Sugar import quotas keep sugar refineries on the tenterhooks

The information that the Ministry of Industry and Trade (MOIT) has announced a quota of 250,000 ton for imported of sugar in 2011, including the 50,000 tons to be imported right after April 15, has made sugar refineries worried stiff.

The announcement about the sugar imports in 2011 has surprised many people. Nguyen Thanh Long, Chair of the Vietnam Sugar and Sugar Cane Association, said previously, MOIT only decides the import volume in August, after considering the domestic production. “It is quite a surprise that MOIT announces to the quota right in April,” he said.

However, Long believes MOIT has its reasons to do so. In 2010, MOIT was criticized for granting quotas at the end of the year, when the world’s price was high. Therefore, enterprises could not import sugar.

Meanwhile, in 2011, India announced a high tariff of 60 percent of raw imports when anticipating that the domestic output would exceed the demand by 2.5 million tons. Therefore, the current profuse supply, when big sugar refineries are in their peak production season, would allow Vietnamese enterprises to buy sugar at the best prices now.

Imports will be a hard pressure on refineries

However, Long complained that the early announcement about the sugar import quota would make domestic refineries suffer. The difficulties being faced by sugar refineries due to large stocks and slow sales will be even bigger if imports flock to Vietnam.

Sugar refineries could sell only 85,300 tons of sugar in total in the last month. At Can Tho Sugar Refinery, most of the first class sugar is still in stock, because big consumers dare not take on too much sugar due to the overly high lending interest rates. Meanwhile, second and third class sugar has been selling very slowly at less than 17,500 dong per kilo.

According to Long, the sugar refineries would break even or take loss due to the high material prices, which makes the production cost as high as 16,000-17,000 dong per kilo. Only the refineries in the central region area still making profits, thanks to the cheaper materials.

According to the Ministry of Agriculture and Rural Development, by March 15, the inventory volume at sugar refineries had reached 418,900 tons. Meanwhile, the total output had reached 860,400 tons. Suppose that the sugar price is 16,000 dong per kilo, this means that 6.7 trillion dong worth of capital of sugar oil refineries is frozen.

Sugar refineries worried stiff

Vietnam allows importation of sugar every year in order to stabilize the domestic price and avoid the speculation which may cause an artificial sugar shortage.

However, analysts believe that allowing sugar importation at this moment will only benefit importers. Meanwhile, producers and farmers, who still cannot sell sugar cane, will suffer. The problem now is that the sugar supply is in excess.

The Ministry of Agriculture and Rural Development also said that the period from the end of 2010 to May 2011 will be the time when sugar is in profuse supply, since refineries are in the peak production season. It is estimated that when the 2010-2011 sugar cane crop finishes, sugar refineries will churn out 1.08 million tons, or 200,000 tons higher than the previous crop.

Sugar refineries complain that the more sharply the sugar price goes down, the bigger difficulties sugar refineries will have to face because all the input costs have increased dramatically.

By March 15, six out of 38 of refineries had halted their production, while Mekong Delta still has 200,000 tons of sugar cane.

Analysts have warned that if the sugar cane prices drop too sharply, farmers would feel discouraged and they may give up growing the next crop of sugar cane. If so, sugar refineries will be hunger for materials, while Vietnam will be short of sugar.- TBKTSG

Tags: Vietnam Sugar import quotas