The real cost of Thailand scrapping its sugar subsidy program

Thailand is ending its sugar subsidy programme after complaints that it dragged down global sugar prices. But both rural farmers and the ruling junta could suffer from the decision

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February 23, 2017
The real cost of Thailand scrapping its sugar subsidy program

The Thai government has announced that it will end its programme subsidising its sugar industry nearly a year after Brazil said that the programme dragged down global sugar price. The Southeast Asian nation will stop its subsidy on sugar production and drop domestic control of consumer prices for sugar by the end of this year.

“Our new policy will be to let the price of sugar match that of the global markets, whereas before it was under the control of the Ministry of Agriculture,” Buntin Kotesiri, administrative director at Thailand’s Sugar and Cane Producing Board, told Reuters. “We expect these changes to come into effect at the end of the year during harvesting season.”

The loss of subsidies could cut some sugar farmers from the industry, particularly in rural areas, according to Ben Richardson, an associate professor in international political economy and author of Sugar, a book about the global sugar industry.

“When additional payments to cane farmers are cut this can lead to consolidation, as those who are less competitive at the prevailing market price are squeezed out [of] the industry,” he said. “To the extent that a subsidy lowers the cost of sugar exports, this benefits importers and harms rival exporters. This is why Brazilian producers filed the case against Thailand, influenced no doubt by the domestic economic difficulties that they have been experiencing.”

Paul Chambers, a lecturer of international relations at the Institute of Southeast Asian Affairs in Chiang Mai, said that the removal of the subsidy could hurt Thailand, which is the world’s second largest sugar producer after Brazil.

“The result could be lower Thai sugar prices, though the Thai sugar industry could be left behind by that of Brazil,” he said. “The result could be a new downturn for the Thai economy and a changed global focus in sugar toward Brazil and other sugar producers. The Thai military regime, which is overseeing economic policy, could ultimately lose support because of the economic slowdown.”

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