In this Part XVII of our special series on Sweetness & Power, we present a news analysis of the new landscape the country’s 57 sugar mills and 384,708 sugarcane farmers are facing–low world sugar prices, farmers consistently growing at a loss, and local opposition to new operations. And yet the Thai government has championed “Smart Farming,” an 80 percent increase of sugarcane production by 2026, and 29 new mills in the Northeast. How do these plans square up with reality?

Part XVII: “Smart Farming” sugar plan crashes into bitter reality

Last week, the Bangkok Post reported that the Office of the Cane and Sugar Board (OCSB) had bad news for the sugar industry which was told could expect a 10-billion-baht loss ($326 million USD) this coming sugarcane season.

Not only that, the board said the current global sugar glut will depress prices for maybe years to come. If that wasn’t enough, the board “expects a widespread drought in the country” will cause sugarcane production to drop by some ten percent compared to last year.

OCSB secretary-general Warawan Chitaroon noted that the only hope is for sugarcane farmers to “adopt new technology” that will increase the sweetness of their yield.

Whatever the case, Warawan could only offer the prediction: “Thai farmers and millers will suffer from these negative factors.”

It was only ten months ago that the secretary-general made the surprising announcement: “We acknowledge and understand that the price of sugarcane is lower than the input cost.”

In other words, growing sugarcane in Thailand could only come at a loss. Sugarcane farmers would have to face the reality of continuing to engage in an activity that would put them further in debt.

And yet since the military seized power in 2014, the 10-year sugar plan is the regime’s only discernible agricultural policy, one that focuses on the Northeast.

How has the plan fit within the ideological infrastructure of the military government’s “Smart Farming 4.0” strategy?

Plan for smart agriculture and smart sugar

It was not long after the 2014 coup that the military focused its Isaan development plan on infrastructure, voucher cards for the poor, as well as this sugarcane and sugar mill plan. The plan also gave an essentially prior approval to the building of a remarkable 245 percent increase of 29 new sugar mills in the Northeast.

The sugar plan is, presumably, captured within the government’s larger strategy of Smart Farming under the rubric “Thailand 4.0” (see our editorial on the topic). This served as the military government’s “flagship policy” in 2016, ostensibly designed to turn Thailand into a high-income country in five years, and reportedly “recognised as a new engine of growth that will drive the country’s economy forward through high-tech industries and innovations that will push Thailand to produce high valued-added products and services.”

The discourse on Smart Farming had to be placed in the context of Thailand 4.0. “Modern” farming had earlier been used commonly to refer to monocropping, chemical-packed, industrial agriculture, contrasted with “traditional,” subsistence farming. Now, a more-modern modern farming would be defined in a more technological, digitalized way.

A presentation from the National Institute for Development Administration calls Agriculture 1.0 “Mechanization-Animal Power.” Agriculture 2.0 is “Combustion engine.” Agriculture 3.0 is “Guidance Systems and Precision Farming,” and Agriculture 4.0 is “Connected Farming.”

Source: Pannika Ngamcharoen, National Institute of Development Administration, “A Comparison study of applying Smart Farming concept in China and Thailand.”

The leading state technology body, the National Electronics and Computer Technology Center (NECTEC), was tasked with making sense of the Smart Farmer strategy. Its September 2016 presentation by NECTEC lays out a series of concerns facing the farm and food sectors, captured in the question, literally: “Who’s going to grow the food for us to eat?” It points out that the average age of the Thai farmer is 58 and that the new generation doesn’t want to go into farming. The answer is Smart Farmers would be a new engine of growth, essentially start-ups, armed with technology, and keeping farmers on the farm.

Source: Partial translation of NECTEC’s “Smart Agriculture under Thailand 4.0

The strategy is embellished with cheerful graphics and chock full of corporate organizational buzzwords like “mind map,” “mental model,” “shared vision,” “team learning,” “systems thinking,” and “thinking out of the box.” The strategy will only succeed when farmers become willing to adopt a “new mindset,” echoing the military government’s “attitude adjustment” efforts.

The first phase, ending in 2015, involved “Creative thinking” that creates “new products and service based on Thainess.” In the second phase, up to 2020, the Thailand “brand” would receive “World recognition for food security & food safety” accomplished through “precision farming.” And finally, the country, the brand, would, by 2025, provide the “World supply of agriculture & food products.”

