Required Report - public distribution

**Date:** 4/7/2004

**GAIN Report Number:** TH4043

TH4043

**Thailand**

**Sugar**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Rodrick McSherry, Agricultural Counselor

U.S. Embassy, Bangkok

**Prepared by:**

Ponnarong Prasertsri, Agricultural Specialist

**Report Highlights:**

My 2005 cane production will likely continue to decline slightly due to
unattractive returns, as the Royal Thai Government (RTG) is restricting
the price supports. As a result, exportable supplies of sugar will
likely be limited. The RTG is beginning to focus more on cane-based
ethanol, but the policy remains under development.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Annual Report

Bangkok \[TH1\]

\[TH\]

#  

[Executive Summary 3](#executive-summary)

[1. Sugarcane 4](#sugarcane)

[1.1 Production 4](#production)

[1.2 Consumption 4](#consumption)

[1.3 Policy 5](#policy)

[2. Sugar 6](#sugar)

[2.1 Production 6](#production-1)

[2.2 Consumption 6](#consumption-1)

[2.3 Stock 7](#stock)

[2.4 Trade 7](#trade)

[2.5 Policy 8](#policy-1)

[3. Supplementary Tables 9](#supplementary-tables)

[Table 1: Thailand's Planted Area of Sugarcane by Region
9](#table-1-thailands-planted-area-of-sugarcane-by-region)

[Table 2: Thailand's Sugarcane Production by Region
9](#table-2-thailands-sugarcane-production-by-region)

[Table 3: Thailand' Sugarcane Yield by Region
9](#table-3-thailand-sugarcane-yield-by-region)

[Table 4: Thailand's Sugar Utilization by Domestic Industry
10](#table-4-thailands-sugar-utilization-by-domestic-industry)

[Table 5: Thailand's Average Prices of Domestic Plantation White Sugar
and Sugarcane
11](#table-5-thailands-average-prices-of-domestic-plantation-white-sugar-and-sugarcane)

[Table 6: Thailand's Average Final Price of Sugarcane by Zone (First
Applied in 1996/97)
12](#table-6-thailands-average-final-price-of-sugarcane-by-zone-first-applied-in-199697)

[Table 7: Thailand's Monthly Export Price (FOB) for Raw Sugar (Baht/Ton)
13](#table-7-thailands-monthly-export-price-fob-for-raw-sugar-bahtton)

[Table 8: Thailand's Monthly Export Price (FOB) for Plantation White
Sugar (Baht/Ton)
14](#table-8-thailands-monthly-export-price-fob-for-plantation-white-sugar-bahtton)

[Table 9: Thailand's Annual Raw Sugar Exports (MTRV)
15](#table-9-thailands-annual-raw-sugar-exports-mtrv)

[Table 10: Thailand's Annual White and Refined Sugar Exports (MTRV)
16](#table-10-thailands-annual-white-and-refined-sugar-exports-mtrv)

[Table 11: Thailand's Average Quality of Cane Measured by C.C.S
17](#table-11-thailands-average-quality-of-cane-measured-by-c.c.s)

[Table 12: Thailand's Business Tax Rates for Cane and Sugar
18](#table-12-thailands-business-tax-rates-for-cane-and-sugar)

#  

# Executive Summary

MY 2005 sugarcane production will likely take a downward turn in
anticipation of unattractive returns, and due to RTG policy to limit
cane production.

MY 2004 cane production is revised downward to 66 million metric tons,
due to dry weather conditions, which led to a sharp reduction in sugar
production. However, sugar yields improved significantly due to a
smaller proportion of burned cane. Also, despite an anticipated lower
exportable supply, sugar exports are forecast to increase further from
the previous year's anticipated record level, as other major world cane
producers are hit by drought.

The change in RTG policy on sugarcane support is pushed by the huge debt
burden of the state-run Cane and Sugar Fund. RTG support continues, but
is limited to 65 million tons of cane produced. Meanwhile, the
government has liberalized the ethanol industry in order to support the
use of cane for ethanol production. This policy is new and not fully
formed, with aspects of its implementation yet to be determined.

