Opportunities to supply sugar to growing markets in Asia have encouraged Thailand to expand production. With relatively small internal needs for sugar and low shipping costs, especially to growing regional markets, Thailand has become one of the world's leading exporters. The Government policy of maintaining high domestic sugar prices has fostered increased production, dampened growth in use, and increased exportable surpluses.

In recent years growth in sugar production has come largely from area expansion in the North and Northeast regions. In the future, greater emphasis is expected to be given to the introduction of higher yielding varieties and increased use of yield-enhancing production inputs. Demand for sugar in Asian markets is expected to remain strong. The major constraint to longer term expansion could be the emergence of transportation and infrastructure bottlenecks which would impede the flow of sugar to export markets.

PRODUCTION

Following a decade and a half of sustained expansion, sugarcane areas and production increased sharply in recent years, with a record output achieved in 1996. The recent success of the industry can be attributed to several key factors, including attractive sugarcane prices, sugar factory relocation and capacity expansion policies which have successfully encouraged the extension of sugarcane areas. A third factor has been favourable weather. Since less than 10 percent of sugarcane area, now over one-million ha, is irrigated, favourable rainfall distribution has been an important factor in improved yields.

There are approximately 107 000 small holders who grow sugarcane in Thailand. Mills do not grow their own cane, but contract from growers. Sugarcane farmers in the Northeast region generally plant their cane in October and November, and in the Eastern Central Plains region, November to February. Planting in the irrigated area of the North region is December to April and May to June in the rain-fed area. In the Western Central Plains area, planting in irrigated areas is from January to March and in the rain-fed area May to June. While the sugarcane crop calendar varies by region, the growing period is about 10 to 14 months depending on the variety of cane. Farmers generally grow only one or two ratoon crops, and as a result they can change area planted relatively quickly in response to world price changes. For example, the total sugarcane area increased sharply on the heels of the global price spikes of the mid-seventies, early eighties, and since the second-half of the eighties (Table 1). The expansion reflected the relative attractiveness of sugar prices compared with alternative crops such as cassava and watermelon in the Northeast, and beans and corn in the North.

Yields of sugarcane have been gradually improving with the greater use of fertilizers and pesticides and improved cane varieties. Until the late eighties, yields were below the Asian and world averages. Expansion of irrigation is especially important as more land is put into cane in the drought-prone Northeast-region. Research to develop new improved varieties is being undertaken at Suphanburi Field Crops Research Center at U-Thong in Suphanburi province.

PROCESSING

Currently there are 46 mills in operation with an estimated daily crushing capacity of 571 190 tonnes. This compares with 42 mills at the beginning of the eighties and a capacity of 196 561 tonnes. Thailand has no stand-alone refineries, and all sugar refineries are part of cane crushing mills. As a result, raws go directly to remelt for refining, and by using power from the mill the refining costs are reduced.

Sugarcane is harvested from November to March in Thailand. During the 1996 season a record 62 million tonnes of cane were processed and 6.3 million tonnes of sugar produced (Tables 1 and 2). This represented an 8 percent increase in cane and a 13 percent increase in sugar output over the previous peak levels of 1995. These results indicated greater utilization of crushing capacity, a long-term goal of the industry.

During the eighties, the significant increase in mill capacity met the crushing requirements for expanding cane output, including harvesting peaks. However, the development of over-capacity in the Central region caused the Government to seek ways to achieve a better balance between the availability of milling capacity and the production of sugarcane. While no new licenses were issued for mill construction, a mill owner could close a mill and use the existing license to build a new plant in a different location with greater capacity. This policy encouraged some mills to relocate to the North and Northeast regions and expand facilities. These important changes in the structure of the industry were reflected in the re-distribution of output levels. In the early eighties (1982/83 to 1984/85) sugar production in the Central region averaged 1.32 million tonnes and accounted for 58 percent of the national production. By the early nineties (1992/93 to 1994/95) the Central region was producing 1.73 million tonnes, but accounted for only 41 percent of production. The Eastern region also showed a decline in share from 16 percent to 9 percent while production remained roughly the same. The regions of greatest growth were the North which increased from 13 percent to 23 percent by the early nineties, and the Northeast from 14 percent to 26 percent over the same period.

Structurally the milling and refining sector is comprised of a mix of government, independent and private ownership groups. The State owns 3 mills, and there are 15 independent mills. There are 9 groups of owners which operate 2 or more mills. The largest is the Thai Roong Ruang Group which operates 7 mills.

The Government, in addition to granting milling and export licenses, provides regulatory and planning functions for the milling sector On a year-to-year basis, the Ministry of Industry arranges production quotas for individual mills, based on the past 3-year crushing performance, and access to cane supplies.

