Smuggle sugar out of Thailand, then back in,
to receive higher domestic controlled prices

In April domestic prices of Thai refined sugar were raised to well above market prices by the government.

The current domestic price is set at 23.50 baht per kilogramme. The true market price on international markets received by exporters is 10 baht per kilogramme.

Thailand produces a lot more sugar than it consumes domestically. The surplus is exported to other countries at the much lower price.

Exporters want to receive the high domestic controlled price, not the low international export price, of course.

So what do some exporters do?

First, export their sugar out of Thailand as required by the law.

Then secretly and illegally smuggle the sugar back into Thailand to receive the higher domestic price. Makes sense, but it is illegal.

Excess supply of sugar, from higher than market prices...

When market prices are set above the market clearing price, the price that matches supply with demand, the result is usually excess supply. This is what basic supply and demand in economics tells you (See diagram). This is also what has happened in Thailand's sugar markets:

Since last year, the OCSB has reported that up to 1.6 million sacks or 1.6 billion kilogrammes of sugar for domestic consumption are left in storage. OCSB has allocated 19 million sacks of sugar for domestic consumption this year. The price hike and a more health-conscious lifestyle are expected to push domestic sugar consumption below the allocated number.

Mr Thikha said smuggling could lead to domestic glut in the market.

Markets no longer determine prices and quantities sold in Thailand's domestic sugar market. The government sets the domestic price and the Office of the Cane and Sugar Board (OCSB) sets the quantity supplied in the market and the quotas.

Maybe if the OCSB had perfect knowledge of Thai consumer demand for sugar and if smuggling could be controlled, then perhaps the quotas could be set exactly to ensure just enough domestic supply and no more. That is currently not the case. Instead there is a lot of excess supply.

Price hike was to help farmers

The price of sugar was raised for a good reason, to help farmers and subsidize their costs.

The production costs of farmers (fuel, fertilisers, labour) were higher than market prices. The price hike is considered a short-term measure. A long-term sugar-cane development plan seeks to improve the industry:

The development plan consists of soft-loan packages for sugarcane planters to use for farm equipment investments, which are aimed at increasing yields, and to help them develop organic fertiliser to use instead of expensive chemical fertilisers. The plan also will promote further development of ethanol, which uses molasses as a raw material. (Bangkok Post, business, B1, 01-05-2008)

The U.S. also "protects its sugar producers and processors from competition by limiting imports and excluding lower-cost producers from open access to the market. This keeps domestic sugar prices artificially high." (Source: International Food Policy Research Institute)

Measures taken to control smuggling

How much is being smuggled and whether it can be controlled are not clear. Proposals have been made to control the smuggling:

In a bid to counter smuggling operations, an OCSB committee has assigned the Counter Sugar Smuggling Working Committee to cooperate with national police and the Customs Department to impose stricter surveillance measures to control sugar smuggling.

Sources from the OCSB revealed that at least 165 sacks of smuggled sugar have been detected in Rayong province and Tha Tian pier in Bangkok.

The OCSB has ordered a suspension of cross-border sugar trading in 10 border areas with Cambodia, Laos and Burma.

In addition, OCSB will revoke trading licences from any export traders found to be supporting the smuggling operation.

According to Mr. Thikha, the three sugar associations have suggested additional measures to control the smuggling.

They suggest that the custom department employ more personnel to better monitor cross border transactions, provide higher bounties for smuggling arrests and order OCSB provincial offices to monitor sugar trading activities.

(Source: Bangkok Post, business, 23-07-08, VICHAYA PITSUWAN, page B3, temp-link)

Vocabulary:

domestic prices - prices within the country ราคาสินค้าในประเทศ

refined sugar - sugar that has been changed from sugar cane right off the fields into a sugar product in a bag that can be used for cooking น้ำตาลทรายขาว

market price - the price at which supply equals demand in the market ราคาตลาด

well above market prices - a price that is far above the price that makes supply equals demand, so there is excess supply on the market ได้ราคาดีกว่าราคากลางในตลาด

makes sense - is reasonable, is what you would expect เข้าท่า สมเหตุสมผล

market clearing price - the price that makes supply equal demand so that everyting is sold in the market

allocated X for Y - given X for Y

health-conscious lifestyle - a person who thinks about and is conscious about whether what they do is good for their health การดำเนินชีวิตด้วยความระมัดระวังรักษาสุขภาพ

glut in the market - too much supply in the market มีสินค้าล้นตลาด

quotas - the limited amount that you are permitted to buy โควต้า

subsidize their costs - pay part of their costs จ่ายบางส่วนของต้นทุน

soft-loan packages - loans with very low interest rates เงินกู้ดอกเบี้ยต่ำ

sugarcane planters - farmers who grow sugar ผู้ปลูกอ้อย เกษตรไร่อ้อย

organic fertiliser - a cheaper and less dangerous fertiliser that does not use artificial chemicals

ethanol - a substitute for gasoline that comes from crops such as sugarcane, tapioca, corn, and palm oil

measures - actions taken to solve a problem มาตราการ

surveillance - watching something or someone carefully to get evidence for a legal case การควบคุมแล

detected - find, notice, or discover that something is there จับได้

suspension of cross-border sugar trading - people are no longer allowed to buy and sell across the border การห้ามซื้อขายสินค้าบริเวณชายแดน

trading licences - official permission to trade ใบอนุญาตประกอบการ

monitor - check carefully all, the time ดูแล

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