Sugar prices drop sharply - Businesses face many difficulties

(Baonghean) -Since last March, sugar prices have dropped sharply, with factories selling at warehouses for only 13,000-14,000 VND/kg, lower than production costs. With a large amount of sugar in stock, sugar cane enterprises in our province are worried about “smuggling” to China or finding retail customers…

We called the Director of Song Con Sugar Company - Le Dinh Hoan, when he was directly selling sugar at Lao Cai Border Gate. Director Le Dinh Hoan said: “Sugar prices have dropped to the lowest level in the past few years. Currently, Song Con Sugar Company can only sell for 13,500 VND/kg, while at this time last year the price was 16,400 VND/kg. There is a lot of sugar in stock, as of April 3, 2013, the factory still had 12,700 tons of sugar, which is also the largest inventory ever.

Because I had to fulfill my commitment to pay the farmers immediately for the sugarcane, I had to go with the sugar truck until night to “export” it to China. Honestly, in our country, we call it “illegal export”, but in China, they call us “smuggling”. We and other companies are having to sell sugar illegally like this”. Like that, since the beginning of the crushing season, Song Con Sugar Factory has only sold 2,000 tons of sugar in the Vietnamese market. And “illegal export” to China is 18,000 tons of sugar.

Import sugarcane raw materials at Song Con - Tan Ky Sugarcane Factory.

According to the analysis of the staff of Song Con Sugar Factory: the current production cost of 1 kg of sugar at the factory is 14,200 VND, while it is only sold for 13,500 VND/kg. Like other factories, sugar is always sold wholesale to distributors, not retail, so the price is not high. According to Mr. Nguyen Thanh Long - Chairman of the Vietnam Sugarcane and Sugar Association, in Vietnam, the production cost of 1 kg of sugar is 15,500 VND, with some factories charging up to 16,000 VND/kg. Therefore, the current low sugar price leads to losses for factories. Sugar from Tate & Lyle Sugar Factory is currently sold at 13,950 VND/g, sugar from Song Lam Sugar Company is 13,600 VND/kg, sugar from Tuyen Quang Sugar Joint Stock Company is 13,909 VND/kg, sugar from Son La Sugar Company is sold at 14,020 VND/kg... In Vinh City market: retail sugar price is 18,000 VND/g, 4,000 VND/kg lower than in January 2013. Song Lam Sugar Company (Anh Son) is currently producing 8,500 tons of sugar and has nearly 3,500 tons in inventory.

Information from the Vietnam Sugarcane and Sugar Association: As of March 25, 2013, factories had pressed 12,632,904 tons of sugarcane, producing 1,132,177 tons of sugar, while the remaining sugar inventory was more than 500,000 tons.

Mr. Tran Kim Loc - Deputy General Director of Nghe An Tate & Lyle Sugar Company said: Exporting is currently the best solution, the price will improve. Tate & Lyle Sugar has not been exported because it has not found a good price, but the company has overcome the difficulty by exporting molasses to the Molasses Group in the UK with an output of nearly 15,000 tons, reaching a turnover of 1,500,000 USD, thereby compensating an important part of the production and business efficiency in the context of low sugar prices like now.

Regarding the reason for the low sugar price, it is analyzed that: The first quarter of 2013 is the peak sugar production season of factories, the amount of sugarcane flowing to the factory is large, sugar output is increasing day by day, while the demand for sugar consumption is low or not yet in season (usually from Summer to Fall, sugar consumption is higher). Domestic sugar mainly serves confectionery and beverage companies, especially moon cake companies, restaurants, coffee shops and trading companies.

According to Mr. Ngo Van Tu - Deputy General Director of Nghe An Tate & Lyle Sugar Company: "Due to the economic recession, confectionery factories and food manufacturers using sugar cannot sell their products, consumption has decreased, so the demand for sugar is low, leading to a large inventory. Secondly, this year's sugarcane harvest is bumper, so the sugar output is high, and the inventory is large. Nghe An Tate & Lyle Sugar Company achieved a sugarcane output of approximately 1 million tons (2012-2013 crop year), while in the previous crop, the sugarcane output was only 605,000 tons of sugarcane". Nationwide, the 2012-2013 crop year is expected to produce 1.4 million tons of sugar, a record number to date, while the demand is only approximately 1.2 million tons.

Another reason is that there is also a lot of smuggled sugar from the South, causing domestic sugar prices to drop sharply. In the context of recession, Thai sugar prices have also dropped sharply. Recently, in Chau Doc (An Giang), the anti-smuggling force has been strong, limiting smuggled sugar, causing domestic sugar prices to increase by a few hundred VND/kg. However, the slow consumption of sugar in the main season has forced sugar factories to export to China. Mr. Le Dinh Hoan said: Sugar exported to China must be shipped first and then they transfer money later, which is not certain. But the most worrying thing is that China is erratic, buying some months and not the next. Sometimes hundreds of trucks of sugar have to wait at the border gate and then have to sell them off to return home. Therefore, the company is completing procedures to apply for official export.

Discussing the issue of the current sugar price being lower than the production cost and whether the sugar production cost is from 15,500 VND to 16,000 VND/kg as Mr. Nguyen Thanh Long - Chairman of the Vietnam Sugarcane Association said, Mr. Tran Kim Loc - Deputy General Director of Tate & Lyle Sugar Company said: That is true but also not true. Because it also depends on technology, whether the sugarcane output is enough for the pressing capacity or not and other factors. If the sugarcane output is sufficient, the technology is advanced, the management is good, the cost will be low, or if the technology is advanced but the raw materials are not enough to meet the capacity, the cost will increase... Another important thing is whether the business has to pay interest on bank loans or not. Tate & Lyle has advanced technology, this year's output is enough for the capacity, especially because it does not borrow from the bank, so even though the sugar price has dropped sharply, the company can still "survive".

According to our calculations: Currently, with the sugarcane purchase price of 850,000 VND - 900,000 VND/ton, the cost of raw materials in 1 kg of sugar will be from 8,500 VND - 9,000 VND/kg. In addition, the costs of depreciation of machinery, labor, management, interest, inventory... will be a "burden" for most domestic sugar factories when the selling price is only 13,000 - 13,500 VND/kg of sugar as at present. Therefore, reducing costs, improving management, and improving machinery technology to reduce costs is an inevitable requirement. Currently, like Song Lam Sugarcane Joint Stock Company, with the selling price of sugar only reaching 13,650 VND/kg, the company loses up to 40,000 VND per ton of sugarcane. Therefore, according to Mr. Le An - Deputy Director of Song Lam Sugarcane Joint Stock Company, next year, technology innovation will be the top priority at the factory to recover a high rate of sugar.

Especially in just a few years, when tariffs are completely opened, domestic sugar production enterprises will be “equal” to foreign companies. If they do not actively innovate, they will have to accept closing down.

Chau Lan