World Sugar Situtation

World centrifugal sugar production in 1998/99 is expected to grow to a record 126.5 million metric tons, an increase of 1 percent above the previous year’s output. Higher production from Brazil and India will likely more than offset production declines in the European Union, Australia, Poland, and Pakistan. World sugar consumption in 1998/99 is forecast at a record 127.5 million tons, 1 percent above the previous year’s level, but below the 3-percent average growth over the past four years. World trade is forecast to decrease for the second straight year; world stocks are forecast to decrease from the previous year. Brazil’s share of world exports in 1998/99 is forecast to increase from 20 to 21 percent, marking the fifth market share increase in the past six years. Despite the turbulent year in world markets, due to the U.S. tariff rate quota and high tier tariff, U.S. prices did not experience the same downward pressure.

The 1998/99 record world centrifugal sugar production forecast of 126.5 million tons (raw value), is down 1 percent from the May forecast. Sugar produced from sugarcane is forecast at 89.9 million tons, 3 percent above last year, and sugar processed from sugarbeets is forecast at 36.6 million tons, down 3 percent from last year. The largest production forecast revisions since the May projections were for: Australia (down 552,000 tons), the European Union (down 344,000 tons), Ukraine (down 340,000 tons), and Cuba (down 300,000 tons). Countries with the largest production changes in 1998/99 from 1997/98 include India, where production is up 2.3 million tons and the European Union, where production is down 1.3 million tons.

In 1998/99 world sugar trade is forecast at 34.8 million tons, 2 percent below the previous year’s shipments. The European Union, Poland, Thailand and Australia account for the decrease in exports. Unfavorable weather in Australia, Thailand and Cuba reduced production and export availabilities in those countries.

Leading importers of sugar in 1998/99 are expected to be Russia, the United States, Japan and the European Union. Russia is the world’s largest sugar importer.

Although Russia’s imports in the first half of 1998 were at a record level, imports in the second half of the year are expected to be down because of the economic crisis in that country.

The world sugar consumption estimate for 1998/99 is forecast at a record 127.5 million tons, a 1 percent increase over the previous year’s level. This increase is expected to be driven by many of the chief consuming countries, especially India, the Middle East, Brazil, and the United States. Industry sources believe that sugar consumption will continue to grow in the Asian region, despite recent economic troubles, as sugar is seen as a staple commodity in the Asian diet.

The world sugar ending stock forecast for 1998/99 is forecast at 24.2 million tons, down 4 percent from the previous year. Eastern Europe and Asia account for most of the reduction in stocks.

World prices for raw sugar (f.o.b. Caribbean Contract No. 11) averaged 9.89 cents per pound during the first ten months of 1998 and 9.00 cents per pound from June to September. The price for Contract No. 11 raw sugar has declined steadily for the past four years. The average price for 1995, 1996, and 1997 were 13.44, 12.24, and 12.06 cents per pound, respectively. There was an increase in late 1997 in part due to prices moving up in the 2 year sugar price cycle. However, the decline to under 10.00 cents per pound reflects the significant changes in the market that occurred during the latter part of 1998. There was oversupply as some major suppliers experienced good harvests, while many brought in large stocks from the previous year, in addition to growing concern over some of the major importing countries because of the economic problems in Asia and Russia have influenced the market.

World refined sugar (c.i.f., London, Contract No. 5) prices averaged 11.92 cents per pound in the first nine months of 1998. Refined sugar prices have mirrored the decline in the raw sugar prices, falling since November of 1997.

U.S. raw sugar prices (nearby futures, c.i.f., duty-fee paid, New York, Contract No. 14) averaged 22.07 through the first ten months of 1998. Prices have been relatively steady throughout 1998 and have exceeded the 21.96 cents per pound averaged during 1997.

In the United States, wholesale refined sugar prices averaged 25.50 cents, 25.83 cents, and 26.17 cents per pound in the first 3 quarters of 1998, compared to 28.71 cents, 27.83 cents, and 26.68 cents per pound in the first 3 quarters of 1997, respectively.

U.S. sugar production in 1998/99 is forecast at 7.3 million tons, a slight increase over last year’s production. This increase in production is due mainly to increased Florida sugar cane yields and a higher number of beets harvested per acre.

U.S. exports in 1998/99 are forecast at 159,000 tons, down 4 percent from the previous year’s shipments. The U.S. export markets are largely Canada, Mexico, and Jamaica.