# 1. Sugarcane

+------------------+-------+-------+-------+-------+-------+-------+
| **PSD Table**    |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| **Country**      | **    |       |       |       |       |       |
|                  | Thail |       |       |       |       |       |
|                  | and** |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| **Commodity**    | **    |       |       |       | (1000 |       |
|                  | Sugar |       |       |       | HA)   |       |
|                  | Cane  |       |       |       | (1000 |       |
|                  | for   |       |       |       | MT)   |       |
|                  | Cen   |       |       |       |       |       |
|                  | trifu |       |       |       |       |       |
|                  | gal** |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
|                  | 2003  |       | 2004  |       | 2005  |       |
|                  |       |       |       |       |       |       |
|                  | Re    |       | Est   |       | For   |       |
|                  | vised |       | imate |       | ecast |       |
+------------------+-------+-------+-------+-------+-------+-------+
|                  | USDA  | Post  | USDA  | Post  | USDA  | Post  |
|                  | Off   | Est   | Off   | Est   | Off   | Est   |
|                  | icial | imate | icial | imate | icial | imate |
|                  | \[    | \[    | \[    | \[    | \[    | \[    |
|                  | Old\] | New\] | Old\] | New\] | Old\] | New\] |
+------------------+-------+-------+-------+-------+-------+-------+
| **Market Year    |       | 12    |       | 12    |       | 12    |
| Begin**          |       | /2002 |       | /2003 |       | /2004 |
+------------------+-------+-------+-------+-------+-------+-------+
| Area Planted     | 995   | 1144  | 995   | 1200  | 0     | 1050  |
+------------------+-------+-------+-------+-------+-------+-------+
| Area Harvested   | 970   | 1121  | 970   | 1050  | 0     | 1020  |
+------------------+-------+-------+-------+-------+-------+-------+
| Production       | 69000 | 74100 | 69000 | 66000 | 0     | 65000 |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL SUPPLY     | 69000 | 74100 | 69000 | 66000 | 0     | 65000 |
+------------------+-------+-------+-------+-------+-------+-------+
| Utilization for  | 69000 | 74100 | 69000 | 66000 | 0     | 65000 |
| Sugar            |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Utilizatn for    | 0     | 0     | 0     | 0     | 0     | 0     |
| Alcohol          |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL            | 69000 | 74100 | 69000 | 66000 | 0     | 65000 |
| UTILIZATION      |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+

## 1.1 Production

MY 2005 sugarcane production will likely continue the recent downward
trend, due mainly to anticipated unattractive returns, as the RTG has
begun limiting the price support program, paying support only for the
first 65.0 million tons of cane production. Moreover, the subsidy price
is set at no higher than 580 baht/ton (ex-factory price) between MY
2004-2008. The current subsidy price for MY 2004 is tentatively at 478
baht/ton, far below production cost, due mainly to depressed global
prices, which are a key factor in determining the RTG subsidy price.

In MY 2004, sugarcane production is revised downward to 66 million
metric tons, down significantly from the record 74.1 million metric tons
of the previous year, due to drought. The Northeastern region, covering
about 40 percent of total production, was adversely affected by drought.
Average cane yield is expected to decline sharply from the previous
year's average of 64.8 tons/hectare. However, the proportion of burned
cane reportedly contracted to 38 percent of total harvested cane, as
compared to 52 percent in the previous year. Thai farmers often burn the
sugarcane fields prior to harvest, which makes the cane easier to gather
during harvesting.

## 1.2 Consumption

All sugarcane is currently used as the raw material in sugar mills. The
RTG is starting to encourage the use of cane for ethanol production, but
this new policy is still under development. At present, the average
extraction rate of cane for sugar is reportedly at 107.3 kgs/ton of
cane, up significantly from 98.36 kgs/ton of cane in the previous year.
Also, the average Cane Commercial Sugar (CCS) increased to 12.0 percent,
compared to 11.2 percent in the previous year. The improvement in
average extraction rate and average CCS reflected the reduction in
proportion of burnt cane and improvements in the cane handling system
from the fields to the mills.

## 1.3 Policy

The government is attempting to limit the financial assistance to cane
growers. Depressed world prices have been driving up the amount of
financial assistance the RTG must pay. The five-year plan, to start in
MY 2004, will provide financial assistance via the subsidy price, which
is set at no more than 580 baht/ton (ex-factory price), only on the
first 65 million metric tons of cane production. Any production after
this amount receives no subsidy payment. In MY 2004 the subsidy price is
initially set at 478 baht/tons, as compared to the market price of 330
baht/ton. The amount of cane eligible for the subsidy price for each
cane grower depends on the growers' average production level over the
past 3 years. All cane growers, around 700,000 growers, will be
registered and are required to limit their planted area. Moreover, RTG
authorities will set standards in cane quality and efficiency in sugar
production for cane growers and sugar millers. Financial assistance will
be reduced for those who do not reach the new standards, which include
the proportion of burnt cane (no more than 20 percent) and residuals (no
more than 3 percent). Also, the sugarcane cultivation zone is set at a
100 km limit around sugar mills. Also, the efficiency of sugar mills is
targeted at an average extraction rate of no less than 105 kg/ton of
cane.

