Submitted on Thu, 14 Jul 2016 - 05:41 PM
Brazil’s long term policy on Proalcohol (sugarcane-based ethanol fuel programme) has provided a platform for Brazil to develop its sugar industry and subsequently dominate the world sugar trade. If Brazil is successful in its attempt to challenge the sugar industry in Thailand, the second biggest sugar exporter, on its internal sugar regime, its potential expansion could truly dominate the world sweetener trade and alter the agricultural landscape of Thailand.
The recent request for consultations from the Brazilian authorities to the Thai government at the WTO’s Dispute Settlement Body on subsidies for the Thai sugar industry is not a surprise at all. It is what the industry had been expecting sooner or later. Though it shocks no one, this could seriously affect the country’s external trade policy and agricultural policy and subsequently alter its rural economy.
The request from one of the world’s biggest agricultural nations and the number one sugar exporter accuses Thailand, the second biggest sugar exporter, of using a quota system to guarantee high prices for domestic sugar, while the excess over this quota must be exported. Thailand is also accused of providing additional payments to cane growers without specifying any export subsidy commitments in Section II of Part IV of its Schedule. Brazil claims “Thailand’s quota and price control system and its supplementary payments to cane growers constitute export subsidies for sugar in violation of Thailand’s obligations under the Agreement on Agriculture”. Brazil even mentions in their request that the country provides substantial subsidies to convert agriculture land from rice to cane and to develop additional capacity to manufacturer more sugar.
In over 30 years since it came into force, the Cane and Sugar Act 1984 has been a stabilizing mechanism for the industry and cane growers nationwide. The quota system has been used to guarantee the availability of sugar for domestic consumption and of course provided a mechanism for the fair distribution of income between cane growers and millers, 70% and 30% respectively. The domestic price is capped to ensure the steady supply of sugar for domestic consumption and income for the industry and cane growers. The system helped stabilize the industry throughout world sugar price fluctuations for decades. It is yet to be seen if it continue to be a comfortable cushion in the future.
Brazil is the world’s number one sugar producer and exporter, while Thailand ranks second in terms of exports. In the 2015/16 crop year, Brazil produced 31.2 million MT of sugar and exported around 23 to 25 million MT out of total world exports of 64 to 66 million MT, while Thailand managed to produce 9.7 million MT and exported around 7.1 million MT.
In Thailand, the sugar industry provides 1 million jobs and generates almost US$ 6 billion per year to its supply-chain of cane growers, sugar mills and logistics personnel. It is considered one the most important agricultural crops in Thailand.
According to WTO website, over the years, Brazil has been complainant in over 29 cases, respondent in 16 cases and third party in 99 cases. So Brazil is one of the world’s most experienced countries in using WTO trade mechanisms to protect and strengthen its interests. It is going to be a long battle for Thailand to disprove the accusation by the giant agricultural nation and a powerful BRIC member.
On the other hand, a few cases have been filed against Brazil. There were even some accusations against its Proalcohol programme initiated in the 1970s to better manage sugar industry. It was accused of being a cross-subsidy for its sugar sector. As a result of this programme, Brazil managed to increase sugarcane production from 80 million MT in 1971 to 630 million MT in 2016. A report “Government Support and the Brazilian Sugar Industry” by Patrick H. Chatenay, prepared for the American Sugar Alliance, stated that “For sure, Brazil is a giant in sugar. But to say that its dominance of the world market is entirely due to Brazil’s natural endowments, efficient farmers and wise managers is wrong: government played an essential and powerful role in the Brazilian sugar and ethanol industry’s rise and continues to do so today.”
Historically, Brazil and Thailand, along with other sugar-exporting nations, have over the years been working together to campaign for a liberalized world sugar trade under the Global Sugar Alliance (GSA) umbrella. In 2005, Thailand, Brazil and Australia filed a complaint against the EU sugar regime and won the case at the WTO. Consequently, the world sugar trade has changed significantly due to the restructuring of the EU sugar regime and the cap on its sugar exports of 1.27 million tons from the previous 6.6 million tons. Around 5 million tons of sugar disappeared from the market, sending sugar prices soaring. However, after years of restructuring, the EU is expected to export more sugar again after October 2017 when it announced the end of its quota system.
Challenges are yet to come. Talks loom on restructuring the Thai Cane and Sugar Act. Thailand may take this opportunity to restructure its sugar industry to ensure its competitiveness. The stakes are high. Asia is a sugar deficit region, short of 10 million tons a year. Thailand stands in a good position in terms of its strategic location, favourable commitments under different Free Trade Agreements, and its experience and expertise in the sugar business.
It is to be seen whether the Brazilian strategy bears fruit. Brazil could be able to truly dominate the world sugar trade at the expense of smaller producing nations.
Pattarapong Pongsawasdi is a Senior Assistant Managing Director, Buriram Sugar Public Company Limited, Thailand
The opinions expressed in this article are the author’s own and do not reflect the view of Buriram Sugar Public Company Limited.