Domestic consumers look set to pay even more. The new retail price will be Bt17.50 per kilo, a Bt3.25 increase, according to a source at the Commerce Ministry, pending a legal amendment

The move - once implemented - is likely to have a domino effect in sugar-dependant industries and may increase  inflation.

While the Cabinet said its approval aimed to reduce domestic shortages, the hike is considered a victory for sugar-cane farmers, who chose the opportune moment and made their demands at a time when the government is weakened and vulnerable to pressure.

A source in the sugar-cane industry said about 100,000 cane farmers had threatened to protest in front of the Industry Ministry if the government delayed the price increase.

The source added that the increase would help farmers repay their remaining Bt18-billion debt to the Bank of Agriculture and Agricultural Cooperatives.

It also narrows the gap between local and world prices. The export price is quoted at between 18 and 20 cents per pound, equivalent to between Bt15.42 and Bt17.16 per kg.

Cane and Sugar Board chairman Damri Sukhotanang said that although the Cabinet agreed to the board's price hike proposal, the Commerce Ministry still had to set the new retail price.

Khon Kaen Sugar Industry Plc's deputy managing director Prapas Chutimaboraphand welcomed the Cabinet's decision, saying it would ease the burden on sugar millers.

"Don't believe that we will be able to reap huge profits from the rising prices," he said. "In fact, the margin from the price hike will help ease the debt burden of the Sugar Cane and Sugar Fund."

Thai sugar prices have been held down below the world price, and the fund has had to subsidise the price to the tune of Bt15 billion, and carry that debt.

"We have been maintaining this low price for too long, forcing the fund to accumulate debt," Prapas said.

In fact, the millers are unlikely to see a jump in profit, he added. The margin of Bt3 will be split, 70 per cent to farmers and 30 per cent to millers and, even if the world price goes down, the money from the price increase will be used to repay the fund's debts.

Prapas said the price hike was the right decision to prevent a domestic shortage of sugar, especially when the sugar-cane supply is less than one million tonnes in the face of normal annual demand amounting to 1.5 million tonnes.

Piphat Sukijpanenij, managing director of Samroiyod Corp, a leading pineapple and dried-fruit exporter, said the 30-per-cent sugar price increase would directly affect not only manufacturing but also finished goods.

He said it would reduce his company's operations and results, especially its profit. The company's dried fruits business will be hardest hit as sugar accounts for between 30 per cent and 40 per cent of production costs. It will be forced to adjust its retail prices by at least 5 per cent.

"We are now facing business trouble because of higher production costs, while a stronger baht reduces our profits," he said, adding that the company will gradually increase both its local and export prices.

River Kwai International Food Industry Co Ltd president Roj Burusratanabhand said the higher sugar price would not affect his company's corn products because they use less sugar.

However, he questioned whether the increased price would really solve the domestic shortage problem.

"Despite approval of the price increase, there is still a big gap between export and domestic prices. The government policy is really forcing the inflow of more supplies to the market," he said.

In Tochtanagorn Co Ltd's sales manager Vechchagorn Gorbgoonchai said the higher price would raise production costs by 20 per cent.

The company will consider increasing the retail price of its Kobori brand green tea from Bt12 to Bt12.25 per 500ml bottle. In addition, it will shift to using fructose sweetener instead of sugar.

Wongwut Kulpiyavaja, managing director of Malee Bangkok Co Ltd, the producer of Chaba juice, said sugar accounted for only 3 per cent to 5 per cent of the total cost, so the effect on juice prices should be limited.

However, as Malee also produces Best Foods jam for Unilever, the company is likely to charge more because sugar accounts for 25 per cent to 30 per cent of jam production.

Kosin Sripaiboon, director to the securities analysis department of UOB Kay Hian Securities (Thailand), said beverage prices could be expected to rise after the sugar price hike. Soft-drink companies are likely to pass on their higher costs to customers.

A report from DBS Vickers Securities (Thailand) confirmed that the sugar price hike would directly affect beverage prices.

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