OBG talks to Krisda Monthienvichienchai, CEO & President, Mitr Phol

Interview: Krisda Monthienvichienchai

How will the glut in the global sugar market affect producers in Thailand?

KRISDA MONTHIENVICHIENCHAI: Asia has long had a production deficit in sugar, importing about 10m tonnes each year. Thailand, though, benefits from this because it is the second largest exporter of sugar in the world. This dynamic gives us a major advantage over sugar producers in other regions. Also, because we manufacture goods across the entire value chain of sugar production, including biomass power plants and ethanol, we have an edge on countries such as India or Brazil. For sheer processing volume we can compete with Brazil and Australia, which manufacture only raw sugar for export. In those countries, proximity to their export destinations keeps logistics costs low, but as we now export refined products, which are worth more than raw sugar, we too will benefit from a favourable profit/logistics cost ratio.

How are Thai sugar producers contributing to the country’s mix of alternative energy production?

KRISDA:Following the Asian financial crisis in 1997, we found that the sugar business was going through a period of extreme volatility. In response, the sugar cane industry had to create value at every step of the production chain. As a result, most sugar producers now generate their own power, selling any excess capacity to the grid. We realised that if we could save more energy than we used, we could increase profits on the power side of the business. In the case of Mitr Phol, we operate the biggest biomass power plant in the ASEAN region. We can produce 400 MW of biomass power, of which about half is consumed by the company, and half sold to the grid. To achieve this, we use around 2m tonnes of bagasse for biomass operations, out of 20m tonnes of sugar cane each year.

What incentives and support are needed to promote Thailand’s burgeoning ethanol industry?

KRISDA: The country’s sugar industry produces huge amounts of ethanol from molasses, a by-product of the industry’s activities. We can use this ethanol to power automobiles, reducing imports of crude oil and helping grow our energy independence. Ethanol consumption, about 1.1m litres per day in 2012, has increased to 2.3m litres per day now, even though ethanol producers are operating at only 50% of capacity.

The government is promoting ethanol-powered vehicles, and this effort presents a huge opportunity for the sugar industry. Because sugar now feeds into the energy industry, every business is in some way affected by the amount of total land in use for sugar cane production. The outlook for Thailand’s energy, however, depends on upstream sectors and the government’s position on agricultural zoning. The biomass industry needs more incentives and structural support to help stimulate its growth. Ethanol too, being innately tied to the auto industry, will require regulatory stimulus to promote ethanol-powered vehicles.

How can the government amend its current agricultural zoning laws to improve the performance of Thailand’s sugar industry?

KRISDA: The sugar industry has been discussing with the government its future expansion. Our idea is that, by re-ordering land zoning laws, we can double annual sugar cane production from 100m to 200m tonnes.

This would only require the conversion of high-altitude land currently used for rice plantations to sugar cane production. With new efficiencies through better equipment and an increase in volume of sugar cane, we could potentially produce up to 2050 MW of energy – the equivalent of two nuclear plants. In terms of economic scale, the entire value chain from sugar, power and ethanol could be worth up to BT500bn ($16.4bn). The government is now reconsidering its rice pledging scheme, which promises farmers higher prices than the market rate, as being unsustainable in the long term. If they were to restructure agricultural zoning, it would be hugely beneficial, optimising the efficient use of land while promoting the growth of new industries.