For fiscal year 1999, the U.S. has allocated 1.16 million tons of sugar imports under the raw sugar tariff rate quota (TRQ). Throughout the year, according to stocks-to-use ratios, tranches of 150,000 tons may be made available. (See footnote 2 at bottom of page.) Each country listed will be entitled to a percentage share of each tranche (Allocation).

Canadian sugar production in 1998/99 is forecast to increase by 37 percent to 130,000 tons due to a 24 percent increase in sugar beet plantings in the main producing province, Alberta. This increase in planted area marks the first year of a planned planting expansion in conjunction with a modernization project and processing capacity expansion begun by the Alberta Sugar Beet Growers Marketing Board. The beet area in Ontario doubled in 1998/99, but these beets were grown under contract to be processed by Michigan Sugar.

With only minor production of domestic beet sugar, Canadian demand for refined sugar is met primarily through imports. Refined sugar imports are forecast to be steady in 1998/99. The major share of current refined sugar imports enters under a duty drawback program whereby antidumping duties are refunded if the sugar is incorporated into products that are subsequently re-exported.

Mexican sugar production in 1998/99 is forecast at 5.1 million tons, a decrease of 7 percent from last year’s revised output.

Exports in 1998/99 are forecast at 1.0 million tons, a decrease of 22 percent from the previous year’s revised estimate of 1.28 million tons. The 1997/98 estimated shipments were increased from 900,000 tons to 1.28 million tons because of a greater than expected production and flat domestic demand.

Domestic consumption of sugar is expected to decrease slightly in 1998/99. Many factors have weakened consumer purchasing power, and thus, the domestic demand for sugar in Mexico. The Mexican sugar industry maintains that sugar consumption in Mexico is remaining flat partially due to substitution of alternative domestic and imported sweeteners.

Cuba's 1998/99 sugar production is forecast at 3.2 million tons, up 7 percent from last year's record low 3.0 million ton output. The 1997/98 sugar cane crop in Cuba suffered from a very severe drought, which was especially severe in the country’s eastern provinces. The 1998/99 harvest is expected to remain low because of drought, in addition to poor organization and financing. The Cuban Sugar Ministry had set a goal of boosting production to the 6.0 million ton mark by 2001, but drought, low levels of planting, slow germination, and financing problems will make this goal difficult to reach.

Sugar production in the Dominican Republic in 1998/99 is forecast at 450,000 tons, 25 percent below the initial 1998/99 forecast and 21 percent below last year’s output. The reduced forecast reflects the serious impact of hurricane Georges on Dominican sugar production and processing.

Producers have speculated that the harvest will be from 25 - 30 percent lower than previously expected. The hurricane struck the southeastern part of the country between the major sugar growing regions of La Romana and Boca Chica, where approximately 70 percent of sugar is grown. The hurricane caused severe lodging and broken tops. Many growers indicated that there will be an early harvest to prevent the onset of disease, due to the broken tops.

The hurricane caused major damage to sugar waiting shipment to the United States under the FY 1999 sugar quota. Approximately 30,000 of the 90,000 tons stored at that location suffered water damage and were taken to another location to determine the extent of the damage.

In 1998/99, exports are forecast to decrease by 10 percent compared to the revised 1997/98 volume of exports.

Domestic consumption of sugar is forecast to decrease 3 percent in 1998/99 as a result of the significant reduction in supply caused by the hurricane.

Guatemalan sugar production is forecast to remain at 1.76 million tons. However, this forecast does not include the damage inflicted by hurricane Mitch. At the time of this report, the extent of the damage had not yet been established.

In 1996/97, sugar exports reached a record 1.1 million tons and they have continued to grow in step with increasing production. Exports are forecast at a record 1.37 tons in 1998/99, slightly above the previous year. However, production losses could affect this export forecast. Main non-U.S. export destinations include Peru, Russia, Canada, Chile, and Mexico. Guatemala’s initial allocation under the United States raw sugar tariff rate quota for 1998/99 is set at 51,997 tons.

Sugar production in 1998/99 is forecast at a record 16.6 million tons, 6 percent above the previous year’s output. This increase is based on an expected increase in production of sugar over alcohol production. Some millers have shifted from alcohol to sugar production because of high alcohol carry-over stocks, high carrying costs, and a decline in alcohol prices.

