Report Highlights: 

TH4032 –MY2014/15 sugar production is likely to decline to 10.4 million metric tons compared to 11.4 million metric tons in MY2013/14 in anticipation of unfavorable weather conditions. However, sugar exports will likely continue its upward trend in MY2014/15 driven by the AEC Free Trade Agreement.

Executive Summary: 

MY2013/14 sugar production is expected to increase to 11.4 million metric tons, up 14 percent from the previous year due to a better than expected average sugar extraction rate resulting from favorable weather conditions. This will likely spur sugar exports to around 9 million metric tons. Meanwhile, MY2014/15 sugar production is forecast to decline to 10.4 million metric tons, down 9 percent from the previous year, in anticipation of El Nino related weather conditions. This will likely affect the average yield of sugarcane and overall sugar extraction rates. However, MY2014/15 sugar exports are likely to increase to 9-10 million metric tons due to large inventories from MY2012/13 and MY2013/14. In addition, Thai sugar exports will likely benefit from the ASEAN (Association of Southeast Asian Nations) Economic Community Agreement (AEC), which takes effect in 2015. 

1. Production

MY2013/14 sugarcane production is expected to increase to approximately 106 million metric tons, up 5 percent from the previous year due to favorable weather conditions in sugarcane growing areas. According to the Thai Meteorological Department (TMD), precipitation in 2013 averaged 1,764 mille-meters, which is 11 percent above Thailand’s average precipitation level. In addition, the average sugar extraction rate will likely be higher than expected at approximately 108 to 109 kg/ton of cane, which is 8 to 9 percent higher than last year’s rate of 100.25 kg/ton of cane. According to the official crushing report by the Office of Cane and Sugar Board (OCSB), current average extraction rate is around 108.8 kg/ton of cane. As a result, MY2013/14 sugar production is expected to increase to 11.4 million metric tons, up 14 percent from the previous year. The production of sugarcane used for ethanol production is revised up to approximately 0.8 million metric tons due to acreage expansion driven by higher gasohol consumption. The sole Thai sugarcane-based ethanol plant will likely operate at full capacity (60 million liters or 0.2 million liters per day) using approximately 0.8 million tons of cane in MY2013/14. According to the Ministry of Energy’s Department of Alternative Energy Development and Efficiency, the sugarcane-based ethanol plant used 748,353 metric tons of sugarcane to produce approximately 56 million liters of ethanol, which accounted for 6 percent of total ethanol production in MY2012/13.

Despite continued acreage expansion of new sugar mills, MY2014/15 sugarcane production is forecast to decline slightly to 105 million metric tons in anticipation of unfavorable weather conditions. The TMD expects below normal average precipitation in 2014 due to the high probability of “El Nino” related weather conditions in the latter part of the year. This will likely reduce the average yield of sugarcane production in the rain-fed areas, which account for 80 to 90 percent of total sugarcane production, particularly during the stalk elongation stage. The average yield is likely to decline to 11.5 metric tons per rai, down 4 percent from the previous year. In addition, the average sugar extraction rate is expected to fall to approximately 100 kg/ton of cane. Thus, MY2014/15 sugar production is forecast to decline to 10.4 million metric tons, down around 9 percent from the previous year. 

2. Consumption 

MY2012/13 and MY2013/14 sugar consumption is revised down to 2.5 – 2.6 million metric tons due to the economic slowdown caused by Thailand’s political situation. GDP growth slowed to 2.9 percent in 2013. The government already revised down its GDP forecast for 2014 to 2.6 percent compared to its previous forecast of 4 percent as the political turmoil lingers on. Industrial use, which accounts for around 40 percent of total sugar consumption, declined 1.6 percent in 2013 mainly due to shrinking demand from the beverage and processed food industries. These industries account for around 70 percent of total industrial use. Meanwhile, household sugar consumption, which accounts for 60 percent of total sugar consumption, increased by1.4 percent from the previous year. According to the Ministry of Public Health, 2013 sugar per capita consumption in Thailand increased to approximately 30 kilograms tripled the normal average.

