Thailand, the world's second largest sugar exporter after Brazil, is to overhaul its sugar production and distribution systems for the first time in more than three decades in order to avoid being challenged by Brazil at the World Trade Organization (WTO).
The move is unlikely to make any changes on the global sugar trade for at least in the next few years, government and industry officials said.
According to the Office of Cane and Sugar Board (OCSB), Thailand will have to revoke its current 70:30 profit-sharing system, in place since 1984, which will require cancelling its quota system and floating domestic sugar prices.
"The OCSB has finalised the plan to overhaul the sugar system and will submit the plan for cabinet approval within a few weeks," said the OCSB's secretary-general Somsak Jantararoungtong.
Sugar traders believe that this plan is solely strategic, put together to provide Thailand with a quick defence against accusations of foul play from Brazil at the October WTO meeting in Geneva.
Brazil is challenging Thailand over "subsidies" for sugar producers that it says have dragged down global prices and allow Thailand to win a larger market share at the expense of Brazilian producers, conduct that is not in line with international trade agreements.
"This is just a quick response to Brazil's accusations. However, implementation of the changes on Thailand's 70:30 profit sharing system will take at least a few years," said a sugar trader at an international trading firm who asked not to be named.
The 70:30 profit sharing system between sugar millers and cane growers provides monetary support from the country's Cane and Sugar Fund to Thai sugar cane producers.
The fund raises the money itself, largely from yearly sugar sales.
When the fund does not have enough money, it seeks loans from the state-owned Bank for Agriculture and Agricultural Cooperatives.
Thailand's plan is to revoke the sugar quota system, which set aside three quotas each year to prevent sugar shortage. Quota A sets aside around 2.2-2.5 million tonnes of sugar for domestic consumption, quota B for the state-run sugar exports and quota C, which sets the quantity of sugar to be exported by private sugar millers.
"All of the quotas would be cancelled under the new plan. But we still have to set aside a 'buffer stock' of sugar for domestic consumption every year in order to prevent sugar shortages," said Mr Somsak.
Traders said the plan will make no changes at all to the Thai sugar trade and distribution system.
"It just changes what you call it, from a quota to a buffer stock," one trader said, who noted that the government can still allocate more than 2 million tonnes a year for domestic consumption.
Another factor that would extend the period of time to implement the overhaul is the government's plan to float domestic retail prices.
To keep food prices and inflation rate under control, the government has been maintaining a price ceiling for sugar, with the retail price fixed at 23.50 baht per kilogramme by the Commerce Ministry.
The price ceiling occasionally results in sugar shortages as profiteers normally smuggle domestic sugar to sell in neighbouring countries, especially when global sugar prices rise above the fixed domestic retail price.
"We aim to create a semi-floating system. However, we need to work together with the Commerce Ministry on how to manage the system and what it will look like," said Mr Somsak.
Traders and millers said that the changes will require complicated paper work and legislative procedure that would require a few years to be imposed.
Apart from the current global market force that is moving toward pushing global prices higher, there is unlikely to be any change to the Thai sugar trade.
Global sugar prices have reversed after bottoming, and are expected continue to rise over the next few years due to falling supply and stocks, according to traders and industry officials.
The US Department of Agriculture (USDA) has predicted global sugar for consumption in 2016/17 to reach a record 174 million tonnes, with production at 169 million tonnes.
This would lead to global stocks falling to their lowest since the 2010/11 crop, indicating a rise in global prices over the next few years.
Prices on the New York raw sugar futures, which sets global trends, bottomed out at less than 11 cents per pound in August 2015 before breaking the 20 cents resistance recently.
The USDA predicted consumption in several countries, especially India and China, to rise substantially. India's consumption was expected to rise to 27.2 million tonnes, while production was forecast to drop to 25.5 million, due to reduced planting area and declining yield.