In September 2016, the Thai government approved building of 25 new sugar factories, which, if built, by the scheduled 2021, would increase the number of factories in the country to 79. Cane acreage was forecast to rise to 2.24 million hectares from 1.60 million to accommodate increased demand for cane. Production of cane was anticipated to increase to 180 million tonnes supporting sugar production of around 20.4 million tonnes. But combination of factors has stalled this expansion. Speaking at the International Sugar Organization seminar last November in London, Rangsit Hiangrat, Director General, Thai Sugar Millers Corp acknowledged that beyond the 3 new mills that will commence operations in 2018/19 (bringing total number to 54), further new build activity is unlikely in the foreseeable future. With the profitability in the sugar waning, it is unlikely that Thai millers will be investing in new capacity.
Liberalization of its sugar policy, forced upon by Brazil who launched a complaint against Thailand in March 2016 for subsidising sugar producers, is having a significant impact. In January 2018, the government temporarily deregulated the domestic sugar price controls and the sugar sales administration (known as Quota A for domestic sales, and Quota B and Quota C for export sales) for 2017/18 – 2018/19. This effectively replaced a chunck of the Cane and Sugar Act (1984) that sets the wholesale sugar price floor and eliminates the special THB5 (US16 cents)/kg tax on domestic sugar sales. However, the government still maintains a sugarcane price support programme under the Cane and Sugar Act. The deregulation of wholesale sugar prices has reduced domestic sugar prices. In September 2018, the average ex-factory white and refined sugar price was THB16-17 per kilogram, down by THB3 from the previous controlled price.
Add to this the impact on domestic sugar consumption from the introduction of tax on soft drinks introduced in September 2017 and which will grow gradually until 2023. Between January and August ’18, domestic consumption was down by 60,000 tonnes (a decline of 3%).
Then there is also the concern of cane becoming less attractive for farmers as a result of the policy change and the farmers switching to the more profitable cassava.
The current global sugar surplus has also exposed certain vulnerability of the industry as exportable surplus accounts for over 70% of its production. Even though it enjoys tariff-free/reduced access for its sugar to countries in the ASEAN Economic Community (which includes major importer Indonesia) where over 50% of its exports are destined, serving existing markets and finding new ones has invariably been difficult. For example, with China introducing prohibitive import duty (May 2017 – May 2020), to protect its domestic sector, Thai sugar exports to this market has been hit, and has actively exploited the indirect route via Myanmar.
To reduce over reliance on the export market, last September, Worawan Chitaroon, the secretary-general of the Office of Cane and Sugar Board (OCSB), indicated that the Thai government is prioritizing the expansion of biochemicals production through the use of sugar as the main feedstock. The aim is to reduce the proportion of sugar allocated for export to drop to 40% to 50%. The announcement by Chitaroon was to speed up the bioeconomy roadmap that 23 organizations from government units, the private sector, educational institutes and research centres bought into in 2017. With many biotech start-ups simply not being able to commercialize their technologies, there is little expectation of the sector off-loading domestic sugar production in any meaningful quantity.
Sugar production in Thailand peaked in 2017/18 at 14.7 million tonnes. It is forecast to decline in 2018/19 as low prices following liberalization of the sugar policy have prompted cane growers to extend ratooning. Expansion in sugar production investment in new build has necessarily come to a stop.