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Thailand case study

11 March 2019

Thai sugar production and exports have greatly expanded in recent years and Thailand is currently the world's second largest sugar exporter1.

This expansion has been driven by substantial government subsidy and protection for the industry for many years.

Thailand

The Policy Environment

Until recently, Thailand operated a highly protectionist and subsidised sugar policy, with government intervention in almost all aspects of the sugar sector, which was based on the pre-2006 EU sugar policy. In response to a World Trade Organisation (WTO) challenge by Brazil, Thailand has reviewed and updated its subsidy arrangements.

Their sugar policy used to work like this:

Domestic sugar sales were controlled and limited by a fixed annual quota (Quota A). This had a minimum sales price set annually by the Government. Sugar produced in excess of Quota A couldn't be sold internally and had to be exported (Quotas B and C). Quota B exports were controlled by the Thailand Cane and Sugar Corporation which had overall responsibility for pricing and selling. The average price from the Quota A and B sales determined the final cane price paid to farmers. Quota C represents the residual surplus which had to be exported, but under the direction of individual companies.

Cane farmers also received supplementary payments whenever the world sugar price was low. These were funded by a statutory levy on sugar of THB5/kg, which has since been removed. It is unclear when these funds will run out, however the Government still paid a supplementary payment in 2018 and the provisional cane price for 2019 is lower still at THB700/mt2, 3

Export subsidies

Thailand has no WTO commitments for sugar export subsidies and so is not allowed to subsidise its exports. In its last notification (2014) to the WTO, Thailand stated it had provided zero export subsidies from 2009 to 20134.

Brazil WTO dispute challenge

Brazil challenged this through its WTO settlement dispute in April 2016, claiming that Thailand cross-subsidised its sugar exports through its system of quotas and fixed domestic prices. Brazil has since accepted the changes Thailand has made to its policies, listed below, and the WTO claim is no longer active5, 6

Post reform

In January 2018, Thailand announced that it would abolish both the domestic sales quotas and the floating of domestic sugar prices7. Sugar has since been moved onto the Government's list of Controlled Goods and Services, meaning its domestic sales price is capped by a limit (currently set at THB23.50/kg), and the THB5/kg statutory levy on domestic sugar sales has been effectively replaced with a THB5/kg domestic sugar premium8. However, it is still not clear to what extent these changes will affect sugar production or pricing in Thailand. 

Our Analysis

The Thai sugar policy model has been based on a combination of market differentiation using a quota system, domestic price support for cane producers and millers, and export subsidies.

Until recently Thailand operated one of the most protectionist sugar policies in the world. In April 2016, Brazil launched a WTO legal dispute case against Thailand which documents the subsidy and support measures practiced by the Thai government9. In the introduction to this, Brazil states: “By means of its sugar regime, Thailand strictly controls virtually every aspect of its sugar sector including the production, storage, transport, sales, import, export and other activities applicable to cane, raw sugar, white sugar, molasses and sugar by-products.”

Many observers believe that the expansion of the Thai sugar indutsry has been directly incentivised by the extensive level of government subsidy and support for the industry10. The government wants to further increase sugar cane growth in Thailand, decreasing rice production (where huge surpluses were generated by policy), utilise extra production capacity at existing sugar mills and supply a growing biochemical ndustry11..

In response to a WTO challenge by Brazil, Thailand has implemented changes to its subsidy arrangements but it is not yet clear the full effect of the changes made. 

References:

  1. LMC International, Sugar and Sweeteners Market Report, Q3 2018
  2. LMC International, Starch and Fermentation Analysis, January 2019 
  3. Czarnikow Article, The Sugar Market: In Transition? 31 January 2019 
  4. WTO, export subsidy notification, April 2015 
  5. Reuters argticle, 21 February 2017 
  6. WTO Annual Report 2017 
  7. Reuters article, 1 January 2018 
  8. LMC International, Sugar and Sweeteners Market REport, Q1 2018 
  9. Brazil notification to the WTO on Thailand subsidies on sugar, 7 April 2016
  10. F.O.Licht, International Sugar and Sweetener Report, July 2010
  11. LMC International, Sugar and Sweeteners Market Report, Q1 2018 

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