An import quota of 250,000 tons of sugar was granted by the Ministry of Industry and Trade (MoIT) in February to guarantee supply throughout the year. But the Vietnam Sugar and Sugar Cane Association (VSSC) was not at all pleased, saying that sugar stockpiles were sufficient to meet domestic demand until the next crop. It proposed the 250,000 tons of imports be stopped, and MoIT agreed.

Sugar inventories at refineries were estimated at 685,709 tons as at May 15, according to a VSSC report. And with average consumption of 120,000 tons a month, stocks are enough to meet domestic demand for five months, until October, when sugar refineries in the Mekong Delta begin the 2011/2012 season. VSSC Chairman Nguyen Thanh Long expressed his concern about the negative impacts of sugar imports on domestic prices, leading to inefficient production and discouraging farmers and enterprises. 

“MoIT would normally consider granting import quotas in August, but this year they announced it earlier, putting pressure on domestic refineries, and they should have considered delaying the 250,000 tons worth of imports until August to stabilise domestic prices,” he said.

VSSC also said that illegal imports could reach 200-300,000 tons this year, which will affect production and market stability. But Mr Doan Xuan Hoa, a senior official with the Ministry of Agriculture and Rural Development (MARD), said: “The inventory is not a major cause for concern as it can serve the domestic market for the remaining five or six months of the year. The problem, however, is that sugar traders are burdened with high interest rates that have hindered their operations.”

In the meantime, despite the large inventory, producers feel compelled to maintain production to avoid any negative impact on the lives of sugarcane growers. Sugar output in the 2010-11 season was estimated at 1.1 million tons, or around 300,000 to 400,000 tons less than actual demand. Deputy Minister of Industry and Trade Nguyen Thanh Bien said that the management of sugar imports in 2011 had been discussed thoroughly among relevant agencies, so the 250,000 ton quota for 2011 was appropriate.

As at mid-July Vietnam had imported only 93,000 tons of the quota, so it was necessary to resume imports. MARD has already asked MoIT to resume the imports in order to avoid rising prices in October and November. Minister of Agriculture of Rural Development Cao Duc Phat said he supported the proposal to resume imports because “after considering supply and demand, MARD found that Vietnam was still short of sugar, so the industry needs to resume imports before the new crop begins in October.” He added that the sugar price was stable but may increase slightly in the coming days, so MARD needs to follow market movements and co-operate with MoIT in order to provide sugar manufacturers and consumers with correct information.

After insisting in May that sugar imports be stopped, just a month later VSSC changed its mind and proposed MoIT allow sugar imports, believing it was the right time and explaining that Vietnamese sugar had been exported on a large scale to China, leading to a shortfall in supply. The problem here is inconsistencies in VSSC’s reporting of sugar supply and demand. In May they complained about an oversupply and large inventory due to massive illegal imports from Thailand, but then began referring to illegal exports to China.

The news that China was short of 2 million tons of sugar this year represents an opportunity for sugar refineries and traders in Vietnam to overcome their temporary difficulties. Refineries hope to “throw” their sugar out into the market to earn money to make their interest payments to banks and buy sugarcane from farmers.

Meanwhile, companies regard exports as a quick solution, believing that the State should allow exports for a certain period of time and that imports should only match the volume of exports. The fact that companies quietly exported to China will lead to shortage of sugar by the end of the year.

Deputy Minister of Agriculture and Rural Development Bui Ba Bong told a July seminar in Ho Chi Minh City that around 100,000 tons of sugar had been exported to China, but did not specify when such exports began. Ms Pham Thi Sum, Chair of the Bien Hoa Sugar Joint Stock Company, attributed the sugar stockpile to unforeseen market developments but also warned that the country may be short of sugar in the third quarter of this year due to uncontrolled illegal exports to China. “Local traders have exported some 30,000 tons of sugar to China every month since May,” she said. “This includes locally-produced sugar and illegally-imported sugar from Thailand being re-exported.”

Paradoxically, Vietnam decided to cease imports when world prices were low, and then proposed imports when prices surged. World sugar prices in July hovered around $730 per ton. Including transport and other costs, the price would stand at around $900 per ton when arriving at Vietnam’s ports, or higher than the price for domestic sugar. 

Mr Hoa from MARD said that it’s difficult to gain a reliable estimate of local supply and demand due to various factors, including the amount of smuggled sugar, the amount of sugar exported to China and any increases in local consumption. “We will follow market supply and demand closely and request the government allow imports if necessary,” he said.

There has been little improvement in terms of labour productivity and the quality of sugarcane in Vietnam over the last ten years, which are much lower than in other countries in the region. The competitive edge of Vietnam’s sugar and sugarcane industry remains in a poor state.

Supply now exceeds demand in world sugar markets so sales prices are low and less than production costs. This discourages sugarcane growers, who turn to other crops with higher incomes, leading to a fall in the sugarcane acreage in the country.

By 2011, almost all targets in the Master Plan for the Development of the Sugarcane and Sugar Industry by 2010 and Orientation to 2020, such as sugarcane acreage, labour productivity, and sugar content and quality, were not met. One example of this is that the sugarcane acreage of 310,000 hectares in 2007 has now fallen to 271,400 hectares.