Sugarcane businesses to try to cope with ATIGA

According to the roadmap for implementation of the ASEAN Trade in Goods Agreement (ATIGA), since 2018, the sugarcane products will have to eliminate tariff quotas completely. With the import tax rate of only 5%, the competition with the foreign sugar is going to be more and more fierce that put the sugar companies in front of huge challenges.

What is the weakness?

Vietnam is one of more than 100 countries and territories that produce sugar on a large scale. According to the Ministry of Agriculture and Rural Development, after 22 years of investment and development, the Vietnam's sugarcane industry has been weakly competitive currently. One of the main reasons leading to this situation is high price of material cane, while the majority of sugarcane area is owned by the farmers (household size) with small and scattered scale, weak infrastructure. The application of mechanization, irrigation and technical advances in cultivation are limited, productivity and quality are low.

In global economic integration in general, before the pressure of ATIGA 2018 in particular, many sugarcane enterprises have known weaknesses clearly, thus, they have created a close relationship between the enterprises and the farmers to develop the material region together.

Mr. Pham Quoc Doanh, Chairman of Vietnam Sugarcane Association said that recently, a number of the enterprises such as the Thanh Cong Sugar Joint Stock Company- Tay Ninh, the Lam Son Sugar Joint Stock Company, the Quang Ngai Sugar Joint Stock Company... had raised the sugarcane productivity 80-90 ton/ha, even 100-120 tons/ha by applying the scientific advances actively on varieties, fertilizer, cultivation and harvesting...

The combination and attachment among the farmers are strengthened closely, reflected clearly in the supply of varieties. In fact, the breeding stage has just solved, the sugarcane productivity could be increased at least 8-10 tons/ha. Therefore, the enterprises have invested seriously, developed many sugarcane varieties resisting to droughts, saline intrusion to respond to strong climate change increasingly. In the past, most of the varieties were left by the farmers themselves, but at present, many factories have their own seed production centers to provide the farmers. "The case of the Lam Son Sugar Joint Stock Company is quite clear example. The company also has a high biotech center that produces sugarcane varieties by the method of tissue culture. Sugarcane varieties are produced, then transferred to the breeding camp and provided to the farmers. This approach has resulted in increasing productivity, average sugarcane yields of 100-120 tons/ha" Mr. Doanh said.

Besides sugarcane varieties, many enterprises have also cooperated closely with the farmers to control the stages better such as watering, fertilizing, tillage, harvesting... to ensure high productivity and high quality of the sugarcane. In particular, in fertilizer stage, the farmers are still accustomed to the fertilizer formula of sufficient quantities, for example 1 ha will correspond to the certain number of kilograms of fertilizer. However, many factories have chosen to combine with the fertilizer plants to get land of sugarcane plantation to analyze agro-chemical soil now. When need of soil fertility is identified, the fertilizer should be applied effectively.

M&A trend

In addition to focus on improving productivity, quality of sugarcane, reducing product cost, to increase competitiveness, many enterprises of sugarcane industry have chosen the plan of restructuring enterprises, innovating management of enterprises, renewal of science and technology… Specifically, the Sugarcane Corporation I has withdrawn all State capital. The Quang Ngai Sugar Joint Stock Company has expanded its production scale... Most notably, the merger (M&A) among the enterprises is remarkable.

In the typical case, at the end of last May, The Thanh Thanh Cong Sugar Joint Stock Company - Tay Ninh and the Bien Hoa Sugar Joint Stock Company, two subsidiaries of Thanh Thanh Cong Group organized the unusual General Shareholders' Meeting to approve their merger policy. The result of the merger was that the shareholders of both companies would receive direct benefits when performance efficiency increase following the merger due to combination of factors such as: cutting cost in the same function parts, increasing sales, improving financial potential to increase business value, especially increasing value of equity and stock liquidity better.

Recognizing the M&A move of the enterprises, Mr. Doanh said that it would be difficult for small enterprises to compete and survive in the sugarcane industry, even some enterprises would have to shut down, stop production. Then, the M&A performance would be a normal trend, even inevitable.

Regarding the "problem" of how the sugarcane industry can compete better in integration in general, pressure of ATIGA 2018 in particular, the MARD provides solutions to restructure the whole sugar industry, form the corporations, the big companies, including the "leading" and "satellite" enterprises. Representative of Ministry of Agriculture and Rural Development commented: Currently, Vietnam had had effective production models such as the Quang Ngai Sugar Joint Stock Company, the Lam Son Sugar Joint Stock Company, the Thanh Thanh Cong Corporation… In the next time, it should be review and summarize these models for replication and development in the whole industry.

Representative of some sugar companies evaluated that from 2018, the sugar industry would be under great pressure and risk when Vietnam is close to Thailand being the second sugar exporter in the world with many conservation policies of the sugarcane industry. In order to overcome this situation, the enterprises proposed the State management agencies set up mechanisms for import control, the wholesale and retail prices of sugar in the country by continuing negotiations to determine the import volume under quotas; Bidding import quotas with domestic market price mechanism; Regulating and controlling the wholesale and retail prices of sugar and at the same time continuing to step up smuggling activities effectively.

The ASEAN Trade in Goods Agreement (ATIGA) was signed on February 26th, 2009, at the 14th Summit in Thailand among the member countries of the Association of Southeast Asian Nations (ASEAN).

According to ATIGA tariff reduction schedule, by the end of 2014, Vietnam had cut 6,859 tariff lines (accounting for 72% of total import tariffs) to 0%. From January 1st, 2015, Vietnam has cut 1,720 tariff lines from the current tariff 5% to 0% under the ATIGA commitment.

About 7% of tariff lines, equivalent to 687 items are considered as the sensitive items under the agreement with ASEAN that had not been cut immediately to 0% in 2015, but they will be implemented gradually until 2018 (including sensitive items requiring a longer protection roadmap, mainly: iron and steel, paper, garment, automobile, automobile parts, machinery and equipment, construction materials, furniture...) and 3% of tariff lines in the ATIGA is excluded from the tariff elimination commitment (including sensitive agricultural commodities being allowed to remain tax at 5%; live poultry, chicken, poultry eggs, citrus , paddy, brown rice, processed meats, sugar).