Mekong Delta Sugar Industry Renews for International Integration

According to statistics from the Ministry of Agriculture and Rural Development, in the 2005-2006 crop, sugar plants in the Mekong delta pressed 2.5 million tonnes of sugarcanes and produced 220,000 tonnes finished sugar. At that time, both plants and farmers were thought to have a bumper crop. However, in the end of the crop, due to the fact that smuggled sugar flooded the local market, local producers could not sell their products because their prices were much higher than those of smuggled sugar. To sell their in-stock products, producers joined a race of cutting prices.

 

In the 2006-2007 crop, the Mekong delta has more than 65,000 hectares of sugarcanes, just 5,000 hectares more than the previous crop. The whole delta now boasts nine sugar plant with a design capacity of 20,000 tonnes of sugarcanes per day (or around four million tonnes of per year). If a kilogram of sugarcanes is priced at less than VND 400, a kilogram of finished sugar will be priced at over VND 7,000, the same with prices of Thailand-made products of the same kind. Selling at present prices, farmers will gain a profit when they can produce 150 tonnes of sugarcanes per hectare. This is a high yield that not all farmers can reach.

 

According to the Ministry of Agriculture and Rural Development, the average yield in the Mekong delta is just 80 tonnes per hectare. Meanwhile, in the north, central Vietnam and the south-eastern region, the average yield is just only 60 tonnes per hectare. Therefore, if they sell sugarcane at less than VND 400 per kilogram, farmers will not be able to gain profits. Otherwise, if they sell at more than VND 400 per kilogram, sugar plants will face a risk of suffering losses because their production costs are much higher than prices of imported products of the same kind. This has become a difficult issue for both farmers and sugar plants, which need their joint efforts to settle.

 

Also according to the Ministry of Agriculture and Rural Development, this year, Vietnam has more than 300,000 hectares of sugarcanes, up by 30 per cent against the previous crop. In the 2005-2006 crop, seven sugar plants closed. In the 2006-2007 crop, there are 37 plants still operating with a capacity of more than 82,000 tonnes of sugarcanes per day. The Ministry of Agriculture and Rural Development said that if the sugarcane output reaches at least 17 million tonnes, sugar plants would be able to reach their maximal capacity, producing more than 1.2 million tonnes of sugar and basically meeting the present demand. On the basis, the Ministry of Agriculture and Rural Development has submitted the Government a master plan for sugarcane farming areas throughout 2010, which will stabilise with 300,000 hectares, producing around 20 million tonnes of sugarcanes. Of which, 250,000 hectares will be planed as concentrated sugar supply areas for sugar plants.

 

The problem for the whole local sugar industry is that production costs are higher than other countries in the region. Experts say that the Vietnamese sugar industry develops late and its depreciation period has not ended yet. Also, plants are paying bank loans. Meanwhile, sugar plants in Thailand have experienced the period of their lifetime. However, admittedly, there have been problems for the local sugar industry, known as poor management and outdated equipment and production lines, let alone a poor planning of material supply areas and sugar plants, and improper attention to trademark development.

 

To reorganise the management of sugar plants, the Prime Minister has issued the Decision N⁰ 28/2004/QD-TTg to reorganise production and take solutions to help plants and companies overcome difficulties. So far, 12 sugar plants have completed their equitisation and initially gained a higher effectiveness. Nine other enterprises are completing procedures for their conversion.

Poor management has gradually addressed. However, the sugar industry is facing two difficulties which are hard to overcome. Firstly, many enterprises have bought outdated production lines, which have a low sugar production rate. Secondly, the poor planning of sugar plants has resulted in a shortage of materials. Many plants have had to be relocated after a short time’s operation. Each relocation cost them more than 60 per cent of investment.

 

Also, according to a WTO accession roadmap, and the implementation of the ASEAN Free Trade Area (AFTA), import tax rate of sugar will be cut to 35 per cent to between 0 and five per cent in 2010. Prices and quality will play an important role for the success of the local sugar industry, and sugar plants in the Mekong delta in particular.