Thailand plans to grow more sugar, swell global supply

Thu Aug 28, 2014 11:17pm EDT

Related Topics

* Expects to boost supply by up to 1 mln T -govt official

* Says fundamental demand is strong, not worried by oversupply

* Support of rural population is key for govt in Thailand

* Govt says 2014/15 output to drop from last year's record

By Apornrath Phoonphongphiphat

BANGKOK, Aug 29 (Reuters) - Thailand plans to boost the amount of land it uses to grow sugarcane, potentially increasing refined sugar output in the world's second-biggest exporter of the sweetener by around 10 percent, a government official said.

Increased Thai production would drag on benchmark global sugar prices, already struggling near seven-month lows as a supply glut floods markets.

The military government in the Southeast Asian nation wants to increase farmland dedicated to sugarcane by 800,000 rai (128,000 hectares) from around 9.5 million rai, said Somsak Suwattiga, secretary-general of the Office of Cane and Sugar Board (OCSB). The 'rai' is a unit of measurement commonly used in Thailand.

That would boost refined sugar production by 800,000 to 1 million tonnes, from the around 10 million tonnes the OCSB forecasts for the 2014/15 crop year. The body oversees Thailand's sugar industry.

"The plan is likely to be approved by the end of this year, and we could start growing more sugar immediately in the 2015/16 crop," Somsak told Reuters.

The government would turn over more state-owned land to agriculture as part of the increase, as well as asking some farmers to switch crops.

The country's large rural population is a major influence on Thai politics, with governments keen to curry its support. The failure of a rice subsidy scheme was a major factor in the downfall of former prime minister Yingluck Shinawatra.

"There are 20 millers, mostly located in the impoverished northern region, that are happy to run at full capacity to help absorb rising cane output," said Somsak. "There's no need to build any new sugar factories."

He played down concerns that it could be difficult to sell more sweetener into an oversupplied market, saying that fundamental demand in Asia was strong.

The International Sugar Organization (ISO) said on Tuesday that the global sugar surplus was seen at 1.3 million tonnes in 2014/15, down from a 4.0 million tonnes in 2013/14 as consumption picks up.

Thailand, the world's second biggest sugar exporter after Brazil, produced a record 11.3 million tonnes of sugar in its 2013/14 crop due to good weather.

That has left it with millions of tonnes of unshipped sugar, forcing sellers to offer Thai raw sugar at prices below New York futures.

The last time Thai raw sugar traded at discounts to New York futures was in 2009.

The OCSB's prediction for 2014/15 refined sugar production of around 10 million tonnes is slightly higher than trader and industry official forecasts of 9.5 million tonnes.

(Additional reporting by Lewa Pardomuan; Editing by Joseph Radford)

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