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Export market
Factors, which affect Thai sugar
exports
There are some important and interesting
factors, which is directly affected Thai sugar industry that
we need to learn. The following are primary problems and changes
faced by Thai sugarcane industry, according to the research
paper "The Thai sugar industry: crisis and opportunities".
A. Price
Virtually every cane and sugar issue in the news has to do with
sugar and cane prices. Price has been the only thing that every
party involved is concerned with. Since the government acts
as the mediator according to the Cane and Sugar Act 1984, it
always becomes the target of all sorts of demands from the parties
involved. In the last few years, both pre-season and post-season
cane price announcements have become a political issue. Since
the private parties involved in the price-formulating system
do not include consumers or sugar-users, there are tendencies
that the private parties ask for price raise, since this would
only benefit them. However, it becomes increasingly clear that
a price hike is no longer sustainable.
First, although the two-price policy
that fixed the domestic price above the world price has facilitated
the growth of the Thai sugar industry to become one of the
top exporters, it fails to maintain adequate domestic supply
of sugar whenever the world price is higher than the domestic
one. This resulted in shortages of domestic sugar in late
1997 and early 1997 as well as in the early 1980s.
Second, price hikes would engender and intensify conflict
between the cane and sugar industry on one side and consumers
and industries that use sugar as a raw material on the other
side. This is not only because the two-price system makes
the latter pay a higher price for sugar, but because it also
provides each sugar mill with an incentive to expand its production
capacity to secure a larger share of the lucrative domestic
quota.
B. Agricultural Trade Liberalization
Since the Uruguay Round of the General Agreement on Tariffs
and Trade (GATT), agricultural trade liberalization has become
a very significant issue. As a major agricultural exporting
country, Thailand stands to gain from agricultural liberalization,
since most of the Thai agricultural products can compete in
the world market with little or no subsidy. Even in the case
of sugar where the two-price policy could be considered a
certain kind of subsidy scheme, the rate of subsidy as such
is relatively low, compared to the agricultural subsidies
received by farmers in the European Union (EU), the USA and
Japan. Therefore, if all export subsidies and trade barrier
measures are removed, the Thai sugar industry, one of the
three major exporters in the free trade market, will certainly
benefit from such liberalization.
Although some interest groups in the sugar industry want to
postpone trade liberalization in order to retain the protection
as long as possible, the Thai government will not be able
to keep imposing subsidies or protecting the industry indefinitely.
This is because, in the commitments for freer trade. After
liberalization, only the strongest and fittest will survive
and benefit while non-competitive entities are likely to collapse
and exit the market. The report noted that some major sugar
exporting countries such as Australia and Brazil have reformed
their sugar industry.
C. Competitiveness
Thailand's competitiveness in agriculture has thus far been
based on cheap labor cost and an abundant land resource. The
report noted that these two issues are not Thailand's strength
any longer. Even though the existing resources would keep
Thailand as one of the major food exporters for a long time,
further large-scale expansion of cultivatable land is no longer
feasible. Moreover, the unskilled wage rate that decreased
slightly in the wake of the recent economic crisis is likely
to return to its normal trend in the medium and long term.
Another important factor that would affect Thailand's competitiveness
is the world sugar price. Sugar price shows a declining tendency
in the long run. The deterioration of the real prices of agricultural
products results from productivity and efficiency improvements
taking place in both exporting and importing countries, and
in the case of sugar, both in cane fields and in sugar mills.
Thus, the only way out would be to increase the farm productivity
if Thai sugarcane planters were to compete in the world market.
D. Production efficiency
Efficiency of productivity continues to be an important problem
of Thai sugarcane industry. However, the nature of the problem
faced is different for the farmers and millers. For the farmers,
the problem shows in lower yield and lower sucrose content
of the cane than in other competing countries. Moreover, total
output of cane in each year is rather fluctuating due to the
cultivating areas and the weather condition. All these problems
also directly affect to the income stability of the sugarcane
planters as well as the efficiency in utilizing mill capacity.
The improper of cane harvesting and transportation is another
problem, which could damage the quality. Meanwhile, the shortage
of good sugarcane varieties, disease and the lack of research
and development are also significant problem, which could
hamper the efficiency of production.
For sugar mills, the problem is the extensive capacity expansion
that has brought factories to excessive capacity and indebtedness.
This is particularly the case of new mills that were equipped
with state-of- the-art technology. However, after internalizing
the average cost of producing sugar from these new mills is
substantially higher than that from older and obsolete ones.
E. Indebtedness
According to the report, sugar mills had easy access to credit
until recently. The reason is sugar mills also acted as intermediaries
by obtaining loans from commercial banks to provide pre-season
credit to growers. Capital account deregulation in the early
1990s made it even easier to acquire cheap credit from abroad,
thus fueling rapid mill expansion. Some of these loans were
also used to invest in other businesses, including real estate.
When the economic crisis hit in 1997 and the Thai Baht was
floated in early 1998, the amount of foreign debts doubled
and many mills failed to repay their debts on schedule. Then
the commercial banks stopped providing loans to the mills,
which, in turn, were unable to provide the growers with pre-season
credit. The government then asked the Bank for Agriculture
and Agricultural Cooperatives (BAAC) to provide pre-season
credit to the growers for the 1998/99 season. Later the BAAC
agreed to the government's subsequent requests to provide
pre-season credit for the 1999/00 and 2000/01 seasons.
Besides having the BAAC provide the planters with pre-season
credit, the Cane and Sugar Fund borrowed and additional amount
of 10,300 million baht from the BAAC to pay growers extra
100 baht per ton cane for the 1998/99 and 1999/00 crop years
to fulfill the government's promise. The Fund will have to
repay the BAAC in five years. At present, it uses the extra
revenue from recent sugar price hike to repay this debt. However,
the report mentioned that only this revenue will not be sufficient
to service the outstanding debts and the Fund will have to
obtain more money, possibly from the revenue-sharing system.
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