Sunday, August 20, 2017

Sugar industry at brink of collapse after China buyers pull back

Over 800,000 tons of sugar has accumulated in the local market since China stopped importing from Myanmar.

Sugarcane cultivators harvesting their crop. A serious oversupply of sugar in Myanmar now threatens their livelihood. The Myanmar TimesSugarcane cultivators harvesting their crop. A serious oversupply of sugar in Myanmar now threatens their livelihood. The Myanmar Times

If the situation persists, the entire local sugar sector could collapse, U Win Htay, deputy chair of Myanmar Sugar Cane & Sugar Related Products Merchant & Manufacturers Association, told The Myanmar Times.

In total, 400,000 tons of sugar is produced locally, while another 800,000 tons, double what is produced locally, is imported and re-exported by local traders. Up until recently, most of the imported sugar was re-exported to China, demand for which has been declining since April, resulting in a huge pile-up of sugar in the local market, U Win Htay said.

That has forced large amounts of imported sugar into the local market, resulting in a 27% collapse in sugar prices, to K1,100 per viss now, compared to K1,500 per viss just three months ago.

“We can now sell sugar only in the domestic market. If prices continue to drop for much longer, the whole sugar market will be ruined. Owners of sugar factories will no longer be able to pay profitable prices to sugarcane cultivators. If this situation is not controlled, the whole sugar supply-chain can be ruined,” said U Win Htay.

This is not the first time a glut in the sugar sector has occurred. When sugar prices declined back in 2005-06, traders became unable to pay commercially viable prices to sugarcane cultivators. That forced the cultivators to stop growing sugarcane, which, in turn, forced many sugarcane processing factories out of business.

Lack of Chinese demand

China has stopped buying sugar from Myanmar to protect its own cultivators and businesses say it is getting more difficult to negotiate with the Chinese on price and volume. That lack of demand could jeopardise the entire re-export system in Myanmar.

To increase the country’s exports and boost trade, Myanmar allows local traders to import and re-export sugar, mainly to China, which accepts sugar produced by Myanmar but not by other countries with similar re-export systems, The Myanmar Times understands.

This has been the case even though there is no known discrepancy between the quality of sugar re-exported from Myanmar and sugar produced inThailand, India, Brazil, Pakistan and even locally in Myanmar.

Flawed re-export system

As a result, businesses have pointed out that the re-export system in Myanmar must be temporarily suspended until supply balances out against the demand in the local market.

For its part, the authorities have been stepping up efforts to place a floor under declining sugar prices. Since 2015, a total of 56 sugar companies with the license to re-export have been banned from doing so.

They comprise 34 importers which did not re-export any sugar and 22 which exported less than they imported, according to a letter from the Directorate of Trade issued earlier this month.

Union Minister U Kyaw Win from Ministry of Planning and Finance said last week at a meeting with businesses that the re-export system can no longer support the country’s economy effectively.

The government should instead support local sugarcane cultivators and provide incentives for them to produce more sugar.

The sugarcane season in Myanmar is just a few months away and sugar factories will start running in November. But if prices continue to fall, many may not be able to open for business.