Brazilian sugar exports in 1997/98 are forecast at a record 7.2 million tons, 7 percent above the previous forecast. The revision is based on strong sugar exports in the early months of 1998. Exports for 1998/99 are also forecast at 7.2 million tons. Although world sugar prices are lower, the shift from alcohol to sugar has created an exportable surplus. Brazil’s main export destination is Russia, but other key markets are the United States, the United Arab Emirates, and Egypt. The economic difficulties in Russia make Brazilian exports in 1998/99 to that country unclear.

The Brazilian Government has taken measures to continue its alcohol program, which promotes the consumption of both hydrated and anhydrous alcohol. The program is intended to promote alcohol as an strategic source of energy, the industry as a source of employment, and alcohol as a cleaner form of energy. Additionally, a measure was announced to be effective on June 15, 1998 that increased the mandatory amount of anhydrous alcohol blended with gasoline from 22 to 24 percent. The increase in the percentage of alcohol blended into gasoline is expected to increase demand by 500 million liters annually. In the near future, the Government of Brazil is also likely to approve the mixing of hydrated alcohol with diesel fuel, which would further increase alcohol demand with the country.

Total sugar production in the European Union in 1998/99 is forecast at 18.0 million tons, 7 percent below the record harvest of 1997/98. This decrease is due to lower yields and a smaller area planted for sugar beets.

The 1998/99 harvest is expected to result in lower "C-sugar" production than last year, i.e., sugar outside of the EU’s "A" and "B" sugar production quota. The "C-sugar" is either exported to the world market without subsidies or carried over into the next marketing year. The changes in the world sugar market this year, reduced demand in a number of markets and surpluses in several regions, may affect the European Union’s export outlook.

Exports from the EU in 1998/99 are forecast to decrease 12 percent to 5.4 million tons, due to the smaller production. Imports are forecast to remain unchanged from the previous year at 1.79 million tons.

Poland’s sugar production in 1998/99 is forecast at 2.16 million tons, down 7 percent from last year’s production, but 14 percent above the initial 1998/99 forecast. Favorable weather conditions contributed to the upward revision in production and higher sugar yields.

Poland’s sugar exports in 1998/99 are forecast at 330,000 tons, 52 percent above the previous forecast, but 33 percent below 1997/98 shipments. Most of this sugar is shipped to Former Soviet Union countries, which now face difficult economic problems.

Sugar production in Russia in 1998/99 is forecast at 1.25 million tons, an 4 percent decrease from the previous year’s output. Poor weather and infrastructure conditions more than offset the ruble devaluation and high tariffs in 1998/99 to depress beet production. This level of production is considerably lower than production in the early 1990's because sugar beet farmers and processors are facing serious financial difficulties and cannot afford to pay for adequate fuel, seed, fertilizer, and other inputs. Many farmers are forced to receive payments in white sugar, rather than cash.

Russia’s imports for 1998/99 are forecast at 3.66 million tons, a decrease of 4 percent from the previous year’s record imports. Prior to the economic crisis, Russia was importing record levels of sugar because of the low world prices and high domestic production costs. In response to this development, the Russian government announced the addition of a 74 and 20 percent tariff on imports of raw and white sugar. Total duties at that time became 78 percent for raw sugar and 48 percent for white sugar. These duties were announced to be in effect until January 1, 1999.

During mid-August, the Russian ruble was devalued and panic buying was occurring in the market, thus the retail price of sugar rose quickly. To slow the panic, various regional governments, including Moscow, instituted temporary price controls over sugar. Measures that affect the market are expected to continue at both the local and federal level until both the overall economic and sugar supply situations are stabilized.

Resumption of significant imports of sugar into Russia largely depend on the tariff situation and the ability of Russian importers to pay for the product. Instability in the banking sector during the first months following the crisis led to difficulties in both the issuance and the payment of outstanding letters of credit on shipments of imported goods. However, if the Government of Russia retracts the new tariffs on sugar and banks are able to facilitate trade, Russia could resume it’s position as the world’s major sugar importer early in 1999.

Ukrainian sugar production continues to experience difficulties. Production in 1998/99 is forecast at 2.06 million tons. The Ukrainian sugar beet industry continues to be plagued by costly and inefficient production processes and processing facilities. Uncertain market conditions and lack of inputs also contribute to a smaller planted area, while poor weather played a part in keeping yields low.

