during the Marcos period.

Unlike feudalism supporters who emphasize the internal variable, the dependency theorists insist on the dominant

role of the world capitalist system, which forms a

hierarchical structure with the center countries on the top

and the peripheral countries on the bottom. The center

industrialized countries are the ones that cause the

fluctuations of world sugar prices, affecting many

peripheral unindustrialized countries which are heavily

dependent on the earnings of sugar exportation. As sugar

income is diminished, the peripheral economies are damaged

too.

This school is credited with the explanation of why the

Philippine sugar industry became so vulnerable that it lost

huge sugar earnings during the disturbing ten years when

world sugar prices fell. However, the dependency school

ignores the importance of the internal system in the sugar

industry and the impact of government policy toward the

industry.

Third, the school of free enterprise argues that the

interventionist monopolization policy is the factor that

best explains the decline of the industry. The main reason 295 is that the pre-1972 sugar industry was operating well under the system of free market economy. But, after the ten-year-long monopolization policy, the industry collapsed. Thus, the sudden turnover of the industry was a result of the sugar nationalization policy.

I have argued that the problem is not the interventionist policy, but mismanagement. During the critical years, the monopolization policy was also carried out in many other countries like Brazil, Taiwan, and so on, but it did not lead their sugar industries to a state of near collapse. Thus, there is something else, not just the interventionist policy, to explain the fall of the

Philippine sugar industry.

Finally, the mainstream position, which I accept, argues that the Marcos regime itself is the major variable explaining the decline of the sugar industry. It contends that the regime's mismanagement and corruption eroded the foundations of the sugar industry. The key assertion is that the Philippine sugar industry was used by President

Marcos as a means toward the personal expansion of his political influence and economic profits. The contrast between Marcos' and his cronies' increasing wealth and other sugar growers' declining wealth is the principal evidence. This study has shown how this change occurred through analysis of the management of the Marcos-created sugar institutions, and of Marcos' policies toward price 296 and trade.

Yet, feudalism and dependency, having existed long before Marcos' presidency and sustained after 1974, also have successfully explained some aspects of the sugar industry. During the 1974-1984 period, these two variables operated both independently and in interaction with Marcos' interventionist policies, and the sugar monopolization policy was only an instrument used by President Marcos for his personal benefits, economically and politically. These are the reasons for the decline of the Philippine sugar industry, which can be demonstrated in Figure 6 (next page ) .

Therefore, my position sides with the mainstream scholars, basically, but I also acknowledge the impact of the internal feudal system and the decline of world sugar prices over the Philippine sugar industry. I would judge that the Marcos government is primarily responsible for the fall of the archipelago's sugar industry, but I don't think it would be a fair judgement if the other two variables were ignored.

In sum. President Marcos and his cronies were the winners in the monopoly game, whereas other Filipino sugar growers were the losers. Yet, in the longer run, it is clear that President Marcos became the biggest loser of all when his 20-year-long government was overthrown by the so- called "People's Power" at the end of February 1986. 297

through the monopolization policy

I I

: Decline of the: : Marcos' misuse rPhilippine : is mainly caused by : of the state for rsugar industry: <------1 personal gains

which interacts with

:Feudalism:

and

: Dependency on : international •.capital ism

Figure 6 Decline of the Philippine Sugar Industry CONCLUSION

The monopolization policy was abolished in 1984, but the Philippine sugar industry was not completely privatized until 1985. In February 1986, when President Marcos was forced to leave the country, the industry was in very bad shape. Although the collapse of the sugar industry is not the only variable causing the fall of the Marcos regime, it is one of the most significant examples demonstrating

President Marcos' political manipulation and poor management in economic affairs. In concluding this dissertation, I will offer an overview of the sugar industry from three perspectives: (1) lessons of the study for political science and for political change in the

Philippine sugar industry, (2) current trends in the world sugar market, and (3) suggestions for the future development of the sugar industry in the Philippines.

1. Lessons af The Study fax Political Science and for Political Change In the Philippine Sugar Industry

First of all, it is significant to note the role of politics on economics. Although the policy of the sugar industry is economics-oriented, it is closely linked to the

298 299 process of decision-making. This means political considerations are involved in the process of policy making, and the former usually plays the dominant role on the latter. Thus, without examining the political intervention of the Marcos regime in the sector, any study of the Philippine sugar industry would not be satisfactory, or at least it would not thoroughly explain the rise and fall of the industry.

