Lam Son Sugar Joint Stock Corporation (Lasuco) Business Information, Profile, and History

History of Lam Son Sugar Joint Stock Corporation (Lasuco)

Lam Son Sugar Joint Stock Corporation, or Lasuco, is the leading sugar producer in Vietnam, and is also one of the leaders in that country's slow shift toward a market-driven economy. As such, Lasuco is the largest of Vietnam's formerly government-held companies to be privatized. Lasuco operates two sugar refineries, with a total capacity of nearly 6,500 tons per day, or 100,000 tons per year, fed by farmers throughout the mountainous Lam Son region in northern Vietnam. The company has played a primary role in shifting the region from subsistence farming to the profitable planting of sugarcane, and continues to support farmers through: technological services, such as the introduction of new, higher-yield seed types; and financial support, including loans underwriting farmers' preparation, seed, planting, fertilizer, and labor costs. In addition to sugar refining, Lasuco has been branching out in an effort to make full use of sugarcane. In addition to its two sugar refineries, Lasuco operates two alcohol production facilities, the first manufacturing 1.5 million liters of molasses-based alcohol per year, and the second with a capacity of 25 million liters per year for the export market. Moreover, its Dinh Huong confectionery factory produces more than 5,000 tons of candy and cookies each year. The company also produces more than 800,000 liters of draft beer and 600 tons of glucose per year. In the early 2000s, Lasuco began branching out beyond sugar-based products. The company has encouraged the introduction of dairy cattle herds in the region--using the leftover sugarcane leaves as fodder--and produces more than 30,000 tons of fodder per year in its own production facility. The company also operates a milk processing plant, and has been introducing a new crop, pineapple, to support its fruit juice concentrate plant. Nearly all of the company's production is for the domestic market; nonetheless, Lasuco began exporting for the first time in 2003 and plans to boost exports to 30 percent of sales in the future. Lasuco is led by Le Van Tam; farmers form a large part of the company's shareholder base.

Economic Success Story in the 1970s

Exhausted from nearly two decades of war, the Lam Son region, like much of Vietnam, remained impoverished and underdeveloped at the end of the 1970s. Subsistence farming, chiefly of rice and other crops for personal consumption, had traditionally characterized the highly mountainous region. Lam Son had also seen little development in modern infrastructure, and the vast majority of the population had received no formal education. At the same time, Vietnam as a whole, and the Lam Son region in particular, were faced with severe sugar shortages.

Recognizing that the Lam Son region held great promise as a fertile agricultural center, and especially for the introduction of sugarcane as a cash crop, the Vietnamese government announced its intention to build a sugar refinery in 1979. The facility, to be constructed in Lam Son Town, was to be built in cooperation with the French government, which supplied the equipment, and was to be capable of producing up to 1,500 tons per day of refined sugar. The government began encouraging the conversion of rice paddies to sugarcane plantations.

The project faced long delays, however. The outbreak of war in Cambodia interrupted construction of the refinery, which did not restart until 1982. By 1986, after losing a significant amount of equipment, the French team pulled out of the project. The Vietnamese were forced to take over construction, which ultimately cost the equivalent of $14 million. Production began in 1986, although the Lam Son Sugar Refinery was not completed until 1988. The operation became a subsidiary of the government-controlled Sugarcane and Sugar Corporation.

The Lam Son Sugar Refinery now ran into a new stumbling block. Despite its capacity for processing 1,500 tons of sugar per day, the site, like other sugar refineries being built in the country, was dependent on locally produced sugarcane as feedstock. Convincing farmers to convert their fields to sugarcane plantations had, however, proven extremely difficult. In its first years, therefore, the refinery ran far below capacity, often at just 10 percent of total capacity. The low level of production in turn made the refinery's sugar expensive to produce, and like much of the Vietnamese sugar industry, Lam Son was forced to produce at a loss.

The naming of Le Van Tam as head of the company marked the beginning of a new era, not only for Lam Son, but for Vietnam's entire sugar industry. Tam correctly recognized that the region's farmers were the key to the sugar company's hopes for success. Tam began a program for winning their trust and worked to implicate the farmers themselves in the company's operations. As Tam explained to Vietnam Economic Times: "We tried to make the farmers the real owners of the factory and not outsiders. Otherwise, they could easily shift to other crops."

Tam set out to win over the region's farmers in a number of ways. Farmers were promised purchase prices higher than the national average--with price increases each year until 2003. In order to counter farmers' distrust of the company's payment policy, which based payments on measurements of a field's sugar content, the company included farmer representatives on the team measuring crops. At the same time, however, the company enacted a series of initiatives in order to encourage the farmers to plant sugarcane. A major part of that program was the group's willingness to provide financing to farmers, subsidizing the preparation of new sugarcane fields, the purchase of seeds and fertilizers, and the cost of labor in order to plant and harvest.

Despite these initiatives, gaining farmers' trust and converting farmland to sugarcane plantations remained a primary obstacle to the operation's growth until the early 1990s. By 1990, its revenues had reached only VND 6 billion (about $500,000). In 1992, however, the company achieved full capacity at its sugar refinery. The group then began work on expanding the facility, targeting 2,500 tons per day by 1997. During this time the group succeeded in bringing some 30,000 farmers in the region under contract to supply sugarcane to the facility. In 1994, the group formally adopted the name of Lam Son Sugar Company (Lasuco). The following year, it participated in the organization of the Lam Son Sugar Cane Association. Members of the cooperative were then given special benefits from the company.

