The Bt3-per-kilogram increase in both refiner and retail sugar prices approved last week has passed an additional burden on to consumers and manufacturers, who use the sweetener as a main ingredient in products such as soft drinks, condensed milk, canned food and sweets.

Based on their 15-million-tonne consumption rate, consumers will have to pay Bt4.5 billion more per year to satisfy their sweet teeth.

That is only the beginning. If this increase is extended to full liberalisation in the sugar industry, a plan that is under consideration by the Industry Ministry, retail prices will move in tandem with global prices.

To sugar-cane farmers and millers, liberalisation is a good way to end shortages induced by the huge gap in domestic and global prices, which encourages millers to turn to exporting.

But since the farmers' subsidy has been in place for more than a decade, in the near term consumers would have a hard time adjusting to the higher prices that would result if this subsidy were completely dropped at a time when global sugar-cane harvests are falling. A good thing is that domestic shortages will be a thing of the past as millers will no longer need to supply foreign markets to make a good profit.

A market survey conducted last week by The Nation showed that despite the price increase, sugar supplies remained tight and some shoppers had to spend Bt19-Bt22 per kilogram. Wholesale prices are quoted at Bt860-Bt900 per 50-kilogram sack. This is against the new control price of Bt17.50.

Now refined sugar sells like gold in 7-Elevens, Family Marts and Tesco Lotus Markets in the Yaowarat, Bang Rak, Pran Nok and Nonthaburi communities, the survey found.

Small businessmen complain that they have been short of sugar for more than two days, some of them a week.

"Refined sugar is always in high demand. It sold out in one day when we put it on the shelves," a 7-Eleven employee said. The distribution centre supplies each store with 125 1kg packs every two weeks.

At a Tesco Lotus Supercentre, refined sugar has been out of stock for two days. Tops Supermarket's Bang Rak branch faced the same problem as it gets only 100 kilograms a day from its distribution centre.

A big wholesaler on Buddhamonthon 4 Road said the recent price increase opened the way for further price hikes. "The price quoted to us is above Bt17.50," he said.

Petcharat Assawadethmetakul, owner of Petcharat House Bakery, said she now had to buy sugar at Bt18 per kilo from Suphan Buri province.

"If I refuse to pay this high price, I won't get sugar for my bakery, and I can't raise prices myself during these hard economic times," she said.

Global sugar prices have been on the rise as sugar cane has been channelled to ethanol plants, not sugar mills, reflecting the shift to alternative energy sources in the face of dearer oil prices.

According to the Asian Wall Street Journal, the International Sugar Organisation said that Brazil, the largest sugar-exporter and the world's leader in ethanol production, is diverting about 52 per cent of its sugar-cane crop to ethanol, up from about 48 per cent in 2003. That pushes raw sugar prices to US$0.40 (Bt15.70) -$0.44 per kilogram, and the export price from Saigon is quoted at $400 per tonne.

Local millers prefer to export to enjoy the higher foreign price, while smuggling has reportedly picked up to neighbouring countries where sugar costs more than Bt20 per kilogram.

Nobody knows whether liberalising sugar prices in Thailand will benefit the country, but at least the shortage problem should go away.

"Why don't we try floating it? The shortage problem will be solved, and sugar prices will decline in the long run," a source from the Thai Sugar Millers' Cooperative said.

Liberalisation will end the complicated benefit-sharing system and the government subsidy and reflect real production costs, he said.

The sugar industry now operates on a special 70:30 benefit-sharing system: farmers get 70 per cent of the primary price, and millers enjoy the rest. The primary price is set by a committee of government agencies, growers and millers every year.

About 100,000 households are involved in the sugar industry. Total planted area amounts to six million rai. It takes 80 million tonnes of sugar cane to produce 40 million tonnes of sugar for domestic consumption and export. Given the huge number of people involved, the sugar price has been subsidised to help growers when global prices were low.

Eight years ago during the Chuan administration, retail sugar prices were bumped up twice. Refined sugar rose slightly from Bt13 to Bt13.50 per kilogram in 1998 and from Bt13.50 to Bt14.25 in 2000. The increase was less than Bt1 per kilogram each time.

The current planned liberalisation proposes to scrap this subsidy, meaning that consumers would need to pay more if global prices rose but less when they fell.

As domestic consumption is now low, the float should not introduce great changes in the long run. In particular, as Thailand becomes more connected with the rest of the world, it sounds like a good idea to let people in the industry prepare for tougher competition in the world market.