From 2011 to 2014, world sugar prices dropped by 40%. Yet during that same period, sugar exports from Thailand rose by 70%, solidifying Thailand’s position as the world’s second largest sugar exporter. And, further rapid sugar production expansion – 50% in five years – is planned.
Thai sugar producers are relatively inefficient compared with other major producers, such as leading exporter Brazil. The Thai sugar industry is hampered by inadequate moisture and poor cane quality, small farm size, lack of mechanization, and underutilization of cane mills. How, then, was the Thai sugar industry able to achieve such a production gain while world sugar prices were falling?
The answer is government intervention. The Thai government has been closely involved with the Thai sugar industry for decades, and has taken major steps to expand Thai sugar production and exports, regardless of world market pricing and needs.
Thai government support for its sugar industry amounts to at least $1.3 billion per year. That includes about $775 million or more in indirect export subsidies through a price pooling system, which boosts subsidies when world prices decline, and $500-525 million per year in direct payments. In addition, Thai sugar producers benefit substantially from soft loans and input subsidies the Thai government makes available to all of agriculture.
The Thai sugar regime is patterned after the old European Union quota system, a key aspect of which was declared illegal by the World Trade Organization in 2005. The WTO found that exports generated by the EU system benefitted from prohibited export subsidies.
Essentially, by guaranteeing Thai sugar producers a high price for sugar sold within Thailand, the industry can afford to export sugar onto the world market for whatever price it will bring – a form of indirect export subsidy.
Brazil and Australia, which had successfully challenged the EU sugar regime at the WTO, have recently joined with the EU in questioning whether the Thai sugar quota system is consistent with WTO rules.
Complementing the indirect export subsidy scheme, the Thai government supports its sugar producers by:
- Providing cane growers with direct payments that rise when world sugar prices fall;
- Providing soft loans – at a fraction of market interest rates;
- Providing input subsidies to cane growers;
- Guaranteeing domestic sugar prices for sugarcane growers and millers, including a government-set revenue sharing system (70% to growers; 30% to millers);
- Directing sugarcane planting decisions;
- Setting quotas for each mill’s sales to the domestic market, with no limit on sales to the world market;
- Providing border protection for domestic producers against lower-priced world-market sugar;
- Providing subsidies for production of ethanol, mostly from cane molasses, which amounts to another indirect subsidy for cane growers and millers.
In addition, the Thai government is enticing rice farmers to switch to sugar cane, with a goal of increasing sugar cane production by 50% over the next five years…
The reasons driving Thai government support for its farmers and millers have not changed. The price of cane is a very sensitive issue for a great number of Thai small farmers. It is an expensive raw material for millers, growers are limited by natural and climatic conditions, and the recovery rate of the sugar industry remains low…
[G]iven the economic and political issues concerning the future of the sugar industry, it seems unlikely the Thai government will let the market dictate its way.
Editor’s note: The text above is an excerpt taken from a new study by Antoine Meriot, a global sugar expert who traveled to Thailand to better understand its sugar policies. Meriot is among the first to detail Thailand’s complex web of sugar subsidies, and his study can be viewed in its entirety here.
Meriot’s work is the latest initiative in a campaign by the American Sugar Alliance to spotlight the foreign subsidies that are wrecking the global sugar market and threatening efficient U.S. producers. More information about foreign sugar subsidies can be found here.