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The Competitiveness of the Sugar Industry in Thailand
(2007) Arjchariyaartong, Wuttipong; Zeddies, Jürgen
Thailand is now firmly established as one of the world?s leading sugar exporting countries. During 1995/96 to 2005/06, sugar exports ranged between 2.3 and 5.1 million tons and averaged 3.80 million tons per year. For this reason, sugar cane production is one of the major economic sectors in Thailand. There are several activities involved in the production process such as sugarcane growing, sugar milling, credit banking, exportation, etc. The sugar production activities provide significant full time and temporary employment in sugar factories, sugar transformation, transportation and exports. Therefore, the study of sugar cane and sugar industry?s competitiveness is important, especially with the increasing liberalisation of the world market. Based on the above considerations, this thesis has key objectives as follows: 1. To study the structure of sugarcane and sugar production in Thailand. 2. To analyse costs and returns of sugarcane and sugar production in Thailand. 3. To examine the competitiveness of the sugar industry and identify indicators of competitiveness. 4. To describe strategies of sugarcane growers and sugar factories for improving competitiveness. The methodology applied for the farm sampling is based on the concept of typical farm approach. Farm types are determined by sugarcane experts taking into consideration: location of farm, farm size, sugarcane area and share of rain-fed and irrigated area. The first category of farms was chosen to represent the size that is close to the statistical average. The other types defined represent larger farms to allow the exploration of potentials for economies of size in the region. Management levels on the typical farms are above average. The sugar factories were categorized by region, industry group and crushing capacity. Firstly, the structure of sugar cane production in Thailand can be described as follows. Sugar cane is grown all over the country. The total cane area amounted to 6.34 million rai in 2004/05. The most important regions of sugar cane production are the Northeastern, the Central and the Northern region. The total cane production amounted to 47.82 million tons in 2004/05 with an average yield of 7.54 tons/rai. Secondly, the structure of the sugar industry in Thailand can be described as follows. Within the total number of 46 sugar factories, there are 4 large factories with a crushing capacity of more than 24,000 tons of cane crushed per day, 16 medium size factories (12,000-24,000 tons/day), and 26 small size factories (< 12,000 tons/day). Thirdly, the sugar market in Thailand can be described as follows. The total sugar production amounted to 7 million tons in 2003/04. With a share of domestic consumption of 27.8%, only around 2 million tons of sugar is used for domestic consumption. The rest of around 5 million tons of sugar is exported to the world market, mostly to Asia. The wholesale prices for the domestic market are annually fixed by the government to around 12 Baht/kg in the average. Fourthly, the results of sugarcane farms can be concluded as follows. The analysis of sugarcane costs of production has shown that the total production costs of sugarcane farms for the first ratoon are highest and then decrease in the second and third ratoon. The farms in the Central region have higher average production costs (4,245 Baht/rai) than the cane growers in the Northeast (4,130 Baht/rai) and in the North (3,725 Baht/rai). Low labor costs, especially harvesting costs of around 1,142 Baht per rai, are the predominant reason for the lower cost structure of the farms in the Northeastern region. Fifthly, the results of the sugar factory analysis can be concluded as follows. The five investigated factories are one large factory with a crushing capacity of more than 23,000 tons of cane per day, and four small factories with a cane crushing capacity of less than 12,000 tons/day. Although most of the cane suppliers are small size farmers, the majority of cane comes from medium and large farms. The sugar sales are depending on the type of sugar and the market channel and range from 14 Baht/kg to 18 Baht/kg. The average distance of sugarcane transport is around 53.33 km for sugarcane which is purchased from sugarcane farmers. The closer the sugarcane fields to the factory are the higher is the competitiveness of the sugar factory. The productivity analysis of the sugar industry shows that factory C possesses an advantage with respect to the quantities of total sugar production per rai in production year 2002/03 and 2003/04. The result of ranking the sugar factories according to their competitiveness shows that factory C has an advantage in the total quantity of sugar production per rai. Factory E had the highest advantage in the extraction rate of sugar per ton of sugar cane and gained the highest profit of sugar production. However, factory B has the highest ability to produce sugar with the lowest costs per kg and factory D was the leader in reducing costs of sugar production in Baht per rai. In the summary, the score over all indicators of competitiveness shows that factory E has the highest score. Therefore, factory E has been ranked to be the most competitive factory, followed by factory B, factory D, factory A, and factory C respectively. Finally, this study provides suggestions and policy recommendations for sugarcane farms and sugar factories in four areas. First, sugarcane productivity per rai is still low in Thailand, therefore research and development is necessary in the field of optimization of the production process and breeding of new sugarcane varieties. Second, enough water and access to irrigation system is very important for sugarcane planting, so the government should help to provide these facilities for the farmers. Third, the sugar industry should differentiate their sugar products in order to increase the value added of sugar production. This will help sugar factories in case of encountering the situation of low prices of sugar. Fourth, due to increasing energy costs, sugar factories should get support in acquiring alternative energies and reducing other costs of production by research and development.