The RTG has started to focus on the alternative use of sugarcane as a
raw material for ethanol production. At present, ethanol is being
promoted to replace imported Methyl Tertiary Butyl Ether (MTBE) in
gasoline. Recently, the government has liberalized the ethanol industry,
leading to an expansion in ethanol production, in particular that of
tapioca-based ethanol. According to the government target, demand for
ethanol should reach 1 million liter/day by CY 2006 and expand to 2
million liter/day by 2008, given the daily demand for gasoline at 20
million liters. At present, there is reportedly only one tapioca-based
ethanol producer in Thailand (as of October 2003), supplying 10,000
liter/day for blending with gasoline. However, trade sources reported
that it would take some time for full scale, sugar-based ethanol
production, as the government policy has yet to be fully determined,
particularly on the benefit sharing system for the cane growers for
sugar and ethanol production.

# 2. Sugar

+------------------+-------+-------+-------+-------+-------+-------+
| **PSD Table**    |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| **Country**      | **    |       |       |       |       |       |
|                  | Thail |       |       |       |       |       |
|                  | and** |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| **Commodity**    | **C   |       |       |       | (1000 |       |
|                  | entri |       |       |       | MT)   |       |
|                  | fugal |       |       |       |       |       |
|                  | Su    |       |       |       |       |       |
|                  | gar** |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
|                  | 2003  |       | 2004  |       | 2005  |       |
|                  |       |       |       |       |       |       |
|                  | Re    |       | Est   |       | For   |       |
|                  | vised |       | imate |       | ecast |       |
+------------------+-------+-------+-------+-------+-------+-------+
|                  | USDA  | Post  | USDA  | Post  | USDA  | Post  |
|                  | Off   | Est   | Off   | Est   | Off   | Est   |
|                  | icial | imate | icial | imate | icial | imate |
|                  | \[    | \[    | \[    | \[    | \[    | \[    |
|                  | Old\] | New\] | Old\] | New\] | Old\] | New\] |
+------------------+-------+-------+-------+-------+-------+-------+
| **Market Year    |       | 12    |       | 12    |       | 12    |
| Begin**          |       | /2002 |       | /2003 |       | /2004 |
+------------------+-------+-------+-------+-------+-------+-------+
| Beginning Stocks | 979   | 979   | 1282  | 1282  | 1182  | 982   |
+------------------+-------+-------+-------+-------+-------+-------+
| Beet Sugar       | 0     | 0     | 0     | 0     | 0     | 0     |
| Production       |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Cane Sugar       | 7303  | 7303  | 7690  | 6900  | 0     | 6800  |
| Production       |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Sugar      | 7303  | 7303  | 7690  | 6900  | 0     | 6800  |
| Production       |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Raw Imports      | 0     | 0     | 0     | 0     | 0     | 0     |
+------------------+-------+-------+-------+-------+-------+-------+
| Refined Imp.(Raw | 0     | 0     | 0     | 0     | 0     | 0     |
| Val)             |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL Imports    | 0     | 0     | 0     | 0     | 0     | 0     |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL SUPPLY     | 8282  | 8282  | 8972  | 8182  | 1182  | 7782  |
+------------------+-------+-------+-------+-------+-------+-------+
| Raw Exports      | 2800  | 2800  | 3180  | 2850  | 0     | 2750  |
+------------------+-------+-------+-------+-------+-------+-------+
| Refined Exp.(Raw | 2300  | 2300  | 2620  | 2400  | 0     | 2250  |
| Val)             |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL EXPORTS    | 5100  | 5100  | 5800  | 5250  | 0     | 5000  |
+------------------+-------+-------+-------+-------+-------+-------+
| Human Dom.       | 1900  | 1900  | 1990  | 1950  | 0     | 2000  |
| Consumption      |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Other            | 0     | 0     | 0     | 0     | 0     | 0     |
| Disappearance    |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Total            | 1900  | 1900  | 1990  | 1950  | 0     | 2000  |
| Disappearance    |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+
| Ending Stocks    | 1282  | 1282  | 1182  | 982   | 0     | 782   |
+------------------+-------+-------+-------+-------+-------+-------+
| TOTAL            | 8282  | 8282  | 8972  | 8182  | 0     | 7782  |
| DISTRIBUTION     |       |       |       |       |       |       |
+------------------+-------+-------+-------+-------+-------+-------+