This approach is applicable to the study of other sectors in the Philippines. The coconut industry, for example, shares a similar • story to the sugar industry, since it was also nationalized by the Marcos government in

1973 under the control of the state agency--the Philippine

Coconut Authority (PGA). Historically, coconuts like sugar have been a very profitable commodity. The coconut

industry was also facing a crisis by the end of monopolization in the mid 1980s. It is thus suggested that a better method to examine the troubles of the coconut

industry is from the perspective of political economy.1

Second, in an unhealthy political system like the

Philippines under Marcos, executive decrees and orders

become the tools of ruling that manipulate the existing

1. As a matter of fact, this perspective has been utilized by Rigoberto Tiglao (see his article "The Political Economy of the Philippine Coconut Industry," in Third World Studies Program, Political Economy of Philippine Commodities. PP. 181-272) and Gary Hawes (see Hawes' The Philippine State and the Marcos regime, pp.55-82.) 300 political structure and economic performance. The sugar industry of the Philippines stands as an example of this theme. With the dissolution of Congress under martial lav. President Marcos felt that he could decree laws to fulfill whatever he desired to do. According to the statistics. President Marcos issued 11 presidential decrees specifically on the sugar industry during the last decade of his regime in the Philippines.2 Of the total 45 presidential decrees regarding agricultural crops (e.g. sugar, coconut, grains, cotton, soybean, etc.), the 11 decrees on the sugar industry ranked third (in terms of the numbers of the decrees), next to coconuts (13 decrees) and grains (12 decrees).

The number of decrees, without doubt, is an important measurement of the degree of President Marcos' intervention over the sector. Since the Philippine Congress was abolished under martial law, presidential decrees became the only legal instrument to govern the industry and the whole country as well. And all these decrees were not checked by any other forces. Although the Philippine presidency has always been strong. Congress was not so abject in earlier years. Until the Marcos presidency, each president had to make major concessions to secure the

2. De Dios, An Analysis of the Philippine Economic Crisis, p.83. 301

support of Congress for his legislative program.3 But,

President Marcos made the executive-legislature

relationship one-sided.

The role of regime is even more significant if we

compare the sugar industry of the Philippines with the

sugar sector in other developed countries. For example, during the period of the sugar crisis, sugar growers in the

United States and west European countries were financed by

their governments through various subsidy programs. These programs were achieved because of political considerations.

In the Philippines, however, neither law-makers nor any

interest groups were allowed to speak for the sugar planters or the sugar workers under the Marcos authoritarian regime. They were actually like political orphans under the martial-law government. This is another major reason to interpret why the sugar industry was so easily and quickly transformed to the hands of Marcos and his cronies.

The Philippines, known as the "showcase of democracy"

in Asia, was proud of its American-established democratic political system in the 1940s and 1950s. However, after

Marcos took power in the mid-1960s, especially after the exercise of martial law, Filipinos were no longer familiar with the term--democracy, meaning rule by people. Rather,

3. Robert Stauffer, The Philippine Congress; Causes of Structural Change. London: Sage Publications, 1976, p.33. 302

President Marcos converted the Philippines from democracy to kleptocracy.

Third, sugar is a very influential commodity in the

Philippines, primarily because the country depends on it not only for economic development but also for political stability. This is equally true for other sugar-producing countries in the Third World. In effect, some developed countries had the same experience two or three centuries ago. In the 17th and 18th centuries, for example, sugar marked an early stage in Britain's development into a modern economy, for sugar is an industrial as well as a farming business.4 This means that to refine sugar is more complicated than to process wheat, coffee, and other crops. As Professor Mintz argues, it is because of this advantage of having refineries and plantations, that sugar often provides a country with its first taste of industrialization. The British footsteps have been followed by many countries in the tropical zone, first in the Caribbean countries and then the Pacific nations including the Philippines.

