Sugar prices a bitter pill for sweetmeat makers

Many enterprises are very worried about rising sugar prices as they prepare for the peak production period of the year with the Tet (Lunar New Year) festival just weeks away.

Despite the recent hike, sugar prices in the country are not that high compared to the regional market.

On December 30, sugar was priced at VND17,000-18,000 (US$0.89-0.95) per kilogram in Hanoi, surging nearly 50 percent over a half year ago. The sugar price hike has pushed up the cost of many products like confectionaries and beverages, making it more difficult for firms to sell their products.

Doan Minh Dung, general director of confectioner Hai Ha Kotobuki, said, “Sugar has never seen price hikes like this. This will boost the production costs and put pressure on consumers.”

Dung said his company’s production costs have increased by 30-40 percent, as sugar accounts for 60 percent of the ingredients of many confectionery products. “Thus, our profits are dramatically down. Some of our key products are not even earning a profit.”

The company, which uses 300- 400 tons of sugar per month, plans to increase its selling prices by 5-10 percent. Dung said he is concerned about sugar prices in the coming time, as his company produces more than 100 tons of products to serve increasing demand during the Tet season, up 30 percent over the same period last year.

Tran Quy Thanh, general director of beverage producer Tan Hiep Phat Group, said, “With the current sugar price, our products have no profit.” He said it was not easy for his firm to increase its selling prices for fear of losing its market share.

The situation will become much more difficult if the sugar prices continue to rise, as the firm consumes nearly 1,000 tons of the sweetener a month, Thanh said.

Some other companies have also increased their products’ selling prices based on the sugar price hike. Phan Van Thien, deputy general director of Bibica said the increase in its products’ prices was unavoidable, as it consumes some 300 tons of the material each month, and sugar accounts for up to 30 percent of its production costs. Thus, Bibica is raising prices of some products by about 5 percent. In supermarkets, prices of confectionery, jam, milk and beverage products are up by 5 to 30 percent.

No sugar shortage

Vo Thanh Dang, chairman of the Vietnam Cane Sugar Association, said the sugar price hike in the domestic market was based on surging world prices sparked by a smaller supply from the 2009-2010 crop. Sugar prices in the world market peaked at $624.5 per ton on November 18.

The world market is forecast to face a shortage of 4.5-6 million tons of sugar in the crop, as India, the world’s second biggest sugar producer, has seen production plummet because of drought to 17.2 million tons from 30.6 million tons in the 2006-2007. The country is also importing large volumes of sugar to meet domestic demand.

Meanwhile, sugar output in the domestic market is also down because cane-growing areas in the central and Central Highlands regions have been hit by storms in recent months. The regions are expected to experience a 20 percent shortage of sugarcane supply from the latest crop.

In addition, sugarcane growing area has fallen to 290,000 hectares this crop from over 300,000 hectares some years ago, as farmers switched to other crops due to low profits from growing sugarcane, Dang said.

Demand for sugarcane at sugar mills has increase 25 percent to 80,000 tons per month as the economy recovers, he added.

However, the chairman affirmed that Vietnam will not face a sugar shortage for domestic consumption. For the 2009-2010 crop that ends in May, the 36 factories nationwide are expected to produce over 1.13 million tons of sugar, up 22.2 percent over the last crop.

Reasonable prices

Despite the recent hike, sugar prices in the country are not that high compared to the regional market, Dang said. Wholesale sugar prices in the domestic market are now VND14,500-14,700 per kilogram, while it is VND15,500-16,000 in China.

The price hike is also necessary to ensure profits for more than three million sugarcane growers nationwide, he said. He expected sugar prices in the domestic market to remain at a reasonable level of some VND14,300-14,500 per kilogram over the next few weeks.

Dang said big consumers should stock sugar to ensure production and work with producers in implementing their purchase plan to ensure stable prices and supply during this period.

He said the association has asked the Ministry of Industry and Trade and the Ministry of Agriculture and Rural Development to allow firms to import a suitable volume of sugar to balance supply and demand.

Vietnam, under its WTO commitments, had a quota for importing 61,000 tons of sugar with the tariffs of 25 percent on raw sugar, and 60 percent on refined white sugar in 2009.

Besides the quota, the Ministry of Industry and Trade has allowed firms to import an additional 50,000 tons. However, the firms have imported only 74,000 tons in total. In 2010, the two ministries are expected to allow firms to import some 150,000 tons of sugar.

VietNamNet/Thanh Nien

Tags: Vietnam Sugar Prices