## 2.1 Production

MY 2005 sugar output is forecast to continue a downward trend in
response to the revised government policy on cane production. However,
sucrose content will likely increase slightly in anticipation from the
improvements in cane quality and the cane handling system. In MY 2004,
sugar production is revised downward to 6.9 million metric tons, down
significantly from the record 7.3 million metric tons of the previous
year. However, sucrose content is forecast to increase due mainly to the
reduction in the proportion of burnt cane. The allocation of sugar
production remains unchanged, including Quota A in the amount of 1.92
million metric tons of plantation white sugar for domestic consumption
(compared to 1.90 million metric tons in MY2003); Quota B in the amount
of 800,000 tons of raw sugar to cover long term export contracts; and
Quota C (the balance) for export to the international market. The
government still required that mills must give priority to the
production of plantation white sugar for the local market, and raw sugar
for Quota B, over sugar for export under Quota C (both white and raw
sugars).

## 2.2 Consumption

MY 2004 and 2005 sugar consumption should continue to increase in line
with the country's economic expansion. The official estimate of per
capita sugar consumption is 27 kgs., of which 9 kgs. are direct
consumption and 18 kgs. are indirect consumption via food and beverages.
In CY 2003, domestic consumption of sugar increase significantly to 1.94
million metric tons, of which 1.33 million tons were direct household
consumption, accounting for about 68 percent of total domestic
consumption. The balance was for industrial consumption, about 13
percent for the beverage industry, 9 percent for food industry, 7
percent for dairy products, and the remainder for pharmaceutical uses.

Current domestic prices of sugar remain unchanged at 11.77 baht/kg for
wholesale, and 13.25 baht/kg for retail, despite strong political
pressures to raise prices by 2 baht/kg in order to settle the huge debt
burden of the state-run Cane and Sugar Fund. However, the wholesale
price of molasses is reportedly expected to increase significantly from
the previous year's average of 1,600 baht/ton (roughly \$40/ton) due to
higher extraction rate-triggered lower yield of molasses, which is
currently at 43.62 kg/ton of cane, as compared to 47.74 kg/ton of cane
of the previous year.

## 2.3 Stock

MY 2005 stocks should continue to decrease, due to the reduction in cane
production. In MY 2004, stocks of sugar are revised down to 982 metric
tons, down sharply from the previous year, due mainly to the contraction
in cane production.

## 2.4 Trade

![](media/image2.wmf)

In MY 2005, sugar exports should be limited by anticipated smaller cane
production. Also, the exportable supply of sugar in MY 2004 is revised
downward, as cane production has been adversely affected by drought, but
sugar exports are forecast to grow well at around 5.3 million metric
tons, up from the previous year. Also, export prices should increase,
due to drought-reduced cane production of the other major sugar
producers, including India, China, and Australia. At present, export
prices are reportedly around U.S. 8-9 cents/lb (roughly \$176-198/ton),
as compared to U.S. 5-6 cents/lb (roughly \$110-132/ton) in the previous
year. As for CY 2003 sugar exports, sugar products are expected to
increase significantly due to the excessive exportable supply, following
the record cane production of that year. Sugar exports to Indonesia,
which is Thailand's largest export market for plantation white and
refined sugar continued to grow. Also, exports to Russia, which has
become the top buyer of raw sugar, increased considerably for the second
consecutive year. Also, raw sugar exports to other major conventional
markets like Japan, Malaysia, Korea, and Taiwan increased significantly.

As for sugar imports, the amount imported in MY 2004 and 2005 will
likely be insignificant amid an increase in import quota and a reduction
in the tariff rate, following the WTO agreement.

## 2.5 Policy

![](media/image3.wmf)Thailand has had set an import quota for sugar
since 1995, following the WTO agreement, as follows:

As for financial assistance to sugar exports, the RTG stopped providing
packing credits to the sugar industry since 2003, following the WTO
agreement on export subsidies. Commercial banks are reportedly more
cautious in providing packing credit facilities to the sugar industry,
due to the financial risk that might result from the government's new
price support system, where only the first 65 million metric tons
receive any government payments.

