1 Year in a Nutshell after Thailand ‘Floated Sugar Prices’

The lawsuit filed in 2016 against Thailand by Brazil to World Trade Organization (WTO) concerning policy on sugar export which contradicted the WTO’s agreement has still exerted a lot pressure on Thailand. To throw out the case, Thai government has to amend some law to facilitate restructuring of cane and sugar industry. One way to do so was floating sugar prices and cross out sugar from the product control list.

The major reason of the lawsuit is the fact that Brazil was concerned with amendment of Thailand’s cane and sugar act of 2014. According to the act, the sugar quota requirement categorizes the product into three groups. The first one includes sugar for domestic consumption; the second is the one exported by Thailand Cane and Sugar Company Ltd.; the last one belongs to the sugar exported by Thai sugar factories. The requirement determined sugar amount and prices as well as projects to support sugar cane planters by set a purchasing price for sugar cane and introducing cane and sugar funds to attract Thai farmers so that they do sugar cane farming more.

Deputy Minister of Industry Mr. Somchai Hanhiran, on behalf of the Industry Minister, stated that Thailand’s sugar prices would refer to the world’s prices which allowed real-time competition. This is the sign that the country intends to restructure prices of cane and sugar and shows the world that it accepted the world’s market competition along with amendment of the current cane and sugar act. Once the amendment is completed together with the restructure of cane and sugar prices, the industrial system for the products concerned will be formalized.

Besides, leaders of National Federation of Sugar Cane Planters and National Association of Sugar Cane Planters informed that the sugar price in the world’s market had dropped, thus lowering retail prices of sugar in Thailand to only 1 Thai Baht. However, the situation remains the same and consumers are enjoying the advantage as much as industries that use sugar as a raw material, such as drinking water, food and bakery. Although the rate of profit share among Thai farmers is at 70: 30, their income decreases due to low selling prices of sugar despite remaining capital prices. This is the rule that the farmers are supposed to accept so that market mechanisms continue.

Nevertheless, floating of sugar prices in Thailand for over one year is considered beneficial and successful since Brazil, impressed with solution on restructuring cane and sugar industries and floating sugar prices according to market mechanisms, cancelled a request for the judge panel to consider the lawsuit on 30 March 2018. It also asked Thailand not to determine the sugar quota but allow the product to be reserved according to the reserve stock so that domestic consumption is sufficient. Such is a solution that complies with WTO’s agreement.

Of course, floating sugar prices and existing system and mechanisms in Thailand are not stable and in the period of adjustment. Also, the new act of cane and sugar is being amended upon approval of National Legislative Assembly of Thailand.

Another important issue to focus is how to impose a requirement on sharing raw materials derived from sugar cane, namely products made of cane extraction like ethanol. Such products will affect the whole system of cane and sugar industry because it is doubtful whether more income will be shared among cane planters or not.

Mr. Siriwut Siemphakdee, Vice President of the Executive Board of TSMC, said on behalf of the chairman of the PR working group for 3 associations of sugar factories in Thailand that he had expected that, in 2018 and 2019, amount of extracted sugar cane would be lower than the one in 2017 and 2018 due to changing weather and less consumption of sugar under healthcare campaigns and sweets taxes.

“At the same time, it is expected that there will be more supply than demand, resulting in the decrease of the current world sugar stock from 10 million tons to 1 or 2 million tons in 2020. Sugar prices in the world market will be different from today’s, but the retail price in Thailand will not be instantly affected,” explained Mr. Siriwut.

Mr. Siriwut also added that the associations kept analyzing effects after sugar prices had been floated for a year by collecting both negative and positive data to prepare for what would take place in the future. It is certain that sugar prices in the world market will be lowered because the amount of sugar stock is still as high as 10 million tons. At present, the average sugar price of London No. 5 is between 11 and 12 cents per pound while sugar sold by factories directly enjoys stable prices of 17-18 Thai Baht per kilo.

According to data on extraction of sugar cane in 2018/2019, presented on 12 March 2019 by the Cane and Sugar Commission of Thailand, around 109,546,357.394 tons of sugar cane have been extracted, 44,759,450.764 tons of which are from fresh sugar cane while 64,786,906.630 tons belong to the burnt one. The amount is more than the one of the previous year if comparison is made at the same time.

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