The sugar industry did bring a certain degree of industrialization to the Philippines in the late 19th and early 20th centuries, as demonstrated earlier in the dissertation. Yet, due to the collapse of the sugar

4. Sidney Mintz, Sweetness and Power; The Place of Sugar in Modern History, Viking, England: Elisabeth Sifton Books, 1985, pp.48-52. 303 industry in the 1980s, the Philippines experienced an eroding economy and a political decay.

Finally, sugar workers' organizations are very weak in the Philippines, so that they are not at all effective in protecting their own rights and interests, not to mention fighting against the enactment of government's policies.

This is also a major theme of studies of Third World politics, which argues that farmers, though the majority of the population, are unable to convert their numbers into political influence.5 There are a couple of reasons for that, despite the fact that each country has its own specific background. In the case of the Philippine sugar industry, the exercise of martial law, under which political activities were banned, is only part of the reason for the weakness of sugar workers' organizations.

The other part of the reason has to do with the feudal system in the industry.

Under the system, all workers' unions, which are hacienda-based, are dominated by the hacenderoes and planters. Due to repression by planters and weak leadership, union functions are concentrated on social and cultural activities, rather than political affairs. For

5. This theme has been illustrated in many studies, such as Michael Lipton's Why poor People Stay Poor; Urban Bias in World Development (Cambridge: Harvard University Press, 1976); Robert Bates' Markets and States in Tropical Africa (Berkeley: University of California Press, 1981), and so on. 304 instance, for many years sugar workers were not even able to ask for a minimum wage from their planters. In effect, comparatively speaking, sugar workers are paid much lower than workers in other fields. In 1980, for example, the average daily wage of unskilled workers in Metro Manila was

53.3 pesos, but sugar workers in the West Visayas were paid only about 10 pesos a day.6 This situation remained unchanged during the period of martial law. There is no doubt, with the exercise of martial law, that sugar workers found it even more difficult to protect their rights and interests through political movements.

In Thailand, sugar workers may represent a good example for their counterparts in the Philippines. During the unfavorable years, Thai sugar workers, due to their well-organized unions, have forced "organizational changes upon government ministries in order to accommodate their needs."? As a result, the Thai government initiated a subsidy program for the Thai sugar growers during the early

1980s. Why are Thai sugar workers able to establish effective organizations? Ansil Ramsay indicates four factors: (1) there is a disproportionate number of large farmers in sugarcane cropping; (2) they are geographically

6. Rene Ofreneo, "Contradictions in Export-led Industrialization: The Philippine Experience," Journal of Contemporary Asia, vol.14, no.4 (1984), p.485.

7. Ramsay, "The Political Economy of Sugar In Thailand," p.248. 305 concentrated; (3) the industrial structure of the sugar

industry facilitates organization through its quota system; and (4) they have a strong leadership.8

Basically, the Filipino sugar growers share the first

three characteristics too, i.e. (1) there are a small number of big landlords and a large number of small

planters with hundreds and thousands of sugar workers under them; (2) more than 60 percent of the country's sugar workers are concentrated in the region of West Visayas,

including Negros island; and (3) the quota system works in

the Philippine sugar society too. It looks like Filipino

sugar workers have sufficient conditions to establish effective organizations. In reality, however, why do they

fail to do so? While the variable of strong leadership is difficult to define, the Philippines has two unique

barriers (i.e feudalism and martial law) that explain the differences, as pointed out earlier. Martial law was

removed in 1981, but feudalism is still existent in the

industry.

It is thus argued that unless the inhuman feudal

system is removed from the industry, Filipino sugar workers

won't have an opportunity to establish strong

organizations, not to mention to share sugar profits

equally with their planters. Yet, this is not a one-way

8. Ramsay, "The Political Economy of Sugar In Thailand," p.266. 306

Street, since the situation is not unchangeable. The feudal system could be gradually and would be eventually dissolved, if sugar mechanization is fully achieved and the surplus of labor force is transferred to other industries.

With the new government under President Aquino, Filipino workers are supplied with more channels of communications to organize themselves. Only when sugar workers are well- organized, can they avoid further exploitations from their planters and resist another Marcos-type intervention in the industry in the years to come. 2. Current Trendis.ln The World.Sugar Market

There are at least four trends in the current world sugar market, which are closely connected to the future development of the Philippine sugar industry. Although three of them are having a negative impact on the archipelago's sugar industry, they do generate some implications toward the future.

