SRA stressed that there is no sugar shortage and the peak of production is still to come this month and in April with a projected inventory of more than 600,000 metric tons (MT).

"Sugar prices are going up because of market speculation fuelled by increasing world market prices which make replacement imports also expensive and a perception of tightness," said SRA, stressing that the price increase has nothing to do with the hike in the value-added tax (VAT).

The country’s production of raw sugar dropped by six percent to 2.018 million metric tons (MT) from 2.15 million MT last year.

"This is not a point of concern and the crop could even be better if not for the relatively wet weather which we are experiencing in Negros. This has not only slowed down the harvest rate, it has also brought down the sugar content of the canes. But overall, we are still on track to meet projected production," SRA said.

The sugar agency has projected an initial demand of 1.95 million MT for the year. "If this projection turns out to be correct, then there should be adequate supply of sugar until the end of the crop year," says SRA.

The country is producing raw sugar at about twice the rate of consumption. And the withdrawal rate is normal at 47,994 MT which is about 160,000 MT a month, or 1.92 million MT a year.

The domestic "B" prices were very high on December 25, 2005 at P1,009.56 per bag, and for the first time in recent memory did not weaken over the holidays.

"Actually it more than defy tradition by strengthening over the holiday break. A slight drop in average price on January 1 was experienced and which can be attributed to SRA’s lifting of the reserve "C" allocation which had been set earlier at 20 percent of production beginning that week which added more sugar to the market, thus lowering prices."

SRA noted that the abnormal price behavior indicated hedging and speculation in the market.

"Traders and even some producers seem to be convinced that the country will be short of sugar this crop year because the two million metric ton production projection will not be reached," SRA said.

SRA expects a higher demand at more than 1.95 million MT. World market prices for raw sugar have been rising steadily.