Sugar policy: Overhaul to fight Brazil's WTO action

After Brazil starts WTO case against Thailand over sugar grower subsidies, Thai policy to change but global prices rising, luckily.

AGRICULTURE & INTERNATIONAL TRADE

Sugar policy: Overhaul to fight Brazil's WTO action

19/09/2016
Apornrath Phoonphongphiphat

Thailand is set to overhaul its sugar production and distribution systems for the first time in more than three decades.

The move is being taken in order to avoid being challenged by Brazil at the World Trade Organization (WTO).

Thailand is the world's second largest sugar exporter after Brazil.

FLOATING DOMESTIC SUGAR PRICES

Thailand will have to revoke its current 70:30 profit - sharing system, in place since 1984.

Cancelling its quota system and floating domestic sugar prices will be required.

This is according to the Office of Cane and Sugar Board (OCSB). 

BRAZIL'S WTO CASE AGAINST THAILAND

Sugar traders believe that this plan is solely strategic, put together to provide Thailand with a quick defence against accusations of foul play from Brazil at the October WTO meeting in Geneva.

Brazil is challenging Thailand over subsidies for sugar producers that it says have dragged down global prices and allow Thailand to win a larger market share at the expense of Brazilian producers, conduct that is not in line with international trade agreements.

SUPPORT TO SUGAR CANE PRODUCERS

The 70:30 profit sharing system between sugar millers and sugar cane growers provides monetary support from the country's Cane and Sugar Fund to Thai sugar cane producers.

The fund raises the money itself, largely from yearly sugar sales.

When the fund does not have enough money, it seeks loans from the state-owned Bank for Agriculture and Agricultural Cooperatives (BAAC).

END TO QUOTA SYSTEM

Thailand plans to revoke its sugar quota system.

The sugar quota system sets aside three quotas each year to prevent sugar shortages.

Quota A sets aside around 2.2-2.5 million tonnes of sugar for domestic consumption, quota B for the state-run sugar exports and quota C, which sets the non-government quantity of sugar to be exported by private sugar millers.

BUFFER STOCK TO PREVENT SHORTAGES

"All of the quotas would be cancelled under the new plan. But we still have to set aside a buffer stock of sugar for domestic consumption every year in order to prevent sugar shortages," said the OCSB's secretary-general Somsak Jantararoungtong.

Traders said the plan will make no changes at all to the Thai sugar trade and distribution system.

"It just changes what you call it, from a quota to a buffer stock," one trader said, who noted that the government can still allocate more than 2 million tonnes a year for domestic consumption.

SUGAR PRICE CONTROLS FOR THAI CONSUMERS

To keep food prices and inflation rate under control, the government has been maintaining a price ceiling for sugar, with the retail price fixed at 23.50 baht per kilogramme by the Commerce Ministry.

The price ceiling occasionally results in sugar shortages as profiteers normally smuggle domestic sugar to sell in neighbouring countries, especially when global sugar prices rise above the fixed domestic retail price.

"We aim to create a semi-floating system. However, we need to work together with the Commerce Ministry on how to manage the system and what it will look like," said Mr Somsak.

SHORTAGES & BASIC ECONOMICS OF SUPPLY & DEMAND

It is also important to never forget the basic concepts of economics that tell us why price controls often do not work as a economic policy (see here).

The basic economics of supply and demand predicts "excess demand" which is another way of saying "shortage" when the price is set artificially below the "market clearing price" where supply equals demand (see here & here).

RISING GLOBAL SUGAR PRICES PREDICTED

Global sugar prices have reversed after bottoming out, and are expected continue to rise over the next few years due to falling supply and stocks, according to traders and industry officials.

The US Department of Agriculture (USDA) has predicted global sugar for consumption in 2016/17 to reach a record 174 million tonnes, with production at 169 million tonnes. This would lead to global stocks falling to their lowest since the 2010/11 crop, indicating a rise in global prices over the next few years.

The USDA predicted consumption in several countries, especially India and China, to rise substantially.  India's consumption was expected to rise to 27.2 million tonnes, while production was forecast to drop to 25.5 million, due to reduced planting area and declining yields.

http://www.bangkokpost.com/business/news/1089401/thailand-to-overhaul-sugar-policy

สามารถฝึกอ่านออกเสียงและดูคำแปลได้ที่ : http://www.bangkokpost.com/learning/learning-from-news/1089692/sugar-policy-overhaul-to-fight-brazils-wto-action