The sugar industry still enjoys a continuous expansion trend, supported by the production volume of sugar in Thailand and the demand for sugar consumption.
Key Issues to Impact the Direction of the Sugar Industry in 2024
The sugar industry in the year 2024 continues to show signs of expansion, despite severe drought. Influencing factors include an upward-trending price. However, there is also a need to monitor the risks arising from the fragile global economy and export control policies of India. Key issues that will impact the direction of the sugar industry in the year 2024 are as follows:
- The global economy’s expansion, even though the overall global economic landscape in 2024 continues to show a sustained growth trend, will have an impact on the demand for sugar products in the global market. Nevertheless, the recovery of the global economy in the coming year remains highly vulnerable due to the effects of rising interest rates and the slowing trend of the Chinese economy.
- The export control policy of sugar by India will lead to an adjustment in global sugar prices in the coming year, given India’s significant role as a global sugar exporter. However, the implementation of India’s export control policy remains highly uncertain due to the lack of clarity in terms of timing and stringency in policy enforcement.
- The drought issue, characterized by below-average rainfall in several areas of Thailand this year due to the El Niño phenomenon, will cause damage to sugarcane production in the 2023/24 growing season. Sugarcane is a water-intensive crop, and a significant portion of Thailand’s sugarcane cultivation relies primarily on rainwater.
The Sugar Industry will Continue to Expand in 2024
SCB EIC expects that the revenue of the sugar industry in 2024 is likely to expand slightly, supported by the trend of increasing prices. This helps compensate for the significantly reduced production volume, as Thai sugar production in the 2023/24 crop year is expected to decrease by 20.9%, reaching 8.7 million tons. This decline is in line with the expected 15.7% year-on-year reduction in sugarcane entering Thai mills, totaling 79.1 million tons, resulting from reduced yields per hectare due to drought conditions.
In addition, the central and northern regions will experience a significant reduction in sugarcane production due to more severe drought conditions compared to other areas. Meanwhile, the average export price of sugar in 2024 is expected to increase by 21.6% year-on-year, reaching $620.5 per ton. This aligns with the upward trend in global sugar prices, expected to continue next year. The global sugar market is anticipated to face an imbalance as India is likely to reduce sugar export quotas in the upcoming production season, leading to a further increase in global sugar prices in 2024, estimated at 26.1 cents per pound.
The sugar export value in 2024, it is expected to stabilize at 3.6 billion U.S. dollars, while the domestic sugar market value will be at 5.5 trillion Baht, showing a 12.0% year-on-year expansion. The reasons behind this are as follows:
1) Increasing consumption volume in the country, following the economic recovery.
2) The increase in domestic sugar prices due to state policy adjustments.
In the intermediate term, the sugar industry continues to exhibit a sustained expansion trend, supported by factors such as the production volume of sugar in Thailand and the ongoing global demand for sugar, which is expected to increase continuously
The Challenges of the Sugar Industry in 2024
The growth of the sugar industry in 2024 and beyond will face various challenges. These challenges include economic uncertainty, agricultural policies of trading partners/competitors, changes in climate conditions, policies and measures to promote the transition to a low-carbon economy, and the sustainability trend.
- The economic uncertainty and agricultural policies of trading partners/competitors contribute to the challenges faced by the sugar industry in 2024. The global economy remains vulnerable and highly uncertain due to unforeseen events occurring continuously. Additionally, the agricultural policies of various countries also exhibit a high degree of uncertainty. This situation will result in the sugar industry, heavily reliant on exporting to the global market, experiencing increased volatility.
- Climate change will force sugar industry entrepreneurs to cope with more volatile business conditions, affecting both production costs and the uncertain quantities of raw materials. The unpredictability is particularly high in terms of both production costs and the uncertain quantities of raw materials.
- Policies and measures to promote the transition to a low-carbon economy, such as international trade measures and carbon taxation, will increase the cost of operating sugar businesses. These pressures will lead to an adjustment in the costs associated with sugar production.
- Sustainability is one of the crucial global megatrends that impact the sugar industry. Consumers and continuous industries using sugar as a raw material tend to increasingly prioritize environmental, social, and ethical issues in the future.
SCB EIC believes that participants in the sugar industry must swiftly adapt to address the aforementioned challenges and elevate their competitiveness sustainably in the global market. This includes preparing for the high uncertainty in economic conditions, international trade regulations, and policies of trading partners/competitors. For example, adapting to the production and trade policies of major trading partners, such as India and Brazil, and the self-sufficiency policies in food by key trading partners. Diversifying exports to various markets is crucial to avoid excessive dependence on a single market. Furthermore, contingency plans for various scenarios, including investments to seize opportunities and mitigate the impacts of climate change and sustainable trends, such as supporting sugarcane farmers to invest in water sources or providing incentives for sugarcane farmers to harvest the fresh cane. Additionally, transitioning production systems towards a low-carbon economy is also emphasized.
Author: Dr. Kiattisak Khamsi