Drink producers shun China corn syrup imports to avoid new levy

January 31, 2018 (Business World) | https://goo.gl/eHYPq4

PHILIPPINE beverage producers are swapping their imports of high-fructose corn syrup (HFCS) for domestic sugar to avoid higher taxes on the alternative sweetener, industry and government officials said, limiting exports from top supplier China.

Losing the Philippine market, or bulk of it, could lead to an oversupply of HFCS in China at a time when Chinese producers are expanding output of the sweetener from huge domestic corn stocks.

The Philippines was the biggest market last year for China’s corn syrup, buying 290,080 tons, or half of China’s exports.

The government on Jan. 1 imposed a tax of P6 a liter on drinks using sugar and other sweeteners versus a tax of P12 on HFCS.

The levies, part of a broader tax reform package, will be used to fund a countrywide infrastructure development program.

“Starting Jan. 1, 2018, we have shifted away from the use of HFCS,” Juan Lorenzo Tañada, director for legal and corporate affairs at Coca-Cola Philippines, the country’s top HFCS importer, told Reuters in a text message.

Mr. Tañada said the move would reduce the impact of the higher tax on its customers, adding the company will “re-export the HFCS that we are no longer going to use due to our shift to sugar.”

Sweetened beverage producers are the biggest HFCS buyers in the Philippines.

Pepsi Cola Philippines, another major HFCS importer, is disposing its HFCS supplies “by selling them abroad little by little, whatever we can sell,” according to a company official who declined to be named because he was not authorized to speak to the media.

China’s HFCS producers may end up flooding their domestic market if they lose their market in the Philippines, said Meng Jinhui, an analyst with Shengda Futures in Beijing.

“If the Philippines does not import any from China, it will add huge pressure on the domestic industry,” Mr. Meng said.

“That part of output would have to be diverted back to the domestic market, further causing oversupply,” he added.

Philippine HFCS buyers will re-export about 20,000 tons of previously imported supplies of the sweetener, the country’s Sugar Regulatory Administration (SRA) said on Tuesday.

The Philippines, which is forecast to produce 2.27 million tons of raw sugar in the crop year ending August, said there is enough local supply to serve the beverage sector, but it would have to curb exports.

The SRA last week raised the domestic allocation of locally produced sugar to 93% from 80% to meet the expected higher demand.

The export allocation for the United States was cut to six percent from 10% and for other countries to one percent from 10%.

Beverage makers used to buy around 250,000 tons of local sugar before making a switch to lower-priced HFCS in 2011, said Jesus Barrera, deputy director of the Philippine Sugar Millers Association.

Mr. Barrera said the higher demand could be met through 2018 production and by drawing from 300,000 tons of sugar left from the last crop year. — Reuters

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