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Using production-cost analysis to understand the competitiveness of sugarcane production: a comparison among Thailand, Vietnam, South Africa and Brazil

Using production-cost analysis to understand the competitiveness of sugarcane production: a comparison among Thailand, Vietnam, South Africa and Brazil

International Sugar Journal 119(1418): 134-139

The liberalization of sugar markets, along with lower logistic costs, has led to higher competition among sugar exporters. Understanding the differences in production systems and costs helps to identify competitive advantages and to understand future trends in the sugarcane production sector. The agri benchmark typical farm approach was used to analyze production systems and calculate sugarcane production costs of typical farms in Thailand, South Africa, Vietnam and Brazil. To ensure international comparability, the data was collected by national partners in an internationally consistent manner through focus-group discussions. The groups were composed of growers, extension agents and consultants, for the 2013 and 2014 seasons. All analyzed sugarcane farms show medium-term profitability as revenues cover the cash costs and depreciation. Nonetheless, the production costs differ substantially among farms. Results show that total cost per tonne of sugarcane (measured in recoverable sugar) are 150 USD/t lower on the typical Brazilian farm (Goiatuba) than on the other farms; this is mainly due to low operating costs. Conversely, the cost disadvantages for the typical Thai farm are mainly driven by operating costs (i.e. machinery), which are more than 100 USD/t higher than the Goiatuba (BR) farm. This is a result of insufficient economics of scale, as expensive machinery investments are under-utilized on low acreage farms. The Vietnamese farm has a high production cost but is still profitable due to significantly higher output prices. Possible drivers for the differences in production costs are the duration of the sugarcane cycle and yield levels that favor Brazil and South Africa. Size and operation scheme (contractor versus own machinery) play an important role in a farm's performance. The findings indicate that the approach of using typical sugarcane farms in major production areas helps to understand competitive advantages, identify production processes to be improved and enables knowledge transfer.

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