Voluntary Report - public distribution

**Date:** 1/19/2006

**GAIN Report Number:** TH6011

TH0000

**Thailand**

**Sugar**

**Sugar Shortage Situation**

**2006**

**Approved by:**

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

U.S. Embassy, Bangkok

**Prepared by:**

Ponnarong Prasertsri, Agricultural Specialist/Russ Nicely, Agricultural
Attache

**Report Highlights:**

Thailand's domestic sugar shortage reflects a failure of government
regulation to cope with the surge in international sugar prices and
local speculation, despite more than enough domestic production. The
attractive export prices have created upward pressure on domestic sugar
prices. Thai consumers are buying white sugar at expensive market
prices, regardless of the government sanctioned prices.

Includes PSD Changes: No

Includes Trade Matrix: No

Unscheduled Report

Bangkok \[TH1\]

\[TH\]

**Domestic sugar shortage: a lesson from price distortion**

The Government's administration of domestic sugar prices is currently
under challenge by the shortage of white sugar, which has been in
extremely short supply for months. The shortage is caused by a surge in
export prices that prompted sugar suppliers to secure sugar for export
markets instead of domestic sales at the controlled prices. Also, the
authorities are practically incapable of enforcing the Thai Cane and
Sugar Act B.E. 2527 (A.D. 1984: Article 73) to regulate sugar suppliers
to release white sugar stock to meet domestic consumption, despite more
than enough domestic production. In addition, the difference between the
controlled domestic prices and a surge in the international prices has
drawn sugar into nearby countries illegally. The Government faces either
raising domestic sugar prices by 3-5 baht/kg, or must revise the
intervention program in order to solve this problem.

# 

# Production: Far Above Domestic Consumption Despite Drought-Impacted Crops

This year's sugar production is expected to decline for the third
consecutive year to 4.3 million tons due to lasting drought in major
growing areas. Moreover, it will take the next few years for sugarcane
production to recover, despite an attractive guarantee price, which has
recently been increased to a record 800 baht/ton (roughly U.S.\$ 20/MT).
However, current market prices of sugarcane reportedly surged to around
1,100 -- 1,200 baht/ton (roughly U.S.\$ 28-30/MT) in line with global
raw sugar prices, which have increased sharply to U.S. 14 cents/lb
(roughly U.S.\$ 309/MT). Millers are aggressively securing cane to
fulfill their forward export sugar contacts.

Sugar production remains greater than domestic consumption, which is
only around 2 million tons annually. Direct household consumption
accounts for about 68 percent of total domestic consumption. Also,
according to the Thai Cane and Sugar Act (Article 46), the authorities
have to regulate sugar millers to prioritize sugar sales domestically
through a weekly allocation of around 30,000 -- 40,000 tons, far above
average weekly consumption. After meeting this quota, sugar suppliers
can then sell the rest of sugar internationally. Therefore, exportable
supplies will likely be adversely affected by drought-related reductions
in sugar production instead of local consumers if the Cane and Sugar Act
regulations function well.

# 

# Cane and Sugar Administration: Decades of Policy Dilemma and Cause of Shortage

The Government's sugar policy was created to support cane growers and
sugar millers since the early 1980's. Minimum farmgate prices of
sugarcane have recently been revised up to a record 800 baht/ton
(roughly U.S.\$ 20/MT) in line with global raw sugar prices. Also, Thai
consumers have paid for overly expensive sugar since the early 1980's,
as the Government controls domestic sugar prices, normally setting them
higher than global sugar prices. This has helped make Thailand the
number three world exporter of sugar. The current retail price of sugar
has been raised to 13.25 baht/kg (roughly U.S. 15 cents/lb) for white
sugar and 14.25 baht/kg (roughly U.S. 16 cent/lb) for refined sugar
since June 2000, only the third upward revision in decades of price
administration. However, global sugar prices have fluctuated over the
past five years, while the controlled domestic prices remain unchanged.
International sugar prices are currently around 5 baht/kg higher in the
neighboring countries. As a result, white sugar is reportedly
aggressively smuggled to the neighboring countries, particularly to
Laos, Cambodia, and Burma. Normally, legal border trade accounts for
only about 10 percent of total sugar exports under license. Also, the
Government failed to regulate sugar suppliers to release weekly sales of
30,000 -- 40,000 tons to the local market at the controlled domestic
prices. Local consumers are inevitably adversely affected by the sugar
shortages, made worse by the speculation of retailers in anticipation of
another official upward revision of domestic sugar prices. White and
refined sugar is reportedly sold at around 17-20 baht/kg (roughly U.S.
19-23 cent/lb), far above the controlled prices.

Cane growers and millers urged the Government to raise domestic sugar
prices by another 3-5 baht/ton in order to solve the shortage problem at
the expense of local consumers. Another benefit from an increase in
domestic prices will be an easing of the huge debt burden of the Cane
and Sugar Fund to the Bank for Agriculture and Agricultural Cooperatives
of around 19 billion baht (roughly U.S.\$ 475 million), accrued by the
price support program during the past six years when market prices were
lower than the minimum sugarcane prices. However, the Government still
objects to this call, as well as to the call for sugar market
liberalization, as the increase in sugar prices will eventually feed
inflation, a risk to the Thai economy.

End of Report