High production costs cause Vietnam’s sugar to fail in its home market

Most sugar refineries well understand that to survive they must compete fiercely against imports. However, they have not found any way to win the competition, reports Thoi Bao Kinh Te Saigon.

Vietnam still applies a quota scheme in allocating sugar import rights, but it has slashed the tariff on sugar imports to five percent in accordance with ASEAN Free Trade Area (AFTA) commitments. Sugar from Thailand is now much cheaper than the domestic product. And yet, it could be asked why the domestic production cost is so high in a land that’s well adapted to sugar cane production.

The market price of sugar cane accounts for 70-75 percent of the cost of refined sugar. And, reports Thoi Bao Kinh Te Saigon, Vietnam still lags far behind Thailand, Indonesia and the Philippines in sugar cane production, especially in scale, productivity, output and quality. A typical Thai farmer owns 16 to 18 hectares of land for sugar cane growing and produces 150 to 200 tonnes per hectare. Meanwhile, in the central region of Vietnam, a typical farmer only has one to three hectares of grow sugar cane, whilst productivity is a low fifty to sixty tonnes per hectare.

Regarding quality, Thai sugar cane yields a stable 11 to 12 CCS per kilo (sugar content of sugar cane), but the figure is just eight to nine CCS per kilo only in Vietnam. That explains why in order to make a kilogramme of refined sugar, sugar refineries here need 12 to 13 kilos of sugar cane, much higher than the regional average of seven to eight kilos of sugar cane per kilo of refined sugar.

Pham Thi Sum of Bien Hoa Sugar Company says the sugar cane is typically of low quality because sugar refineries do not pay attention to developing their sources of supply. It is estimated that 25 to 30 million dong are needed to develop one hectare of sugar cane. However, none of the older refineries want to develop plantations of their own.

As the result, the amount of land devoted to sugar cane has decreased. With sugar cane therefore in short supply, the sugar refineries must scramble for cane, thus pushing up its price.

Do Thanh Liem, Director of Khanh Hoa Sugar Company said that in the high country of the central and southeastern regions, farmers are turning to other plants like cassava and rubber, because these bring them higher profit.

A recent report by the Ministry of Agriculture and Rural Development showed that the sugar cane growing areas of Vietnam fell from 302,000 hectares in 1999-2000 to 286,000 hectares in 2003-2004 and then to 271,000 hectares in 2008-2009. For the 2009-2010, it’s estimated that land devoted to sugar production decreased by another 36,000 hectares, and the volume of cane offered to the market decreased by 18 to 20 percent.

Some say that the small scale of refineries is part of the sugar industry’s non-competiveness problem. In 2009-2010, some 40 refineries competed to supply the local market. Except for a few joint ventures which use modern technologies, backward technologies are the norm. The average refinery produces 2645 tonnes of sugar cane per day, well below the world average of 6000 to 7000 tonnes.

Experts warn that these sugar plants, now marginally competitive, will not survive when import protection is removed entirely.

“With such small scale, the refining cost in Vietnam will always be always higher than other countries,” said Lien from Khanh Hoa Company. “Thai refineries can produce refined sugar for $650 per tonne, but the cost in Vietnam is $750”.

When Vietnam joined the WTO in 2007, the quota for importing raw and refined sugar was 55,000 tonnes. The figure will increase by five percent each year, year after year. The tariffs on quota-based sugar imports are 25 percent and 60 percent, respectively for raw and refined sugar.

Non-quota sugar is not restricted, but importers have had to pay a very high tariff of 80 to 100 percent if it goes through legal channels. Smuggling across the border with Cambodia is understood to be significant.

However, intra-ASEAN preferential tariffs are going to be applied from 2010 forward. The import tariff on all kinds of sugar from other ASEAN countries will be only five percent.

Vietnam has long imported some sugar, mainly from Thailand. Currently, Thai sugar is hovering around $650 per tonne, which means that it would be priced at 13,000 dong per kilo in Vietnam and very competitive in Vietnam’s market.

According to the Ministry of Agriculture and Rural Development, Vietnam’s total consumption of sugar in 2009 was 1.45 million tonnes. Sugar demand increases by 4.3 percent year after year. Nearly three-quarters of the sugar is used by processing industries, while 27 percent consumed by households.

The total demand for sugar of Vietnam in 2010 is estimated at 1.51 million tonnes. Domestic sugar plants can provide 1.1 million tonnes and over 400,000 tonnes of sugar must be imported.

Thoi bao Kinh te Saigon

Tags: Vietnam sugar, Vietnam Sugar Prices