Interview: Krisda Monthienvichienchai
How will the Thai government’s crop zoning policy help boost the overall competitiveness of the nation’s sugar industry?
KRISDA MONTHIENVICHIENCHAI: To increase the revenue of rice farmers in non-irrigated areas, the government has made it policy to switch from rice, which is non-productive in those areas, to suitable crops. While production is being shifted to several crops, sugar cane is the largest beneficiary of this policy. It is a crop that gives a very high return to farmers, and thus we have seen many areas across the nation switch from rice to sugar cane production. As a consequence, in 2015 Thailand will have a larger sugar cane crop than in 2014, despite inclement weather conditions, including a severe drought that affected several regions across the country.
Thailand is currently the second-largest sugar exporter in the world. Along with Australia and Brazil, it is also perennially one the most cost-competitive producers of sugar. Thailand’s main export market remains Asia, as roughly 70% of its sugar is exported to neighbouring Asian markets. In the short term, China will increase in its importance as a sugar export destination for Thailand. While China produces around 10m tonnes of sugar a year, its current demand is significantly higher at 15m tonnes. Due to local conditions in China, its sugar cane production will likely drop below 10m in 2016, increasing their need for sugar imports. Furthermore, Asia and South-east Asia in particular, are among the regions in the world experiencing the highest economic growth. At current prices, no other sugar producing ASEAN country can compete with Thailand on cost, so with increased land dedicated to sugar cane, together with an increased yield per acreage, Thailand holds a clear competitive advantage in the region. With these factors in mind, there is no reason why Thailand cannot continue to build on its record of success.
How are volatile external price conditions inducing Thai sugar producers to diversify and invest in downstream products?
MONTHIENVICHIENCHAI: Given the recent drop in the Brazilian real against the US dollar, and taking into account other global economic conditions, all players in the sugar industry, especially those here in Asia, are impacted by pricing. Currency fluctuation, combined with lower oil prices and over-investment in shipping fleets, resulted in cheap freight rates, causing Brazilian sugar to travel very easily and cheaply to all parts of the world. These factors cannot be controlled by any one company or sugar producing nation. Here in Thailand, these impacts are actually strengthening the sector, by making players think harder about diversification rather than relying on crop and commodity prices. More investment is being channelled into downstream business lines such as juice production and other under-developed segments. It has also led to strong growth in the biochemical industry, which uses sugar as a feedstock.
How lucrative is expansion into the energy segment for Thai sugar producers?
MONTHIENVICHIENCHAI: Sugar producers are increasingly rethinking their business models, and the energy segment represents a relevant and lucrative avenue for diversification. Sugar is a naturally existing energy source for human beings, and its conversion into ethanol for wider application is a natural progression for producers. Despite the global drop in oil prices, Thailand is still promoting ethanol and the consumption of ethanol. This government policy has its roots in the recent past, and it shows no sign of changing. Thus, due to strong crop production, government policy and the availability of production plants, ethanol remains a leading diversification channel for Thai sugar producers.
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