Thailand Agrees to Increase Sugarcane Prices and Orders Sugar to be Controlled Commodity
The sugarcane and sugar industry is considered a major sector that generates substantial income for Thailand, estimating a value of no less than 200 billion baht per year. This is due to its strength in utilizing domestic raw materials for sugar processing to meet domestic demand. Additionally, there is surplus production that can be exported, providing income to sugar factories and the sugarcane farmers. Furthermore, the Thai sugar industry’s strategic location in the Asian region, which is rich in countries being major importers of sugar globally, contributes to cost advantages in transportation to regional markets. All these factors contribute to the growth of the Thai sugar industry in a sequential manner.
This industry has grown and shown potential because it is the only agricultural product governed by the Sugarcane and Sugar Act. This law has undergone some amendments, but the system faced complications, especially when Brazil initiated consultations with Thailand at the World Trade Organization (WTO) in 2016. Thailand, being the world’s second-largest exporter of sugar after Brazil, implemented sugar export support policies that may have conflicted with WTO agreements, causing concerns about amendments to the Sugarcane Act of 1984. This law regulates Thailand’s sugar quota system, including both quantity and price, as well as initiatives to assist sugarcane farmers by setting sugarcane purchase prices and utilizing the Sugarcane and Sugar Fund to encourage increased sugarcane cultivation. Thailand has sent delegates for negotiations on several occasions, allocating budgets specifically for this purpose. Main representatives include the Ministry of Commerce, the Ministry of Industry, sugar factories, and sugarcane farmers. However, it appears that the predominant voice, especially from the government, is focused on adjusting everything to meet Brazil’s demands. This is mainly due to concerns that losing the case against Brazil in the WTO would require substantial compensation, leading to the announcement of National Council for Peace and Order (NCPO) Order No. 1/2018 on January 15, 2018. The order pertains to the amendment of laws to accommodate the restructuring of the sugarcane and sugar industry as a whole.
Remove Sugar from Controlled Products
This marks the official announcement of Thailand’s ‘Floating Sugar Price,’ leading to the country’s abandonment of the quota system and domestic sugar pricing. The calculation of sugarcane prices for farmers now relies on the mechanism tied to the global sugar price or London No. 5, plus a premium. Following a Cabinet meeting on January 22, 2019, a resolution was passed in line with the decision of the Central Committee on Prices of Goods and Services (CCP), determining to remove refined sugar from controlled products. Previously, the Ministry of Commerce designated sugar as a controlled product and set the retail price not to exceed 23.50 baht per kilogram. After the government adopted the floating sugar price policy, during a period when global sugar market prices were low, retail prices decreased by around 2-3 baht per kilogram. This led to factory-gate prices stabilizing at the previous levels of 17.25 baht per kilogram for raw sugar and 18.25 baht per kilogram for refined white sugar. Prices remained steady until global sugar market prices gradually increased, prompting factories to adjust sugar prices upward by approximately 1.75 baht per kilogram. Subsequently, the Office of the Cane and Sugar Board announced the calculation of sugarcane prices and production compensation for the 2022/23 season on January 20, 2023. The factory-gate prices for raw sugar were set at 19 baht per kilogram for raw sugar and 20 baht per kilogram for refined white sugar, effectively returning to the previous pricing levels before the adoption of the floating price policy.
Reinstating Sugar as a Controlled Commodity Once Again
Sugar prices are on the move again after global market prices surged to around 26-27 baht per kilogram in Thai currency. As a result, the Ministry of Commerce had to announce the pricing of domestic sugar within the kingdom to be used in calculating sugarcane prices and production compensation for the 2023/24 growing season. The factory-gate price was increased by 4 baht per kilogram to benefit sugarcane farmers. This adjustment led to the factory-gate prices for refined white and raw sugar being set at 23 and 24 baht per kilogram, respectively, effective from October 28, 2023. This has caused fluctuations in the market and raised concerns, as it is perceived to pass the burden onto consumers and may impact the cost of products that use sugar as a raw material. The Central Committee on Prices of Goods and Services (CCP), chaired by Mr. Phumtham Wechayachai, the Deputy Prime Minister and Minister of Commerce, urgently convened on October 30, 2023. The committee passed a resolution designating refined sugar as a ‘controlled product’ in accordance with the Price of Goods and Services Act of B.E. 2542. It was decided to maintain the factory-gate price at the previous level. Subsequently, on October 31, 2023, the Cabinet approved the proposal presented by the Ministry of Commerce. Following this decision, the Ministry made an announcement reinstating the factory-gate prices for sugar to their original levels. This move has led analysts to characterize it as a policy reversal.
Negotiations Underway to Increase Sugar Price by 2 Baht per Kilogram
Previously, a sugar price was adjusted to 4 baht per kilogram, and was divided into two periods of time. The first one, 2 baht per kilogram, approximately 5,000 million baht, would be used to calculate the initial sugarcane prices for the 2023/24 season under the revenue-sharing system of 70 (farmers) : 30 (factories). The second period, another 2 baht per kilogram, would be allocated to the Sugarcane and Sugar Fund (SSF). However, after negotiations with sugarcane farmers through the Industry Balance Management Working Committee, the Ministry of Commerce began to assess the costs and acknowledge the various issues faced by the farmers. It seems that the government is becoming more aware of the problems and is starting to negotiate the possibility of a price increase of only 2 baht per kilogram. This is to reflect the reality and restore income to the revenue-sharing system that sugarcane farmers should benefit from. The matter of deducting funds into the SSF is considered a separate issue, as it is seen that the cutting of fresh sugarcane should be treated differently.
According to the latest report on November 14, 2023, the Cabinet has approved an increase in the prices of both wholesale and retail refined sugar by 2 baht per kilogram. The factory-gate prices were adjusted, setting the price for refined white sugar at 21.00 baht per kilogram, up from the previous 19.00 baht per kilogram. Additionally, the factory-gate price for refined raw sugar was increased from 20.00 baht to 22.00 baht per kilogram. The retail prices were deemed appropriate to be regulated and supervised accordingly.
The Cabinet has approved a budget of 8 billion baht to support sugarcane farmers in cutting high-quality fresh sugarcane and reducing PM 2.5 dust, aligning with the WTO’s Environmental Protection provisions (aka Green Box) in agriculture. This support aims to have no impact on production and product prices. Sugarcane farmers will receive a support payment of 120 baht per ton of fresh sugarcane for the 2022/23 production year to alleviate the challenges faced by registered sugarcane farmers, numbering around 140,000, with the Department of Agriculture. Payments are scheduled to begin in January 2024.
However, when sugar prices become controlled, the reality is that exploring prices in provinces outside of the Modern Trade system reveals that prices often exceed the controlled prices. This is because in a market mechanism challenging to control, when neighboring prices are higher, middlemen are inclined to seize the opportunity. This is an undeniable reality. If this control continues and the sugarcane fund still lacks accumulated funds to address such issues, it will be challenging to avoid a situation where, in the face of declining sugarcane prices, we might witness sugarcane farmers rallying for government assistance to offset production costs.
Despite good laws regulating the sugar industry, the majority of sugarcane growers still face financial difficulties, similar to other agricultural crops that consistently seek budgetary support. In the end, it turns into a situation where taxpayers might unfairly bear the burden, especially for those who do not consume sugar. The reality is that sugar consumption among the general public has decreased as there is a growing emphasis on health. Moreover, the government is concerned about the excessive consumption of sweeteners, leading to the growth of sugar substitutes in recent times.
