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Thailand has been hit with what may be its worst drought in 40 years, pummeling sugar production in one of the world’s biggest exporters of the sweetener.

Sugar output may tumble about 30% to 9 million to 10 million tons, while cane output is forecast to fall below 90 million tons from about 130 million in the previous season because of the dry weather, according to an industry body.

“It’s worse than we thought,” Sirivuthi Siamphakdee, vice chairman of the Thai Sugar Millers Corp., said in a phone interview on Friday. “This will likely be our worst season in five years.”

The severe drought is adding pressure to Thailand’s struggling economy and its agricultural sector, which employs 11 million people. It may also further raise global sugar prices that have surged about 35% in the last five months on concerns that adverse weather is threatening crops from India to Mexico.

Thailand’s main economic crops -- rice, rubber and sugar -- are already hurting from a long period of dryness. Adding to woes are the country’s slowing exports, a delay in government budget spending, and an 80% decrease in Chinese visitors, a top source of foreign receipts in an industry that makes up more than a fifth of the economy.

The drought in 2020 is expected to cost the country 46 billion baht ($1.47 billion), or 0.27% of the gross domestic product, according to Bank of Ayudhya’s Krungsri Research.

“Critically low levels imply risk of water shortages in many areas” the bank said in a note. “The effects will be felt not just within the agriculture industry but also in the industrial sector.”

To contact the reporter on this story: Siraphob Thanthong-Knight in Bangkok at rthanthongkn@bloomberg.net

To contact the editors responsible for this story: Sunil Jagtiani at sjagtiani@bloomberg.net, Anna Kitanaka, James Poole

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