Figure 6-3 Graphical representation of the liberalization scenario
For the liberalization scenario (Figure 6-3), the domestic price settles down to the protected level at PF. The additional demand due to the ethanol mandate does not materially alter the domestic price or even quantity produced. Profit per ha is about 48% lower (but still positive). The net present value of farm income is a little below Php150,000 per ha (Table 69). With reference to the domestic price under this scenario, the rent component of the imputed land price is therefore about Php80,000 or 52% of the actual capitalized net income. This suggests a lighter fiscal burden of land redistribution under this scenario. For the regulated feedstock scenario (Figure 6-4), the restriction segments the market, resulting in two supply curves for sugarcane; the higher one corresponds to the feedstock supply, the lower one to food supply. This allows two prices, one for feedstock sugar (implicit in the cane price), and one for food sugar. The study assumes the percentage restriction per planter is the feedstock requirement as a share of 2006 output (12%). To fully offset liberalization, the price of cane must be 90% higher than the implicit cane price in 2006. This corresponds to nearly Php30/liter feedstock cost of ethanol. This is neither competitive even at current high gasoline prices nor politically sustainable in the face of lobbying by fuel companies and users.
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