CONSUMPTION

Thailand's domestic sugar consumption is expected to total a record 1.59 million tonnes in 1997, spurred by a growing population now estimated at 60.6 million, a thriving economy, and increased industrial use of sugar for soft drinks and other products (Table 2). This level of consumption represents an increase of almost 50 percent since 1990. Per caput consumption in 1997 is estimated at 26.2 kg, compared with 14.1 kg in the mid-eighties. Despite this growth, domestic sugar consumption as a percent of production has remained under 30 percent, relatively low for one of the world's leading producing and exporting countries.

The traditional relatively low Thai domestic sugar use also reflects the availability of locally grown, low-priced sugar substitutes such as coconut (palm) sugar, long a mainstay of the Thai diet in home cooking; and the traditionally low consumption of processed foods, especially in rural areas where about 75 percent of the population continues to reside There is also a small level of production of high fructose syrup (HFS) derived from cassava root and utilized by some segments of the soft drink industry. In addition, there is a small amount of non-nutritive sweeteners such as saccharin and aspartame used in diet soft drink products. Despite these moderating forces, sugar usage increased significantly in the eighties, and the pace of consumption growth has accelerated in the nineties as a result of the rapid modernization of the economy which has increased the demand for processed foods and beverages containing sugar.

TRADE

Thailand is now firmly established as one of the world's leading sugar exporting countries. During the first half of the nineties, sugar exports averaged 3.1 million tonnes per year, nearly double the level of exports during the first half of the eighties. This upward trend in exports has been spurred by growing regional markets, higher domestic production, low internal consumption relative to total production, and favourable export policies.

Sugar export earnings have been an expanding contributor to the agricultural sector's robust earnings growth. For the period 1992-94, Thailand's total exports averaged US $38.3 billion of which the agricultural sector amounted to 27 percent of the total or US $10.3 billion. For 1995, sugar export earnings were a record US $1.2 billion, up 50 percent from 1994, and were surpassed in dollar terms only by fishery products, animal products and by-products, and cereal grains, mainly rice.

The composition of sugar exports includes raw, refined, and plantation white shipments. In calendar 1995, raw sugar exports amounted to 2.80 million tonnes or 74 percent of the total. For the period 1990-94, raw sugar exports averaged about 2.0 million tonnes per year, while refined and plantation white sugar exports averaged 831 000 tonnes, both well above the levels achieved in the early eighties.

Because of freight cost advantages and reliable services, sugar has become increasingly important in growing Asian regional trade. According to trade sources, sugar moves from Thailand to the major regional buyers China, Japan, the Republic of Korea, and Malaysia, with a freight advantages over Western Hemisphere sugar making it difficult for exporters from the latter region to compete.

In 1995, for example, more than two-thirds of the record 2.80 million tonnes of raw sugar exports went to Asian markets, with shipments to China, Japan, the Republic of Korea, and Malaysia, accounting for 2.44 million tonnes. Sizeable shipments are made annually to smaller markets in the region such as Sri Lanka, Vietnam, and Singapore. The largest non-Asian markets in 1995 were the former Soviet Union, Tanzania, and the United States which combined took 79 000 tonnes.

Refined and plantation white exports in 1995 totalled 1.04 million tonnes, raw value, with China, Indonesia, and the Islamic Republic of Iran accounting for 23, 34, and 12 percent of the total, respectively. Other important destinations included Vietnam, Saudi Arabia, and Sri Lanka. The Philippines has also emerged as an important market for both raw and refined sugar, reflecting its current net importer status. Trade specialists report exports of refined sugar range in quality from "bother grade refined" (equivalent to EC or US refined sugar) to sugar with color over 100 ICUMSA (International Commission for Uniform Methods of Sugar Analysis).

While Thailand and Australia compete as the largest raw sugar exporters in the Asia and Pacific region, the Republic of Korea is Asia's largest refined sugar exporter. Malaysia, Singapore, and China also export refined sugar. Recent trends suggest that Thailand is gaining ground on some of its competitors in the export of raw sugar. For example, as a member of ASEAN, Thailand's recent refined sugar exports to the Philippines entered duty-free whereas refined sugar from Australia faced a 20 percent ad valorem duty.

The sugarcane industry is also an important exporter of molasses. In recent years, about 50 percent of annual production has been exported. Molasses exports averaged 945 000 tonnes and earned about US $47 million annually over the 1990-95 period. Japan normally takes about one-third of total exports, and the United Kingdom and other European destinations take most of the remainder.

Government policy towards sugar exports has remained generally unchanged in recent years. Each season, the Government estimates production, internal needs, and export commitments and then allocates sugar supplies to three quotas:

Quota A - domestic

This quota, all refined sugar, is allocated to mills by the Government at the start of each season on the basis of production capacity. The sugar is sold to approved wholesalers at a fixed price. The Quota A for 1995/96 was set at 1.6 million tonnes.

Quota B - long-term contracts

This 800 000 tonne contract, all raw sugar, is held by several trade houses. They sell on behalf of the Thailand Cane and Sugar Corporation (TCSC) which has overall responsibility for pricing and selling raw sugar under this quota. Half of the amount is allocated to international sugar brokers and the other half is sold to local millers for export.