In 1998/99, Ukraine is forecast to export 330,000 tons. This is above the estimate for last year, but sharply below the 1.4 million tons exported in 1996/97. Russia remains as a main importer for Ukrainian sugar, but the future of Ukrainian shipments to Russia are dependant on a number of factors including: Russian tariffs on sugar, the economic situation in Russia, and the ability of Russian buyers to arrange payment for the product. Moreover, in recent years, Ukrainian sugar has found it difficult to compete in the Russian market because of high production costs versus other exporters. Other destinations for Ukrainian sugar include Armenia, Azerbaijan, Republic of Georgia, and other central Asian countries.

In India, sugar production follows a 4 to 5 year production cycle, where 2-3 good production years are followed by 2-3 poor years. Following 2 consecutive years of record sugar production in 1994/95 and 1995/96, production declined 20 percent in 1996/97 and declined in 1997/98. In 1998/99, sugar production is expected to rise, forecast at 16.8 million tons. Excellent growing conditions, especially in the south, will allow India to lower their imports of sugar to 400,000 tons, less than half of the 1.0 million tons imported in 1997/98.

Consumption in India grew by 9 percent in 1997/98 and is forecast to increase by 3 percent in 1998/99. The increasing consumption has contributed to India’s becoming a net sugar importer since 1996/97. Imports increased sharply in 1997/98 because subsidies for exports were halted, there was a decline in sugar production, and consumption was higher than expected. India’s imports have come primarily from Brazil, the EU, and Pakistan. Exports of sugar from India have fallen from 740,000 tons in 1996/97 to a forecast 60,000 tons in both 1997/98 and 1998/99. Exports in the past two years are now mostly under preferential quota levels to the United States and European Union.

In August of 1998, the Indian Government delicensed the sugar industry. Thus, the construction of new mills or the expansion of existing mills no longer requires government approval. Government sources expect that this move will lead to increased capacity and efficiency in the future.

Sugar production in Pakistan in 1997/98 is forecast to be down 4 percent from the previous year’s output. This decrease is based on the lack of normal monsoon rains and inadequate irrigation infrastructure. Therefore, yield and total production are expected to be lower, despite an increase in the area devoted to sugar.

In 1998/99, Pakistan’s exports are forecast at 700,000 tons, an increase of 13 percent over the previous year’s exports. Adequate production, large carryover stocks, and government incentives are expected to boost exports. Many industry observers expected Pakistan to have difficulty exporting sugar given their relatively high production costs and the low international prices. To promote sugar exports the Government of Pakistan tripled the export subsidy.

No sugar imports are expected in 1998/99. Sugar imports for the two low production years of 1997/98 and 1996/97 are estimated at 21,000 tons and 771,000 tons, respectively. The imports in 1996/97 were mostly bought by the private sector with only about 32,000 tons imported by the Trading Corporation of Pakistan, a state owned organization. Because sugar is considered a politically sensitive commodity, the GOP allowed duty free imports of sugar to avoid any shortfalls and to control rising domestic price levels.

Thailand’s sugar production in 1998/99 is forecast at 4.2 million tons, roughly equal to last year’s revised estimate of 4.25 tons. The Thai industry is facing a liquidity crisis that has affected mills and banks ability to pre-finance growers, leading some to switch to alternative crops. Unfavorable sugar prices and financial difficulties at many mills make a short term recovery difficult.

A sharp drop in production was the cause of the decrease in exports for the 1997/98 season to 2.9 million tons, 31 percent below the 1996/97 shipments. Exports for 1998/99 are forecast to decrease to 2.6 million tons. Japan, South Korea, and Malaysia are the major buyers of Thai raw sugar. Indonesia was the major purchaser of white and refined sugar in 1998.

Australian sugar production in 1998/99 is forecast at 5.42 million tons, a 3 percent decrease over last year’s record 5.57 million ton output. Though the area planted in sugar cane rose by 2 percent, cooler winter weather and excess rain translated into lower production estimates. Rain damage was especially prevalent in north Queensland, where some cane was left unharvested and there was some lodging.

Australian sugar exports in 1998/99 are forecast at 4.4 million tons, down 3 percent from last year’s shipments. Australia removed its sugar import tariff on July 1, 1997. With the Australian industry continuing to become more competitive, refining capacity is expected to exceed domestic consumption needs. In addition to rising production, it seems unlikely that sugar imports will become significant in the future, thus lessening the desire to retain protective barriers in the market.