First, the most significant aspect is the low price of sugar in the world free market, which is a problem facing all less-developed sugar cane-producing countries. The world sugar price did not rise in 1985, as was expected.

Based on the five-year cycle of world sugar price fluctuations, the sugar price, after its last peak in 1980, was supposed to rise again sometime around the year 1985.

Unfortunately, the good news never maturalized. The world sugar price had created yet another record by maintaining a 307 historical low average price of only 4.04 cents a pound in

1985, the lowest annual average price since 1970. This price was only about one-third of the production cost for efficient sugar growers, such as Hawaii, Australia, Latin

American countries, etc.9

Even worse news is that no sugar specialist is likely to predict how long the trend of the low sugar price will last and when the sugar price will return to the normal level. Although the annual average price rose a little to

6.05 and 6.71 cents a pound in 1986 and 1987, respectively, they were still below production cost.10 The causes of the low sugar price vary, including protectionism in the developed countries, failure of International Sugar

Agreements, increasing use of sugar substitutes, etc., as introduced in Chapter IV.

It is believed that unless all these barriers are removed or at least lessened, the sugar price on the world free market will not return to its normal level.

Unfortunately, it seems difficult to remove all these

9. The cost of production of cane sugar is variously estimated at 11 cents to 16 cents per pound in these most efficient areas. In other less efficient countries like the Soviet Union, the production cost of sugar is as high as 38 cents a pound.

10. Sugar prices on the world free market in 1988 were higher and more volatile than the previous season, however. Prices jumped to 10.5 cents a pound in June 1988, the highest since mid-1983, climbed to an average of 14.04 cents a pound in July, then fell back to about 10 cents in September. 308 hindrances. For example, the U.S. and the Common Market countries are paying more than 20 cents a pound (which is based on the New York spot raw price) to their beet farmers, while at the same time they resist the importation of cheap foreign sugar through the imposition of import quotas and tariffs.11

Low sugar prices mean low export earnings for sugar- producing countries, especially those countries heavily dependent upon sugar exportation. Many of these tropical countries such as the Philippines and Latin American countries are debtors. Thus, it further indicates that these debtors would have more trouble repaying their loans to American and European banks.

A second trend is that the consumption of sugar is continuing to decline in the industrialized countries such as the U.S., Canada, and Japan, which are the major sugar markets for the Third World sugar exporters. It means that these sugar exporting countries, including the

Philippines, may not be allowed to export as much sugar as before in the years ahead. As a matter of fact, the

American sugar quota allocated to the Philippines has continually declined since the early years of the decade, from 378,000 short tons, raw value, in 1983 (1 October 1982

11. The U.S. retail price, of course, is higher than the raw sugar price. The retail price, under the government's control, has been relatively stable (averaged between 35 and 36 cents a pound) since early 1980s. 309

to 25 September 1983) to 342,900 tons in 1985 (1 October

1984 to 30 November 1985), to 246,999 tons in 1986 (1

December 1985 to 31 December 1986), to 143,780 tons in 1987

(January 1 to December 31, 1987), and to only 158,640 tons

in 1988 (January 1 to December 31, 1988).12

This phenomenon of decline in sugar consumption has to do with several factors, including the increasing use of sugar substitutes, the high price of sugar in the developed countries, and so on. The percentage of corn sweetener sharing the caloric sweetener market in the U.S., for example, has increased from 20% in 1975 to 40% in 1982 and to about 58% in 1986. During the same period, sugar's role in the American sweetener market has declined from 78%

in 1975 to 60% in 1982 and to only less than 50% in 1986.

In fact, 1985 was the year that per capita consumption of all corn sweeteners (MFCS, glucose, and dextrose) exceeded sugar for the first time. The decrease in sugar demand means a decline on sugar exportation. This trend does not affect the sugar-importing countries but seriously threatens the sugar-exporting countries. While the prevailing world sugar price has been low, the curtailed sugar exportation becomes a further serious blow to the

12. United States Department of Agriculture, Sugar and Sweetener, June 1986 (p.31) and September 1988 (p.41). The Philippines is not the only country whose sugar allocation has been cut, however. Other major sugar exporters such as Australia, Brazil, Dominica Republic, etc. have faced the same experience. 310

tropical sugar-producing countries.

