Lesson 2: Why do sugarcane growers always suffer losses?

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(Baonghean) - Currently, the whole province is growing 27,200 hectares of sugarcane to provide raw materials for 3 sugar processing factories with a total sugarcane output of approximately 1.5 million tons/year. The largest raw sugarcane growing area in the province is Phu Quy with an area of ​​18,900 hectares, in the districts of Quy Hop, Quy Chau, Thai Hoa town, Nghia Dan and part of Quynh Luu district.

Most of the sugarcane growing area is hilly land, hilly land under low mountain slopes and land for growing crops. This type of land often experiences severe drought in the dry season, temporary flooding in the rainy season, and broken trees in the stormy season. Due to the impact of many factors, sugarcane productivity is decreasing rapidly, in 2005 it reached 68 tons/ha, in 2008 it dropped to 58 tons/ha, in 2012 it was only 55 tons/ha and it is forecasted that in 2013 it will be difficult to achieve a yield of 50 tons/ha.

Sugarcane growers are worried about where the sugarcane industry will go when sugarcane productivity is gradually decreasing due to drought, pests, and limited investment in intensive farming. Enterprises apply a purchasing mechanism based on annual contracts to purchase products. Sugarcane purchase prices are not calculated based on production costs but based on the fluctuating sugar prices on the market. According to farmers in Quy Chau, Quy Hop, and Nghia Dan districts, Tate & Lyle Sugar Factory has never extended the sugarcane purchasing period from the beginning of November of the previous year to the end of May of the following year like in the 2012-2013 crushing season. Farmers had to sell at only 870,000 VND/ton of sugarcane, 50,000 VND/ton lower than the previous purchase price, then continued to reduce the price due to the reason that the sugarcane was flowering, or had pests, etc.

When domestic sugar prices fell, the factory still had to buy sugarcane from farmers according to signed contracts, so the profit after sugar processing was low. The extension of the sugarcane purchasing period from farmers meant that most of the sugarcane areas that had not been cut and sold after March 30th had simultaneously bloomed, causing a loss of sugarcane yield of 12-15%. Some sugarcane areas had not been purchased by the factory until April, and were exposed to severe drought and early Lao winds, causing the sugarcane to dry out and die, causing great losses to farmers.

Sugarcane growers are discouraged when every year 6,000 - 7,000 hectares of sugarcane are affected by grass shoot disease, with insignificant harvests. In years when sugar prices are high, the factory buys sugarcane at 910,000 - 920,000 VND/ton. But this year, when the domestic wholesale sugar price is low, fluctuating around 14,000 VND/kg, the factory only buys sugarcane at the highest price of 870,000 VND/ton, but is not interested.

Sugarcane waiting to be imported at Song Con Sugarcane Company. Photo: CS

Mr. Phan Van Tan, a farmer in Nghia Khanh commune, Nghia Dan district, who has many years of growing sugarcane and selling it to Tate & Lyle Sugar Factory, sadly said: "If there was any plant that could replace sugarcane on this land, we would abandon sugarcane and plant that plant immediately. In the past few years, sugarcane productivity has been getting lower and lower, partly due to drought, partly due to strong growth of grass shoot disease, and when it comes to harvest, the sugar factory forces us to supply and lower the price, refusing to buy, and in the end, we are the ones who suffer the most." Preliminary calculations in areas with a lot of sugarcane show that: The average cost to grow 1 hectare of sugarcane from land preparation to harvest is 30,600,000 VND. The current average sugarcane yield is 55 tons/ha, sold at 870,000 VND/ton, which will generate an income of 47,850,000 VND. The net profit on 1 hectare of sugarcane after deducting production costs is 17,250,000 VND.

Sugarcane growers benefit like that, but what about sugar processing factories? In the year when the world and domestic sugar wholesale prices are high, sugar processing factories make big profits. For example, in the 2009-2010 and 2010-2011 crushing seasons, the domestic wholesale sugar price was from 16,500 - 17,000 VND/kg, while the sugarcane purchase price from farmers was only around 910,000 VND/ton. On average, 1 ton of raw sugarcane of the ROC10, ROC11, Que Duong, F158 varieties can be processed into 100kg of sugar (10%).

The maximum cost to buy 1 ton of sugarcane is 910,000 - 920,000 VND, plus transportation, wages, machine depreciation... all together is 1,340,000 - 1,350,000 VND, the cost of producing 1 kg of sugar is from 13,400 - 13,500 VND. If selling sugar at the same price as in 2010 - 2011, from 16,500 - 17,000 VND/kg, the factory will earn a profit of 3,100 - 3,500 VND/kg of sugar, a considerable profit for a factory that produces thousands of tons of sugar each year, not to mention the money from selling alcohol and molasses. This year's pressing season alone, because the domestic wholesale sugar price is only 13,800 - 14,000 VND/kg, each kg of sugar produced by the factory only earns a net profit of 400 - 500 VND.

Meanwhile, the middle class of sugar traders such as traders, restaurants, and supermarkets buy sugar from the factory at the price of 13,800 - 14,000 VND/kg, and sell it directly to consumers in the Nghe An market at the current price of 17,500 - 18,000 VND/kg. Thus, the middle class of sugar traders only buys and resells, earning a net profit of 3,700 - 4,000 VND per kg of sugar.
In recent years, the weather has been unfavorable for sugarcane and is becoming more and more unfavorable. Drought is becoming more and more severe, such as in the recent sugarcane crop, nearly 8,000 hectares of sugarcane in Quy Hop, Nghia Dan, Quy Chau, Quynh Luu, Tan Ky districts had not been harvested by April, due to the hot sun and Lao wind, causing the stems and leaves to dry and burn, seriously reducing sugarcane productivity. During the rainy season, strong winds cause the trees to fall and break, reducing both the productivity and quality of sugarcane.

The most worrying thing is that grass shoot disease is developing strongly in most sugarcane growing areas in the province, most of which are currently concentrated in the Phu Quy sugarcane area. Up to now, there is no specific medicine to treat this disease. In the last sugarcane crop, the whole province had over 7,000 hectares of sugarcane affected by grass shoot disease. Many sugarcane growing families in Nghia Xuan, Nghia Khanh, Nghia An, Nghia Hung communes of Nghia Dan district could not harvest because of grass shoot disease.

The difficulty for sugarcane growers is that their products have only one market, which is the sugar processing factory located in the area. Therefore, the purchase of raw sugarcane by sugar processing factories is still forced to supply and price, not really paying attention to the harmonious interests of both sides (farmers and factories) to maintain the sustainability of the sugarcane raw material area. If farmers do not sell sugarcane to the factory, the sugarcane will spoil over time, and they will have no income, so they are forced to sell even at a low price. Meanwhile, sugar processing factories themselves set the price to buy sugarcane from farmers to make as much profit as possible.

In years when the domestic wholesale sugar price and the export sugar price are high, the sugarcane purchase price for farmers is higher and that year the sugarcane factory buys sugarcane very quickly. On the contrary, in the 2012-2013 crushing season, due to the decrease in domestic and world sugar prices, the sugarcane factory buys sugarcane at a low price and extends the purchase period from early November of the previous year to May of the following year, causing great losses to farmers. As long as sugarcane growers continue to suffer losses in profits, the raw sugarcane area will find it difficult to develop sustainably.
(To be continued)

Doan Tri Tue