Sugar price hike bitter for buyers

While cane farmers are enjoying raw sugar's highest prices in 28 years, food and beverage manufacturers are bracing for higher production costs that are likely to be passed on to consumers.

The high price is from predictions of a global sugar deficit as demand continues to outstrip supply due to drought in India, the world's biggest sugar consumer, and even a net exporter two years ago.

The supply shortage has drawn the attention of investors to speculate on sugar and drive the price higher.

Cane farmers and sugar millers in the country will benefit from the price hike and should enjoy higher export sugar revenue.

Paiboon Ponsuwanna, the chairman of the Federation of Thai Industries' food club, said some food and beverage producers use sugar allocated for export in their production.

These firms had earlier this season sought to use export-allocated sugar as domestic prices then were higher than overseas prices. Ex-refinery raw sugar prices locally is fixed at 19 baht per kilogramme, equivalent to around $0.25 per pound.

If overseas prices rise further, local firms using sugar export quotas would inevitably face higher production costs.

"The fact that we are a net sugar exporter would not help food and beverage producers for export gain an advantage from cheaper sugar. These firms will face higher costs, the same as overseas competitors,'' said Mr Paiboon.

"They may seek state support when prices rise to stay competitive. For those who serve the domestic market, they may seek to raise product prices.''

Industries with a high sugar content in their products include canned fruits, soft drinks, desserts and Thai sweet chili sauce.

Kamthorn Kittichotsap, a planters' representative, said while high sugar prices will benefit cane farmers, the Office of the Cane and Sugar Board (OCSB), the state body that oversees sugar production and management, should implement a strict inspection of sugar consumption to ensure that the price crisis does not affect domestic consumption.

"When the export price is higher than the domestic price fixed by the Internal Trade Department, we tend to see food and beverage manufacturers switch to the domestic sugar quota, and this may affect consumption.''
"Another concern is domestic sugar being smuggled to neighbouring countries where sugar is more expensive,'' said Mr Kamthorn.