One more important aspect of the current world sugar

market is a pessimistic view toward the new International

Sugar Agreement (i.e. the 1984 ISA). It began to take

effect on 1 January 1985 but on a provisional basis,

because of insufficient ratifications by the member nations

before the 31 December 1984 deadline. For example, the

Philippines and the Dominican Republic, two of the top

exporters to the free market, failed to sign the Agreement.

In terms of the major importers, Canada and Iraq did not

participate either. Although the EEC was invited to join

the new Agreement, it was conditional, meaning the EEC

"would not accept export restrictions in the form of

quotas, and put forward a scheme based on stocking

obligations."13

The unwillingness of these major sugar importers and exporters to join the new ISA explains the weakness of the

Agreement, almost the same story as the 1977 ISA. In

other words, it is doubtful that the world sugar price can

be expected to stabilize in the near future under the management of the 1984 ISA.14

Finally, the Common Market countries announced in 1985

that they would reduce their subsidized sugar exports to

13. Food and Agriculture Organization of the United Nations, Sugar; Manor Trade and Stabilization Issues, p.19.

14. Actually, the 1984 ISA has been criticized as an information-collecting and statistics-making agent. 311 the world free market. This is a good news to the Third

World sugar-producing countries, even though it came late.

As analyzed earlier in Chapter IV, the EEC's subsidized sugar export was one of the key factors causing the sharp drop in the world sugar prices. By not doing so, it means that the sugar price might be favorable in the near future, or at least will not drastically plunge as it did during the sugar crisis period.

3. Suggestions for The Future Development of The Philippine Sugar Industry

Four suggestions are to be made in this section. The first one refers to Philippine sugar exportation, whereas the other three are related to the domestic sugar market.

First, with regard to sugar exportation, the most important strategy for the Philippines is to seek constant and reliable buyers on world sugar markets. Given the situation of great fluctuations of the sugar price in the world market, it is significant to remark that stable markets under long term contracts mean steady sources of income. Of all potential sugar buyers, the United States is still perceived as the most reliable market for

Philippine sugar exports, in spite of a few negative factors, such as the quota system, imposition of duties, decreasing sugar consumption, and so on.15

15. For instance, the U.S. is not purchasing as much sugar from the Philippines as it did before 1974, because of the new quota system starting from 1982. Yet, under 312

The key reason is that the U.S. is the world's largest sugar-importing country. About half of the sugar consumed in the U.S. is imported from various foreign suppliers.

Although sugar consumption is decreasing in the U.S., sugar is not replaceable.16 The other reason to encourage sugar exportation to the U.S. is that Americans are paying a favorable price for all sugar imports. Although the

U.S. imposes duties on foreign sugar, it is still more profitable to sell sugar to the Americans than to other countries.

In effect, the current quota system and duty system are based on a couple of American laws, which are révisable. Thus, the Philippines should exert more efforts in the U.S. and all other areas of influence in the U.S., to increase their share in the American sugar quota program and renew their petition to the new administration for duty-free treatment of sugar. Even though there is a worry that the U.S. may cease importing sugar soon, the

Philippines should not abandon this market at least at this

the system, the Philippines is steadily exporting an annual quota of 13.5 percent of the American sugar consumption to the U.S.

16. Colburn Aker, director of the Sugar Information Bureau, said in an interview in 1984, " ...... despite a tightening up of the industry over the next 10 years, sugar will still be an important sweetener, with 42 percent of the market in 1992.", and he made a further comment by confirming that "no sweetener could totally replace sugar." (Hollie, "The Sugar Industry's Slide," p.5.) 313 moment.17

In addition to the American market, Japan and Canada are two other major sugar-importing countries, which are potentially stable markets for the Philippine sugar exports. Also, due to their rising per capita sugar consumption, the Soviet Union, the People's Republic of

China, and India are becoming large sugar importers.

Although sugar sales to the USSR and the PRC may be

involved with political factors, these two communist giants are big sugar markets. The destinations of Philippine sugar exports could also be extended to the Arabic world and some Southeast Asian countries such as Singapore,

Malaysia, Burma, and so on.