Quota C - exportable surplus

The mills undertake their own pricing of this sugar, but must pay growers at least the Quota B sales price achieved by the TCSC. These sales must be made by licensed exporting companies. For 1995/96 the Quota C was set at 3.3 million tonnes of raw or refined sugar.

While licenses to build new factories are not currently being issued, new quota tonnages are annually allocated to mill groups with the largest C Quota production to encourage mills to crush as much cane as possible. Mills must meet production targets for Quotas A and B, before exporting under Quota C.

Quota C (export) sales are usually concluded 6 months prior to the start of the crushing season in November by seven authorized exporting companies: The Thai Sugar Trading Corp., Ltd. (TSTC), Thailand Sugar Corp., Ltd. (TSC), Siam Sugar Export Corp., Ltd. (SSEC), the Sugar Industry Trading Co., Ltd. (SITCO), K.S.L. Export Trading (KSL), Pacific Sugar Corp., Ltd. (PSC) and TISS Co., Ltd. which belongs to the Thai Identity Sugar Group of Companies which started its sugar exports in 1995.

PRICES

The Government directly negotiates annual sugarcane prices with growers and mills. It also operates a credit programme under which farmers can borrow an amount equivalent to their advance payment for sugar delivered to mills, at below-market interest rates.

The Sugar Act of 1984 introduced a revenue-sharing scheme for growers and mills. Under the scheme, growers receive 70 percent of the revenue from domestic and export sales of sugar and molasses, less costs and taxes, and mills earn the remaining 30 percent. Upon delivery of cane to mills, growers receive an initial payment calculated on a base price negotiated by the government.

This advance payment is not to be less than 80 percent of the share expected at the end of the season. If the actual "season-average price" is lower than the base price, the difference is adjusted the following season.

The Sugar Act of 1984 also provides for a 21-member Cane and Sugar Board composed of nine growers, seven government, and five mill representatives, which controls cane production levels, encourages improvement in quality, and seeks lower production costs to make exports more competitive. One recent target set by the Board was to limit cane production to zones within 100 kilometers of a mill to lower transportation costs.

FUTURE PROSPECTS

Sugarcane production is projected to reach 82.4 million tonnes in 2005, with sugar output attaining some 8.9 million tonnes. For sugarcane, this would represent a 32 percent increase over 1996, or 3.1 percent average annual growth; and for sugar, a 41 percent increase over the 1996 output, or 3.9 percent average annual growth. Given the industry's past performance these projections do not appear unrealistic. The extension of areas under sugarcane is anticipated in the North and Northeast regions, including as a result of converting land from other crops. By 2005 the area under cane is expected to total 1.25 million ha, a 17.6 percent increase over 1996, or 1.8 percent average growth per year.

A pivotal factor in achieving production goals of the industry is the improvement of sugar yield per tonne of cane. Sugar yield depends on several factors relative to the sugarcane (harvesting and handling conditions and quality) and the sugar factory (process, operations and composition of output). Since almost all sugar factories are still affected by underutilization problems, they seek to maximize sugarcane volume, not sugar yield, to mitigate costs. This leads to strong competition for sugarcane which can worsen the quality of crushed sugarcane in terms of purity and freshness, and thus affect negatively sugar yield.

According to international sugar production cost analysts, Thailand ranks among the world's lowest cost producers. Efforts to expand cane production to better match milling capacity should enhance this status. However, in the long run Thailand's future as a very low-cost producer is not certain in view of sharply increasing land costs reflecting rapid industrialization and rising labor costs.

Domestic demand is likely to continue to expand rapidly, but growth in production should continue to allow Thailand to absorb only about 25 to 30 percent of annual output internally. Domestic use is projected to expand to 2.33 million tonnes in 2005, up 50 percent from 1996, or average annual growth of 4.6 percent per year. With stable use of coconut (palm) sugar as a sugar substitute for home cooking, increased demand for sugar would most likely come from industrial users for the manufacture of processed foods and beverages. The growth potential for increased sugar demand by the expanding soft drink industry is projected to be particularly strong in the years ahead as consumption of these beverages approaches the level of Singapore and China, Hong Kong Special Administrative Region. Nonetheless, among the world's top five exporters, only Australia and Cuba use a smaller percentage of sugar production for domestic needs. With anticipated growth in production, exports are also expected to expand substantially.

The industry has identified 3 areas for improving the management of the export sector: (1) the transportation system should be upgraded to cope with larger volumes of sugar to be transported from the sugar factories to export terminals; (2) a clearing house for bulk sugar should be established to allow swaps of sugar under fair, established settlement procedures; and (3) the bag-loading system should be modernized to cope with labour shortages.

With respect to markets, the industry is conveniently situated in proximity to expanding Asian import markets which allow shipping advantages, including prompt delivery and reduced freight rates, not available to competitors outside the region