Suffering continuous losses until the 2006-2007 crop, the Ministry of Agriculture and Rural Development told Kien Giang Sugar Factory to close operations and sell or lease its facilities, while Ca Mau Sugar Factory is suspended. However, many foreign investors still find business opportunity in these two companies.
The Way ForwardRecently, a lot of investors including overseas Vietnamese have arrived in Ca Mau and Kien Giang to survey and acquire the factories. Similarly, the Binh Thuan Sugar Factory in the south-eastern region, required investment of VND120 billion and announced bankruptcy from the 2006-2007 crop, and shortly after that a Vietnam-Thailand joint venture company acquired the factory at an auctioning ceremony held by the economic tribunal to rearrange production. Why are sugar factories so attractive to foreign investors? Recently, apart from main sugar products, many sugar plants in Brazil, Australia, Columbia, the United States and Thailand have successfully produced bio-ethanol, an environment-friendly fuel from treacle. Statistics show ethanol production from treacle has a big impact on supply-demand in the world. Hence, although the global price of sugar is currently declining, it is forecast to increase to a high rate soon.
Not long ago, the Government approved the sugar development plan until 2010 and vision to 2020. The sugar industry must ensure social and economic efficiency, environmental protection and fit into agricultural product restructuring.
By 2010, sugar output should reach 1.5 million tonnes, including 1.4 million tonnes made by modern factories (670,000 tonnes of refined sugar and 730,000 tonnes of white sugar) and 100,000 tonnes made by households. Current production capacity will be increased from 82,850 tonnes a day to 105,000 tonnes without building any new sugar plants. By 2020, sugar output will be 2.1 million tonnes, including 1.5 million tonnes of refined sugar, 500,000 tonnes of white sugar and 100,000 tonnes of household-made sugar.
Material zone matterTo reach the above objectives, material zone planning is top priority. Under the development plan, by 2010, the sugarcane cultivation area will be 300,000 hectares with an average yield of 80 tonnes a hectare, totally 24 million tonnes. The processing capacity of sugar plants will reach 120,000 tonnes a day. Thus, the sugarcane material area must be intensively developed, restored and expanded. New cultivation technologies will be applied to increase productivity. By 2010, irrigation systems will cover 40 per cent of cultivation area. Four focal sugar growing regions will account for 74 per cent of country’s total area, or 222,000 hectares, in which the central northern area will have the largest area of 80,000 ha, the central coastal area 53,000 hectares, the south-eastern area 37,000 hectares (smaller from 51,500 hectares in 2006) and the Mekong Delta region 52,000 hectares.
In recent years, the price of sugarcane has been stable and farmers sell their products to private business households or companies, or factories. With low earnings, sugarcane area is shrinking. Sugar producers are also facing difficulties. The Thanh Hoa province-based Lam Son Sugar & Cane Joint Stock Company is a typical example. This company is heavily reliant on input material supply from several regional State-run farms like Sao Vang, Thong Nhat and Song Am. When the Government began to privatise these farms, Lam Son Sugar & Cane Joint Stock Company quickly asked the Government to transfer Sao Vang Farm to the company. Then, the company contributed capital to set up a two-member limited liability company to manage the farm. Sao Vang contributed 20 per cent of capital (exclusive of land value) to the new farm and Lam Son Sugar & Cane Joint Stock Company, the remaining 80 per cent. With this farm, Lam Son Sugar & Cane Joint Stock Company takes initiative in material input. However, the company has to deal with labour redundancy.
The strategy of Lam Son Sugar & Cane Joint Stock Company may be an option for other sugar companies. However, most farming areas are kept by farmers. So, there is no alternative to keeping good relationships with the farmers for mutual benefit.
The Government decision to develop the sugar industry to 2020 is a new chance for Vietnamese companies.