Second, domestically speaking, the project of sugar

farm mechanization should be continued, despite the fact

that a lot of sugar workers are going to be displaced.18

The reason is very simple. From the experience of other

sugar producers such as Brazil, Hawaii, etc., mechanization

is the most effective approach to promote efficiency, i.e.

reduce production cost and increase yield per hectare.

Although the Filipinos are not able to manipulate the

external variable (i.e. the price fluctuations in the world

17. "Uncle Sugar's Sugar Deal," New York Times. December 21, 1987, I, p.22.

18. There are a couple of alternatives to deal with the surplus of labor force. Intercropping and other labor-intensive industries are two examples, which are to be introduced next. 314 sugar market), they can determine what they should do domestically.

The most crucial issue facing mechanization is the source of capital. The Philippines could tap at least the following three funds from the U.S.: (1) US Section 416 food aid assistance (for less-developed United States sugar-quota-holding countries), (2) the entire $500-million

"Philippine aid package" for economic and military assistance, as announced by the White House on April 23,

1986, and (3) an aid package specifically devoted to "the severely depressed sugar producing region of Negros island."19 Besides, assistance could be reached through the channels of the World Bank, the International Monetary

Fund, the Asian Development Bank, and other multilateral institutions.

In short, it seems that it is not very hard to obtain foreign financial assistance, but--as this study has shown-

-it is difficult to guarantee that these funds will not be misused.

Third, encouraging domestic sugar consumption is another meaningful mechanism to release the burden of jammed sugar exportation. As explained earlier, the

Philippines is not allowed to export as much sugar as before, because of the decline of the world sugar

19. Reinah, "Philippine Sugar Industry Market Considerations," p.153. 315 consumption in the developed world. As a matter of fact, since the early 1980s, the Philippines has moved toward this trend to increase domestic sugar consumption while sugar exportation is declining. For instance, by the mid

1970s no more than 30 percent of the total sugar production was consumed domestically, but this figure was increased to about 50 percent in the 1980s. Thus, it is suggested that the Philippines should eventually produce sugar mainly for internal uses, and leave a small portion of the total sugar production for exportation.

The reason is quite clear, because the Philippine economy is in transition, from an agriculture-oriented to a light-industrial economy. This means that the Philippine exportation in the years to come is going to concentrate on manufactured products such as electronics, machines, televisions, computers, etc, rather than such traditional products as sugar, coconut, abaca, and so on. In effect, the structure of Philippine exportation has been changed since the early 1980s. Agricultural products are no longer significant in the Philippine exports. In 1985, for example, semiconductors (contributing to 17.6% of all exports), and garments (16.0%) were the leading two products in all Philippine exports, whereas centrifugal sugar was ranked the 9th (only 1.8%).20 This indicates

20. Hal Hill, "The Philippine Economy Under Aquino," Asian Survey. Vol.XXVIII, no.3, March 1988, p.270. 316 that the country's economic development is now, though still following the track of export-oriented industries, shifting in the direction of manufactured goods.

This transition from agricultural products to manufactured products is also very helpful to absorb the labor surplus from the traditional industries, because these new industries are still labor intensive-oriented.

Concomitantly, this mechanism would result in a decreasing agricultural population and an increasing industrial population.

Finally, intercropping is also an option which could mitigate the loss of sugar profits, especially during the unfavorable years. In Brazil, intercropping was proved to be effective during the period of the sugar crisis.

Comparatively speaking, Filipinos were reluctant and slow to make a change toward this trend, though a few sugar growers planted cash crops such as mango beans or peanuts between sugarcane furrows in the 1980s.

While it is no longer necessary for Filipinos to

produce as much sugar as before, they could utilize some

land for other uses. According to agriculture experts,

there are a number of varieties for intercropping such as

coffee, cacao, rice, corn, and so on.21 In addition.

21. Actually, in the mid 1970s when President Marcos decided to expand sugar production, many lands of rice and corn were transformed to plant sugarcane. It is not difficult to transfer all these extra lands back to their original uses. 317 aquaculture is also a realistic alternative to sugar cane, especially near the coastline in Negros.22 For instance, prawns, shrimp, and fishponds are encouraged to be developed, because their production would be an optimistic choice for exportation. All these alternatives are helpful to draw the surplus of laborers from the sugar industry when it is fully mechanized.

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