On the threshold of integration, according to analysts, besides challenges, there are big opportunities for growth of sugarcane in Vietnam.
An overview of the world’s sugar cane industry
Rabobank forecasts that world future raw sugar price will recuperate and rebound at 14.5 cents/lb in the last three months of 2018. The US Department of Agriculture forecasts global sugar production 2018 - 2019 will fall by 4 million tons to 188 million tons due to severe drought in Brazil.
Trade war between the United States and China have become intense, Beijing imposed a 25% import tax on US soybean in retaliation to US taxation policy, a number of Chinese companies shifted to import beans from Brazil, India. The soybean area in Brazil has increased by 2 million hectares in the past two years, while the area planted to sugarcane has decreased by nearly 400,000 hectares. Dozens of sugar factories have been closed in southern Brazil for the past five years. The same situation is also occuring in India. This invisibly reduces the supply of sugar in Brazil and India - the two major powers sugar cane countries in the world, opening up more hope to improve global sugar prices in the near future. Recently, US President Donald Trump said to be willing to levy an additional $ 267 billion on imports from China, in addition to the current $ 200 billion plan, meaning that all Chinese imports into the United States would be subject to import tax.
Another positive sign is that commodity speculation funds are buying more to boost consumption, and commodity funds have come back to the market as prices go down and India builds stocks to reserve sugar limiting exports. Besides, gasoline prices have recovered strongly causing more demand for biofuels and increasing ethanol production. At the meeting of the first half of 2018, the Ministry of Finance said that the price of crude oil and petroleum products on the world market tended to increase in the first half of the year, with the maximum retail price of domestic petroleum products increased from 7.5% -17.9% compared to the end of 2017.
Positive Opinions
Vietnam is entering a period of "golden population" when most of its population is in working age - there is a great demand for the use of sugar products to supplement energy. According to Phu Hung Securities Corporation (PHS), the potential for consumption of sugar is still abundant. The average sugar consumption in Vietnam is 16 kg/person/year, lower than Indonesia's 23 kg/person/year, Thailand is 37 kg/person/year and the US is 48 kg/person/year. Demand for sugar in Vietnam is forecasted to have a lot of growth potential, with a forecast of 26 kg/person/year by 2026, according to PWC. In addition, sugar is an important material for the food and beverage industry - the sector has high growth in the coming time.
According to the Dai Viet Securities Joint Stock Company (DVSC), supply and demand for sugar in Vietnam has a negative correlation. Since fiscal year of 2013/2014 up to now, sugar production tended to decrease, while consumption demand tended to increase. It is predicted that Vietnam will need from 1 to 1.5 million tons of sugar in the next few years to provide for individual needs and the food industry. DVSC also made good comments on the prospects of the sector's growth in the next time, such as the sugar price hit the historic bottom set in 2015, so DVSC believes that the risk of the sugar sector will gradually decrease.
According to Bao Viet Securities Company (BVSC), the world sugar price is expected to be restored in the near time when forecasted output surplus will be reduced to 4.4 million tons compared to 7.6 million tons in the previous crop. The positive support factors that BVSC has given are Brazil is likely to decline produce in 2018- 2019 due to drought, while Brazil is also considering increasing the sugarcane use for ethanol production. This will result in better returns in the context of world sugar prices have fallen sharply while oil prices have increased significantly since the last year. In addition, Thailand - the second largest sugar exporter with a total output of 2017 - 2018 estimated at 13.7 million tons (accounting for more than 5% of global output) has also decided to cut 500 thousand tons raw sugar for export. The Government is also considering the possibility of increasing sugarcane use for ethanol production because at present ethanol production from cassava is less competitive. BVSC also said that the difference between the price of Vietnam’s sugar and imported sugar from Thailand has been and will continue to be narrowed down. This will improve the competitiveness of domestic sugar.
New opportunities of Vietnam sugar cane industry
In fact, in addition to sugar, by-product such as electric from bagasse has significant growth potential especially as demand for energy is increasing in Vietnam along with shortages supply of petroleum products. At the same time, the Government is also planning to support electricity prices for sugar cane-based power producers, which are expected to continue to receive Government's support with price increase from 5.8 to 7.5 cents/kwh. In addition, the ATIGA (ASEAN Trade in Goods Agreement) has been extended to 2020 which is a good opportunity for domestic sugar companies as well as for sugarcane farmers.
Recently, on July 5th, 2018, the Government issued Decree 98/2018 / ND-CP on policies to encourage the development of cooperation and linkages in the production and consumption of agricultural products in order to ensure the objectives to 2020 to have from 80% to 95% of sugarcane product, shrimp and Basa fish products; from 15% to 30% of production of tea, commodity rice, coffee, export fruit, safe vegetables ... consumed through the linkage chain. Along with that, the Government will continue to care more about the sugar industry and will tighten surveillance against smuggling, trade fraud and increased tariffs on sugar syrup. Companies in the sugar industry are also expected in the forthcoming time the Government will approve Sugarcane Law, thereby increasing the importance of sugar cane in the list of national agricultural products.
As cited in cafef.vn