The vision is optimistic if the target, farmers, can get smart enough fast enough.

Source: NECTEC’s “Smart Agriculture under Thailand 4.0

Bitter reality

The United Nation’s Food and Agricultural Organization (FAO) reports that demand for sugar is seen per capita “no growth” in high sugar consumption countries “where consumers’ attitude towards sugar has changed because of health concerns.” Demand for sugar has been dampened in some developing countries, such as Thailand.

Global consumption of sugar is expected to slow down to an annual 1.48 percent increase due to “the slight slowdown in population growth and sluggish global economic growth,” and a modest 5.9 percent of per capita sugar consumption globally.

The FAO predicts sugar prices “are foreseen to be higher than the average of the last 25 years in nominal terms, but lower when expressed in real terms” when an inflation rate of 2.3 percent is assumed.

Source: Adapted from FAO report

The FAO also predicts that “production of sugar crops is foreseen to expand in many parts of the world,” with sugarcane production increasing annually by 1.1 percent, representing a 48 percent decline globally compared to growth rate in the previous decade.

It further claims that Thailand is “projected to experience a slower growth” of production due to “the elimination of price supports” and that expansion of sugarcane cultivation in the country will be “in areas less suitable for production.”

The United States Department of Agriculture (USDA) observes that after a number of years of favorable sugar prices and continued encouragement from sugar mills to expand land grown in sugarcane, many farmers in Northeast Thailand had chosen to switch from cassava to sugarcane growing. But after a few years of low sugar prices, “will likely cause farmers to delay replacing older sugarcane with newer seeds which limits further average yield improvements.”

A 2018 analysis of the sugar industry, Krungsri Bank had little better news. Current conditions as a whole “prevent significant price rises” globally, and “domestic demand may shrink slightly” due to the new sugar tax.

The industry also faces the possibility of impacts on the income of sugar mills as a consequence of amendments to the Sugarcane and Sugar Act.

The analysis points out that the cost of producing Thai sugar is low: 13.6 cents/lb compared to the lowest, Brazil, as 11.2 cents/lb.

The only reason sugar production might rise is a predicted favorable climate and expansion of sugarcane cultivation, with the support of new sugar mills (“in line with the planned investments for which permits have already been granted”). That would mean more sugar and “income for operators is unlikely to rise substantially” due to low world prices. While global financial bodies see 3.9 percent in economic growth globally over the next three years, the growth of demand for sugar will be only 1-1.5 percent annually.

In light of the World Trade Organization challenge to Thailand’s subsidies for sugar millers and producers, the military government began the dismantling of a subsidy scheme that for decades has coddled sugar companies and producers that essentially had Thai taxpayers pay for a scheme that kept sugar prices high for domestic consumers and low on the world market. Now without government intervention, the world sugar price will set Thai sugar prices.

The analysis says that despite sugar prices staying low, mills ought be able to “maintain steady profits” as they will be able to “commercially exploit by-products and unused inputs” and “assist in preserving solid rates of profitability.” Sugar traders will do best to “maximize profits” through exports as the newly unregulated domestic market will be more unpredictable.

Sugarcane growers will benefit from climate conditions and grow sweeter sugarcane, sugar prices set by the world market “will expose growers to greater risk of loses.” The analysis has little but a vague hope “that the government and/or sugar mills will institute measures to help support income for sugarcane growers as a way of ensuring that a steady supply of sugarcane is maintained.”

Secretary-general of the OCSB, Warawan Chitaroon, didn’t have much to offer except to say on September 26 that given the “difficulties in expanding plantation areas,” sugarcane farmers could instead focus on using “new technology” that would increase the sweetness of the cane harvested and thus their income. She said that the sweetness of the cane should be increased from the current 11 percent and try increasing it to 15 percent.

There are two ways that sugarcane farmers could increase their income: increase their yield and/or increase the sweetness of their cane. In the first instance, the amount of cane harvested in Thailand has climbed considerably over the last sixty years.

In the last 60 years, yields per rai have almost doubled from 5.87 tons in the 1960s to 11.72 tons currently. In the past decade, in fact, compared to 2000 to 2009, yields have increased by 23 percent.