A major turning point in this effort came with the introduction of automated sugar content measuring systems in 1996. The new system went a long way toward reassuring farmers, who now agreed to be paid at their farms, rather than at the refinery. That same year, the Vietnam government launched a nationwide effort to increase sugarcane output.

Lasuco went still further in its relationship with its suppliers, adding a new series of incentives, not just to individual farmers, but to entire villages. As such, the company promised to build schools and power stations for villages that succeeded in supplying 20 tons of sugar in a single year. Lasuco also offered paid vacations, and began paying university fees for its workers' children. As Lasuco developed into the region's major employer, it also began a number of training initiatives for its work force.

Diversified Leader in the New Century

Lasuco became actively involved in the search for and introduction of new seed varieties, enabling farmers to realize significant increases in sugarcane yield within a short period of time. The increased output allowed Lasuco not only to reach full operating capacity but also to lower production costs, thereby increasing the group's profits. These in turn were reinvested in a variety of corollary operations meant to maximize usage of the sugarcane plant. The byproducts and even the waste products of the refining process presented a number of opportunities for the company. In the mid-1990s, Lasuco opened its first facility for the production of alcohol from molasses

Soon after, Lasuco branched into the production of candy and other confectionery products, including cookies. The company also began supplying glucose to the industrial market. Other facilities built by the company during the 1990s included two bio-fertilizer plants, a draft beer brewery, and, in 1999, a plant for the production of cattle feed using the waste sugarcane leaves. The latter led the company into the dairy market, as it began subsidizing farmers purchases of dairy herds. Lasuco was also becoming increasingly self-sufficient, adding its own power-generation facilities, a mechanical repair workshop, and its own research center.

Refinery operations remained the core of Lasuco's business. With sugarcane production in the region already reaching viable proportions, and with a further rise in production forecasted for the near future, Lasuco began construction of a second refinery in 1997. Completed in 1998, the new refinery boosted the company's total output capacity to nearly 7,000 tons per day. At the same time, the company built a second alcohol production plant, designed to supply the export market with a production level of 15 million liters per year.

The following year, the Vietnamese government began enacting a series of privatization initiatives. As one of the country's largest companies, Lasuco became a prominent part of the government's economic reforms. In 1999, the company's name was changed again, to Lam Son Sugar Joint Stock Company. The following year, Lam Son became Vietnam's largest privatized company.

The Vietnam government retained 37.5 percent of the company. Much of the group's stock, however, was reserved for its employees and farmer producers, who were given the opportunity to acquire shares in the company at discounted rates. While Lasuco's employees took a 32.4 percent stake in the company, its farmer suppliers acquired 22.5 percent, giving the company effective control of a majority of its stock.

By 2000, the total acreage supplying the Lam Son plants topped 16,500 hectares, representing raw sugarcane totals of nearly one million tons. In that year, the group neared 72,000 tons of refined sugar. The rise in the output and the steady decreases in production costs enabled the company to begin eyeing expansion into the export market for the first time.

By 2002, Lasuco's output topped 88,000 tons of refined sugar and sales of VND 600 billion. The company then launched a new series of strategic investments, designed to boost sales past VND 1 trillion by 2005. A major part of this expansion came in the form of a VND 700 billion investment drive funding the construction of a new 25 million-liter alcohol production plant and a new 100,000 ton animal feed plant.

Lasuco continued its diversification as well. In 2003, the company began construction of a new 100,000-liter milk processing plant to support the growing regional dairy herd. It also began promoting the diversification of the region's farmlands, adding products such as mushrooms and pineapples. In support of these products, the group added processing facilities both for fresh and canned mushrooms, and for fruit juice concentrate.

Lasuco's sugar production was expected to pass the 100,000-ton mark by the end of 2003. That year also marked a new milestone for the company, and for the Vietnamese sugar industry as a whole, as Lasuco began its first exports of sugar, to Malaysia. That year, Vietnam expected to export up to 200,000 tons of raw and refined sugar, the first time the country had achieved significant export levels. Meanwhile, the company began plans to list the company on the Ho Chi Minh City Stock Exchange, scheduled for the end of 2003. With plans to step up exports to 30 percent of sales by 2005, Lasuco remained a vital player in Vietnam's future economic development.

Principal Competitors: Bourbon-Tay Ninh; Khanh Hoi Sugar Company; Son Duong Sugar Company; Vietnam-Taiwan Sugar Company Ltd; Lui Li Koung.

Chronology

• Key Dates:
• 1979: French and Vietnamese government reach a cooperation agreement to build the Lam Son Sugar Refinery in Lam Son Town.
• 1982: Construction resumes on the refinery after interruption caused by war in Cambodia.
• 1986: Production begins at the refinery.
• 1988: The Lam Son refinery is completed.
• 1992: Lam Son reaches production capacity of 1,500 tons per day.
• 1994: Company's name is changed to Lam Son Sugar Company (Lasuco), and begins producing alcohol and confectionery products.
• 1997: Lasuco begins construction of a second sugar refinery.
• 1999: Still known as Lasuco, the corporate structure is renamed Lam Son Sugar Joint Stock Company.
• 2000: Privatization begins, with employees and farmers being offered shares in the company.
• 2003: Company plans a listing on Ho Chi Minh City Stock Exchange.