To better understand Thai sugar subsidies, it is important to first understand Thai sugar production.
Thailand’s sugar sector is comprised of approximately 200,000 small farms that are known within the global community for their lack of mechanization and for producing meager yields and low-quality sugarcane. Poor labor and environmental standards help keep production costs in check, but as a whole, the sector is inefficient.
Despite this obvious weakness, Thai sugar production has expanded rapidly, from about 6 million tons of cane produced in FY2005 to more than 10 million tons in FY2013. Thailand is now the world’s second biggest sugar exporter and is expanding faster than all others.
That begs the question: How?
How can inefficient producers grow so rapidly? And how can that growth continue even though global sugar prices are lower than the cost of production?
The answer: Subsidies.
To control domestic supply conditions and price, Thai law sets production quotas, mandates high prices on the domestic market, and dictates the revenue split between farmers and sugar companies.
Tariffs protect domestic growers from global competition.
And preferential government loans are made available for inputs such as machinery and irrigation systems.
That’s not all. Press reports out of Thailand detail the military-led government’s desire for additional expansion to add another 1 million tons of production this year.
Those plans include allowing farmers to cultivate state-owned land and incentivizing farmers to switch from other crops to sugar.
At this point, the global sugar subsidy race to the bottom appears to be a three-way “thai” between Brazil, India and Thailand. And efficient U.S. producers and grocery shoppers are the big losers.
Hasn’t the time come for real free trade in the global sugar market? That’s why we’re pushing thezero-for-zero sugar policy where efficient businesses thrive.