# 3. Supplementary Tables

## ![](media/image4.wmf){width="6.916666666666667in" height="1.875in"}Table 1: Thailand's Planted Area of Sugarcane by Region

## ![](media/image5.wmf){width="7.25in" height="1.792361111111111in"}Table 2: Thailand's Sugarcane Production by Region

## ![](media/image6.wmf){width="7.166666666666667in" height="1.8597222222222223in"}Table 3: Thailand' Sugarcane Yield by Region

## Table 4: Thailand's Sugar Utilization by Domestic Industry

## ![](media/image7.wmf){width="6.833333333333333in" height="5.579166666666667in"}  {#section-2 .unnumbered}

## Table 5: Thailand's Average Prices of Domestic Plantation White Sugar and Sugarcane

  ------------- ---------------- ---------------- -------------- ------------
  Calendar      Plantation White                  Sugarcane      
                Sugar                                            

  Year          Wholesale        Retail           Initial        Actual

                (Baht/100 kg.)   (Baht/kg.)       (Baht/metric   
                                                  ton)           

                                                                 

  1980          1,011            11.65            Nil            650

  1981          1,019            11.51            Nil            510

  1982          1,075            11.94            350            381

  1983          1,091            12.00            421            421

  1984          1,162            12.00            395            380

  1985          1,097            12.00            330            388

  1986          1,099            12.00            375            408

  1987          1,097            12.00            405            462

  1988          1,098            12.00            450            527

  1989          1,098            12.00            460            596

  1990          1,099            12.00            460            442

  1991          1,099            12.00            399            480

  1992          1,099            12.00            420            516

  1993          1,099            12.00            490            533

  1994          1,099            12.00            520            569

  1995          1,099            12.00            500            538

  1996          1,099            12.00            500            561

  1997          1,099            12.00            600            703

  1998          1,100            12.50            500            485

  1999          1,100            12.50            450            478

  2000          1,177            12.50            600            689

  2001          1,177            13.25            530            NA

  2002          1,177            13.25            500            NA

  2003          1,177            13.25            500            NA

                                                                 

  Notes: • The                                                   
  revenue                                                        
  sharing                                                        
  system of                                                      
  70:30 to cane                                                  
  planters and                                                   
  millers                                                        
  started in                                                     
  1982/83 when                                                   
  the initial                                                    
  cane price                                                     
  began to be                                                    
  quoted.                                                        

  • The                                                          
  purchasing                                                     
  cane based on                                                  
  C.C.S. system                                                  
  starts in                                                      
  1993/94                                                        
  crushing                                                       
  season with                                                    
  the standard                                                   
  quality of                                                     
  cane at 10                                                     
  C.C.S.                                                         

  • Average                                                      
  final cane                                                     
  price has                                                      
  been split                                                     
  into                                                           
  different                                                      
  assessments                                                    
  for different                                                  
  regions since                                                  
  1996/97.                                                       

  • The retail                                                   
  price of                                                       
  plantation                                                     
  white sugar                                                    
  has been                                                       
  raised to                                                      
  13.25 baht/kg                                                  
  since Jun 2,                                                   
  2000.                                                          
  ------------- ---------------- ---------------- -------------- ------------

## Table 6: Thailand's Average Final Price of Sugarcane by Zone (First Applied in ![](media/image8.wmf){width="6.916666666666667in" height="4.600694444444445in"}1996/97)

## ![](media/image9.wmf){width="6.583333333333333in" height="4.891666666666667in"}Table 7: Thailand's Monthly Export Price (FOB) for Raw Sugar (Baht/Ton)

## Table 8: Thailand's Monthly Export Price (FOB) for Plantation White Sugar ![](media/image10.wmf){width="6.5in" height="4.320833333333334in"} (Baht/Ton)

## Table 9: Thailand's Annual Raw Sugar Exports (MTRV)

## ![](media/image11.wmf){width="6.166666666666667in" height="3.8159722222222223in"}  {#section-3 .unnumbered}

## ![](media/image12.wmf){width="6.75in" height="4.454861111111111in"}Table 10: Thailand's Annual White and Refined Sugar Exports (MTRV)

## Table 11: Thailand's Average Quality of Cane Measured by C.C.S

## ![](media/image13.wmf){width="5.666666666666667in" height="5.583333333333333in"}  {#section-4 .unnumbered}

## ![](media/image14.wmf){width="6.043055555555555in" height="6.829861111111111in"}Table 12: Thailand's Business Tax Rates for Cane and Sugar