Sugar manufacturers are warning the government against violating the World Trade Organization's (WTO) rules for free competition in the sugar trade, following its controversial decision to block a sugar price hike in the domestic market.
Sugar cane farmers demanded a meeting with the commerce minister regarding the move, while smuggling to other countries to sell at higher prices is a possibility, said a sugar factory operator who requested anonymity.
Last week the cabinet approved the regulation of sugar prices to ease consumers’ living costs, following an announcement by the Cane and Sugar Board that it would increase ex-factory sugar prices by four baht a kilogramme, effective from Oct 28.
The board cited higher production costs for manufacturers as cane prices rose because of drought.
“We don’t understand why the Commerce and Industry ministries didn’t discuss the issue and its impact before making the announcement,” the sugar factory operator said.
Thailand may be dragged into another dispute with major sugar producers and exporters such as Brazil, which previously filed a complaint with the WTO over Thai government measures to subsidise cane farming and sugar manufacturing, putting other sellers in the global market at a disadvantage.
In 2018, the Thai government ultimately relented and agreed to let sugar prices be determined by the market.
The cabinet decision to block the sugar price hike may be viewed by other countries as an attempt to interfere with the market through a price control, said the source.
Thailand may experience more illegal trade of sugar along its borders as prices are higher outside the country.
The global market price of sugar is 25-27 cents a pound, a sharp increase from a previous range of 16-17 cents a pound, the source said.
The rise is attributed to drought conditions worldwide as well as India’s decision to reduce its sugar exports by 600,000 tonnes this year.
In Thailand, sugar consumption is 2.5-3 million tonnes.
The amount is lower than the quota for domestic sales because Thais tend to eat less sugar for health reasons and there are many sugar substitutes available, the source said.
Somporn Isvilanonda, a senior academic at the Knowledge Network Institute of Thailand, said he disagreed with the government regulating the price of sugar and controlling its export as this will lead to Thailand losing sales opportunities on the global market, creating an unfair burden for consumers.
He said regulating the price of sugar as production costs have increased, such as fertiliser, labour and fuel, may be unfair to sugar cane farmers.
The four-baht increase was deemed too high and unfair, with half of it going to the Cane and Sugar Fund to incentivise farmers to cut fresh sugar cane without burning it, aiming to reduce the PM2.5 ultra-fine dust problem.
Mr Somporn said this was unfair because it pushed the burden onto consumers.
He proposed using the two-baht hike for R&D to increase productivity for cane farmers, such as developing sugar cane varieties or a drip irrigation system to reduce production costs.
If production costs decrease while the yield per rai increases, sugar cane farmers will eventually have more income, said Mr Somporn.
The government’s regulation of domestic sugar prices and scrutiny of exports that exceed one tonne, in an attempt to control inflation and maintain food security, will cause Thailand to miss opportunities to export sugar at a time when the price hit its highest level in 13 years because of El Niño conditions, he said.
The global market price of sugar exceeds the domestic price.
Mr Somporn said based on domestic sugar consumption, the ratio of domestic consumption to exports should be 25:75 for locally produced sugar.
However, as the government aims to control domestic retail prices, this means Thailand will lose opportunities to export 75% of production, he said.
Mr Somporn said the global sugar market has a shortage because of drought, particularly in net importers such as Indonesia, the Philippines and Malaysia.
This year, Indonesia is importing up to 5 million tonnes of sugar.
The ex-factory price for granulated sugar is 19 baht per kg, while the global sugar price is quoted at 25 baht per kg, which may lead to illegal exports, he said.
Mr Somporn said export subsidies were implemented in the past to enhance international competitiveness, which caused domestic retail prices to be inflated.
PRICE CONTROL APPROPRIATE
Chakra Yodmani, deputy director- general of the Internal Trade Department, insisted the measures to control sugar prices, capping the ex-factory and retail prices as well as new export requirements, are considered appropriate at present.
The government aims to reduce the cost of living and ensure people are not excessively burdened, said Mr Chakra.
He said the department previously proposed when adjusting ex-factory sugar prices, the global market price should not be a factor as Thailand is a major exporter of sugar.
Up to 7.5 million tonnes are exported annually, while only 2.5 million tonnes are consumed domestically. Therefore, referencing global market prices to calculate domestic ex-factory prices is not advisable, Mr Chakra said.
In addition, he said the Cane and Sugar Board’s decision to raise ex-factory sugar prices by four baht per kg, half of which being for environmental purposes, puts the burden on consumers, leading to higher costs for them.
The board should seek other means of financial support from the government to address environmental issues, said Mr Chakra.
The Commerce Ministry recently agreed to set up a working committee headed by Yanyong Phuangrach, a former commerce permanent secretary who serves as consultant to Commerce Minister Phumtham Wechayachai, to manage a balance between the sugar cane and sugar industries.
The committee is expected to craft a suitable solution within one month, before the start of the new harvest season.
Mr Chakra said the ministry is prepared to revoke the decision by the Central Committee on the Prices of Goods and Services to declare sugar a controlled product if appropriate solutions are reached.