Beyond bumping up yields, the other way that sugarcane farmers can increase their incomes is by increasing the sugar content, the sweetness, of their harvest.

Typically, 12 to 16 percent of sugarcane is sugar. A report by the Organisation for Economic Co-operation and Development (OECD) says that, for instance, the standard for sweetness of cane in Japan is 13.1 to 14.3 percent. Australian sugarcane is around 13 but sometimes reaches as high as 18 percent.

In Thailand, the sweetness was reported as averaging 11.6 percent sugar content in the last half of the 1990s. This year, the OCSB registers Thai sugarcane with 12.6 percent. If typically the sweetness ranges over just five percentage points, that’s an increase of 20 percent, although the sweetness may be linked more than anything else to weather.

Many factors can affect sugarcane sweetness. The period between harvest and milling and the practice of burning sugarcane fields prior to harvest are the most prominent.

One study on the effect of drought on sugarcane sweetness tells only part of the story. Sugarcane harvested during drought conditions showed a marked decrease in cane sweetness on Day 10 after harvest. But it also showed drought sugarcane was already 13 percent less sweet than non-drought sugarcane in the first place, but on Day 4 after harvest the percent loss of sweetness is similar between fresh vs. burnt cane.

Another study shows that on Day 15 after harvest in Thailand, burnt cane loses about nine percent of its sweetness compared with fresh cane. The study also shows that while burnt cane starts out 16 percent less sweet than fresh cane, on Day 4 burnt cane has equal sweetness, increasing sweetness by 20 percent while fresh increases only by three percent. Burnt cane has about equal sweetness on Days 9 and 10.

The point is that both studies point to early days after the harvest, with during drought or burnt sugarcane, sweetness is similar on Day 4 after harvest. A farmer with a mechanical harvester could better take advantage of the overall declining sweetness– and thus, income–than a farmer who harvests by hand. Burnt cane is actually 110 percent sweeter on Days 7 and 9. Fresh cane hits its maximum sweetness on Day 5 after harvest, but thereafter declines, to a low of 30 percent on Day 15. Burnt cane’s sweetness deteriorates drastically only on Day 15, dropping 26 percent of its sweetness from Day 1 and 45 percent lower than on Day 4.

A possible conclusion is that given the lack of labor or money to hire labor, it may make perfect sense for small holders to burn their sugarcane fields before harvesting.

But of course burning sugarcane fields is a major contributor to air pollution. Whatever policies Thai governments have had since 2009, there is no overall decrease in rates of burnt cane in Thailand in the last decade.

The provinces where mills had the worst record this year of milling burnt cane–Chaiyaphum, Nong Bua Lamphu, and Udon Thani–are all above 70 percent. Milling less than 60 percent of burnt cane are mills in Kalasin, Khon Kaen, Khorat, and Buriram. Milling between 60 to 66 percent burnt cane are in Loei, Mukdahan, Maha Sarakham, and Surin.

Assuming that sugarcane burning is worse in areas nearest to mills, it does not mean that the air quality is better in provinces without mills. But we at present will never really know as the government apparently only tracks four air-quality monitoring stations in the Northeast–Khon Kaen, Loei, Nakhon Ratchasima, and maybe Ubon Ratchathani.

What have we seen here?

First, the government has fantasized about a massive increase of sugarcane production in the Northeast over the next eight years or so through “Smart Farming.”

Second, current world price of sugarcane became financially untenable for most Isaan sugarcane farmers last year, and there’s every reason to believe that this will continue over the next few years.

Third, it is unlikely that the vast majority of sugarcane farmers in Isaan can do much to improve their yield and are likely, for financial reasons, to continue to burn their sugarcane fields and contribute to the worsening air quality in the region and the country overall.

Finally, it appears that subsidies to sugarcane farmers will either be reduced or end. Will the small and medium-sized sugarcane farmers be able to survive? Will the government’s plan to plaster sugar mills all over the Northeast turn out to be a winning strategy for the region and its people?

In the next installment of this series, The Isaan Record looks at the specific actions of the Thai government and private sector players in the sugar industry and explores what implications these actions might have on Isaan sugarcane farmers.