MY2014/15 sugar consumption is forecast to increase to 2.7 million metric tons in anticipation of growing household and industrial uses driven by an economic recovery in 2015. The Bank of Thailand predicts GDP growth at 4.8 percent in 2015 as private consumption will likely recover from the downturn in 2013 – 2014.

3. Trade

MY2012/13 sugar exports declined 15 percent to 6.7 million metric tons, primarily due to a reduction in raw sugar exports caused by competition from Brazilian and Indian companies, particularly to the China market. Raw sugar exports to Indonesia which accounts for around half of total raw sugar exports, also declined slightly. Furthermore, Thailand did not fully utilize its FY2013 U.S. Tariff Rate Sugar Quota (TRQ) of 15,207 metric tons raw value as export prices under the TRQ were 10 percent below world market prices. However, exports of white and refined sugar increased 2 percent from the previous year mainly due to growing demand from neighboring Asian countries.

MY2013/14 sugar exports will likely increase to 8-9 million metric tons due to higher exportable supplies resulting from large inventories and bumper sugar production. Sugar exports are likely to consist of 5 million metric of raw sugar and 3 to 4 million metric tons of white and refined sugar. Most of the sugar will be exported to Southeast Asian countries, particularly to Indonesia. Raw sugar exports to China will likely continue to decline due to the increase in its own local production. Also, Thailand is expected to fulfill its FY2013/14 (October 1, 2013 – September 30, 2014) U.S. Tariff Quota (TRQ) of raw sugar of 14,743 metric tons raw value as the export prices under the TRQ are well above the world market prices. 

MY2014/15 sugar exports are forecast to continue its upward trend due to large inventories. Sugar exports to ASEAN countries will continue to grow as the tariff rate on sugar will be reduced to 0-10 percent (compared to 5 – 40 percent) under the ASEAN Economic Community (AEC) Free Trade Agreement, which will take effect in 2015. Sugar imports will be duty free in most ASEAN countries, except for the Philippines (5%), Indonesia (5-10%), and Myanmar (0-5%). These countries reportedly have insufficient local sugar production of around 5-6 million metric tons a year. Sugar imports will be marginal due to large supplies of domestic sugar. Furthermore, Thailand subjects imported sugar to a 65 percent tariff rate and a quota of 13,760 metric tons, which is likely to deter imports. The out-of-quota tariff is 94 percent. 

4. Stock 

MY2013/14 sugar stocks are expected to remain at 3.5 - 3.6 million metric tons, similar to the previous year due to bumper sugar production and a decline in domestic sugar consumption. MY2014/15 sugar stocks are forecast to decline significantly in anticipation of a reduction in sugar production and growing sugar exports. 

5. Policy 

On November 25, 2013 the Thai Cabinet approved a price support program for the MY2013/14 sugarcane production at 900 baht per metric ton ($27.7/MT), down 5 percent from the previous year due mainly to a reduction in global sugar prices. Farmers are reportedly seeking additional direct payments of around 300 baht per metric ton ($9.2/MT) to cover the production cost of approximately 1,200 baht per metric ton ($37/MT) of sugar. However, the government has not been able to finalize any policies due to its caretaker status. The government still maintains its sugar price control policy that was established in May 2008, which sets the price support at 19 baht/kg ($27 cent/lb) for refined sugar, ex-factory wholesale (excluding 7 percent Value Added Tax). Retail prices of sugar (including the value added tax) will also remain at established 2008 prices at 21.85 baht/kg ($30 cent/lb) for white sugar, and 22.85 baht/kg ($32 cent/lb) for refined sugar. The government uses the value-added tax collected from domestic sugar sales to repay the Bank for Agriculture and Agricultural Cooperatives (BAAC) for the costs incurred by the state-run Cane and Sugar Fund (CSF). The CSF funds the sugar price support and direct payment programs