Sugar trade's sweet spot turns sour in Thailand

[July 21, 2010]  BANGKOK (AP) -- Bangkok's ubiquitous street food vendors who feed millions of the Thai capital's residents each day are being hit by surging costs for sugar after a government failure to ensure adequate supplies of the sweetener forced Thailand to import it for the first time in 30 years.

Eggs are becoming much more expensive too after fewer layer hens were imported in a deliberate move by producers to push up prices. For now, vendors are not passing on the higher costs. But if prices continue to rise, many say it's only a matter of time before customers pay more for sugary treats, khai jiaao -- Thai omelet -- and other popular dishes.

Thailand, the world's second-biggest sugar exporter, produces roughly 7 million metric tons of sugar per year. Usually about two million tons of that production is reserved for sale to ordinary Thais but the stockpile has been exhausted after world sugar prices hit a three decade high of $750 a ton in January. Prices have fallen from the January peak but remain higher than a year earlier.

To alleviate the shortage the Thai government bought 74,350 tons of sugar at $705 to $720 per ton last week. Street food vendors who rely on the commodity say they have yet to feel any relief.

"There's nothing I can do, I have to sell my fruit every day," said Charoen Saengsilp, 51, a Bangkok fruit vendor from Kamphaengphet in northern Thailand, who now pays 28 baht ($0.87) for a kilo of sugar, up 10 baht ($0.31) from last year. That's higher than the government mandated retail price for sugar of 23.5 baht a kilo, which is often flouted by shops because enforcement of the price controls is patchy.

Charoen has not passed on the cost increase to his customers for the sugar, salt and chili paste he serves with guava and mango, but says he may be forced to if prices continue to rise.

He says sugar is also harder to find in shops. A sign in a downtown Tops supermarket asks customers to limit their sugar purchases to 3 kilograms per family.

Some believe the shortage is due to greedy traders selling sugar meant for the local market to buyers overseas to profit from the high world price.

"The government tried to tell the producer: you are supposed to fulfill domestic demand first and then send abroad," says Thanawat Polvichai, an economist and director of the Center for Economic and Business Forecasting at the Thai Chamber of Commerce University. But "world prices were quite high and the traders wanted to get more profit."

Prasert Tapaneeyangkul, secretary-general to the Industry Ministry's Cane and Sugar board, said the shortage of sugar on shop shelves was mainly due to the country's growing demand -- particularly in the beverage industry, which has grown by a quarter in the first six months of 2010 over a year earlier.

Thanawat, however, says that would only point to big problems in the sugar market since industrial buyers are supposed to get their sugar from the quota available for export rather than the stockpile intended to supply shops.

Thailand plans to set aside at least 2.3 million tons of next year's expected sugar crop of 6 million tons to be sure to meet local demand, Prasert said.

A nationwide egg shortage, meanwhile, is compounding the problem for some street vendors.

Lek Saetang, 58, serves omelets and hard boiled eggs to hungry city folks in a downtown Bangkok alley. The four dozen eggs she buys each day now cost 4 baht ($0.12) each, twice the price a few months back.

Korbsak Sabhavasu, the director of the egg board, said the reason behind the price hike is "a little bit nasty ... you might say collusion of some sort."

The nine companies authorized to import layer hens chose privately to import less than the 400,000 they informally agreed on with the Egg Board. For two years in a row, they imported only 360,000 hens, in a bid to boost prices, said Korbsak, who investigated at the request of Prime Minister Abhisit Vejjajiva.

"This is a big market. Each egg costs 3 baht a piece but you are talking about 30 million eggs a day. That's 90 million baht a day and 30 billion baht ($929 million) a year," said Korbsak.

In response to the egg price increase, the government scrapped the hen import quota, opened hen importation to new companies, and asked a local university this month to make recommendations for a revamped egg board in the next 60 days.

Lek hopes they will be successful.

"It's inevitable if the prices go up that I must pass the price increase onto consumers," or reduce the menu, she said. "The government must control the price or vendors and consumers will be negatively affected."

[Associated Press; By ALEX ALPER]

Associated Press writer Thanyarat Doksone contributed to this report.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.