Sugar cane is losing favour in the Mekong Delta, with the struggle to make a profit from the crop getting harder every harvest.
Poor cooperation between sugar cane farmers and mills in the Mekong Delta could doom the region's sugar industry, experts say.
Farmers are already suffering, making so little profit from their harvests that many are eying other crops, even though two new sugar mills have begun operating in the region.
Agricultural and Rural Development deputy minister Diep Kinh Tan said cane farmers leaving the industry could cause a critical shortage of sugar in the Mekong Delta.
Farmers made substantial losses when the price of harvested sugar cane was 450 dong (US$2.7 cents) per kilogram last harvest, according to Soc Trang Province People's Committee's Chair Huynh Thanh Hiep.
The size of the national sugar cane crop has decreased by between 17,000 and 18,000 hectares and is expected to shrink further by the next harvest, Tan said.
Because very few mills sign contracts directly with farmers, the farmers are left out of pocket when more sugar is grown than what mills want.
Soc Trang has capacity to plant another 2,000 hectares of sugar cane. But, no one wants to develop it because they do not know what to do if supply exceeds demand, Hiep said.
In the delta's four sugar cane hubs Hau Giang, Tra Vinh, Ben Tre and Soc Trang farmers plant nearly 15,000 hectares of sugar cane and sell their harvests to dealers, not directly to the mills.
Even when sugar cane is scarce and the price increases, farmers still don't earn very much profit.
It is the dealers that benefit because the mills have to give them preferential offers, paying a premium to ensure the commodity is brought to their mill, insiders said.
In previous years, the price of harvested sugar was as high as 740 dong (US$4.3 cents) per kilogram, yet only dealers make a profit, Nguyen Thanh Son, director of Ben Tre Sugar Factory, said.
Local mills have committed to buying 10 CCS (sugar content) sugar cane for 500 dong (US$3 cents) per kilogram this year.
However, many experts predict the price will fall as the harvest continues. The situation is made worse by cheap sugar smuggled from Cambodia.
Messy transactions
Soc Trang Sugar Mill director Trinh Minh Chau said his mill often buys sugar cane from another factory's supply area when supply is scarce.
In times of high demand and low supply, some farmers do not honor their underwriting contracts and sell their harvest to the mill that offers the highest price, not the mill they're contracted to, Chau said.
"So the more we invest, the more risky it is," he said.
Last harvest, 57% of the sugar cane area in Soc Trang was underwritten by Soc Trang Sugar Factory for about 24 billion dong (US$1.4 million).
However, this harvest the underwritten area decreased to 40% of the local crop and the cost of the underwriting is down to around 13 billion dong (US$801,183), Chau said.
No other sugar producing region operates in the same manner as the Mekong Delta, deputy minister Tan said. "In the central and highlands region, the cooperation between sugar mills and farmers is good."
Tan suggested sugar mills define their supply areas and cooperate better to limit the difficulties for mills and for farmers when the supply and demand of sugar cane are out of balance.
A mill in one province can establish a supply zone in another province, but it has to sign underwriting contracts with farmers, Tan said.
Tan said this method would help limit price fluctuations.
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