Who decides the price of sugar?

Though the Vietnam Sugar and Sugar Cane Association protests that sugar is in plentiful supply, the sugar price still keeps escalating.

Last month, the wholesale price of white sugar increased by another 1,000 dong per kilo, to 16,500.  HCM City residents now have to pay 19,500-20,000 dong per kilo, the highest price in many years

Pham Thi Sum, the Chairman of Bien Hoa Sugar Company, says that the retail sugar price is decided by the input material price, which means that the farmers who grow the sugar cane decide the retail sugar price, not the processing plants.

According to Sum, the sugar cane price in Mekong Delta has held firm at the high price of 800-1,000 dong per kilo, nearly double the price for last year’s crop.

Sugar refineries in the HCMC region, in central Vietnam and in the north not only have to buy sugar cane at high prices, but also face an absolute shortage of supply.

“On average, sugar refineries run 150 days each season.  However, we only expect to run 100 days this year due to a shortage of cane,” Sum said, “and this too drives up prices.”

Thus the sugar price is high because of the high sugar cane price. But who sets the sugar cane price high?  According to Tran Thanh Long, General Director of Can Tho Sugar Company, it’s not farmers who set the price, but the intermediary merchants who collect sugar cane from farmers to sell to sugar processing refineries.

Sum explained that except in cases where sugar refineries are able to purchase cane at 650-700 dong per kilo thanks to the contracts signed directly with farmers before the crop was harvested, the entire crop is now held by intermediary merchants.

“They – those wholesalers – bought unripe cane some time ago for only 500 dong per kilo and now they are selling it to sugar refineries at 1000 dong per kilo,” Sum said.

“There’s another factor,” said Long.  “The traders are holding refined sugar off the retail market. Since the end of August, my plant has produced 30,000 tonnes of sugar.  We sold it, but it hasn’t been put on the market.”

Reducing sugar price, impossible mission?

Assuming the above analysis is true, it explains why the sugar price keeps rising even though the Sugar Association claims that supply is ample. The Association says that sugar refineries have produced 100,000 tonnes of sugar from mid-November to mid-December and that the market has sufficient supply through the Tet holiday in February.

Increased demand has also been cited to explain the sugar price increase.   Confectionary factories have begun their pre-Tet production.  Consumption from mid-October to mid-November was double consumption a year earlier, according to the Ministry of Agriculture and Rural Development.

Eyeing the world market, no one imagines that the sugar price in Vietnam will decrease.  The world price is being driven up by higher demand from Pakistan, Mexico and India.  In early December, white sugar in London reached a record high of $610 per tonne. Worldwide, a six million tonne shortfall is expected in the 2009-2010 crop season.

VietNamNet/SGTT

Tags: Vietnam Sugar Prices