SUGAR SEMI-ANNUAL

An Expert's View about Agriculture and Animal Husbandry in the Dominican Republic

Last updated: 5 May 2011

Post has slightly adjusted MY 2009 and MY 2010 Dominican sugar production based on industry and official estimates. MY 2009 production is estimated at 520,900 MTRV and consumption remains stable at 335,000 MTRV.

THIS REPORT CONTAINS ASSESSMENTS OF COMMODITY AND TRADE ISSUES MADE BY USDA STAFF AND NOT NECESSARILY STATEMENTS OF OFFICIAL U.S. GOVERNMENT POLICY Required Report - public distribution Date: 10/9/2009 GAIN Report Number: Dominican Republic SUGAR SEMI-ANNUAL Update Approved By: Margie Bauer Prepared By: Carlos G. Suarez Report Highlights: Post has slightly adjusted MY 2009 and MY 2010 Dominican sugar production based on industry and official estimates. MY 2009 production is estimated at 520,900 MTRV and consumption remains stable at 335,000 MTRV. Estimates for the out year will remain at current levels. The current U.S. TRQ allocation to the Dominican Republic is totally filled. The DR sugar has duty free access to the EU in October 2009 under the new European Partnership Agreement with the Caribbean. Export to the EU have reached 60,000 MT. The Legislation on biofuels is moving forward slowly. Commodities: Sugar, Centrifugal Sugar Cane for Centrifugal Production: MY 2009 production remained as previously reported due to production adjustments done by INAZUCAR (GODR Sugar Institute). Production was adjusted to reflect these changes. Estimates for the out year harvest has been adjusted as a result of higher output estimates (4.6 million MT of sugar cane in 245 thousand hectares) at two of the three of the private mills whose production output was higher as a result of better weather conditions. The higher overall yields of the private mill also compensated for some of the initial downtimes. The out year show some promise as demand increase from foreign markets at attractive prices. This will induce local efforts to increase sugar cane production in order to satisfy the new claim and perhaps better yields. The two largest private producers, Central Romana and the Consorcio Azucarero Central (Barahona group) dominated the Dominican sugar market in 2009 and are expected to produce almost 415,000 MTRV (metric tons raw value) in MY 2010 (November 2009?October 2010 marketing year). The Vicini Group is expected to recuperate from a shortfall in MY 2009 and anticipates production exceeding 65,000 MT, somewhat higher when compared to the year before. Near optimal weather conditions that prevailed this year, anticipates little improvement in rainfall pattern through the upcoming harvest, except perhaps some sugarcane yield improvement. A breakdown of official data on sugar output by producer group follows: TOTAL SUGAR PRODUCTION BY COMPANY MY 2008 ? MY 2010*, Metric Tons Sugar Mill Group MY 2008 MY 2009 MY 2010* Central Romana 365,270 384,000 375,000 Grupo Vicini 82,000 55,000 65,000 Consorcio Azucarero Central 53,000 62,000 62,000 (Barahona) Total 500,270 501,000 502,000 Source: Dominican Sugar Institute (INAZUCAR) and post estimates. * Estimates There is only one sugar refinery operating in the country at the present time with a total output of 152,000 metric tons for MY 2009 season the oout year should remain at the current levels. According to INAZUCAR, the production pattern for refined sugar in MY 2010 should remain at the same levels as in MY 2009, meeting most of the country's refined sugar needs. However, the higher demand of raw sugar for the foreign markets, the U.S. quota and the opening of the EU market may require adjustments in supply, by importing more raw sugar than currently estimated. Molasses and furfural (a liquid aldehyde used as a solvent or for furan or phenolic resins) also represent important sources of revenue for the industry. According to preliminary data for MY 2009, the sugar industry produced about 31 million U.S. gallons of molasses produced by all the operating mills, Central Romana produced almost 24,600 metric tons of furfural. Central Romana and the Vicini group generally begin the sugar harvest in early to late December, while Consorcio Azucarero Central begins in January. This mill is able to process more cane before the rainy season which typically interrupts the harvest in late June or early July. Rainfall patterns, fertilization, and labor are the main factors that determine sugar yield. Industry sources indicate that fertilizer application has shown little change in the last five years, due to high costs. While most fertilizer is applied manually, Central Romana, and sometimes other groups do minimal amounts of aerial spraying. Less than half of the land in sugar cane production is irrigated and, as a consequence, is subject to stress during dry periods. The sugar industry requires about 25,000 full-time workers and, additional 10-15,000 temporary cane cutters during harvest. Mechanized harvest has slowly increased to around 50-60 percent of production. The degree of mechanization may continue to increase, as operating costs increase and fewer cutters are available. Cane yields vary between 30-80 metric tons per hectare, depending upon location, rainfall patterns, available transport resources, cane varieties and fertilizer use. Some producers incorporate modern management procedures and spend more on inputs to obtain higher yields. During the last ten years, the sugar recovery rate averaged nearly 10.6 percent, but has been higher during the most recent five years. In MY 2009, sugar recovery rates averaged 11.2 percent, while Central Romana was somewhat higher (about 11.5 percent). Estimate for MY 2010 is anticipated to remain at this level. Local cane varieties developed throughout the years are resistant to all of the major diseases and some of the successful sugar cane crosses used in the DR are: CR-74250, CR-6101, PR-63488, RD-7511 and B76-78. Cost of production varies substantially from company to company, ranging from US$ 0.14 to US$ 0.22 per pound. Alternative use of sugar cane for other purposes appears to be moving forward. There has been considerable information on government plans in the press during the last two years on the subject of biofuels. Ethanol appears to be the first option and legislation is moving slowly in this direction. In the meantime, there is another separate project with the intention of dehydrating the ethanol from imported hydrated ethanol and/or locally produced hydrated ethanol. As it stands, needed legislation and investors, and foreign markets prices will define at the end if ethanol will move forward or not. If feasible, local production is at least 3-4 years down the road. Biofuels from Jatropha has been experimental. Consumption:Domestic sugar consumption is fairly stable at about 325-335,000 metric tons, with about 55 percent consumed raw and the rest as refined sugar. The general public consumes sugar mostly in raw form, while the soft drink and juices and confectionary industries primarily use refined sugar. Central Romana is currently the only local refiner and is estimated to produce about 152,000 metric tons, which is close to their maximum capacity. Semi-refined sugar has not been manufactured in the last five years. Trade: Due to the production adjustment and imports, MY 2009 sugar import estimates were revised. Current raw production estimates for MY 2009 did not meet demand. Post believes that initial estimates have been adjusted to 12,000 MT of raw sugar already imported during MY 2009. The Dominican Republic is the largest holder of the U.S. tariff rate quota (TRQ) for sugar and continues to receive the largest single country allocation of 16.4 percent of the total U.S. allocation for the world. The DR's initial TRQ allocation for MY 2009 is 185,335 metric tons. According to our recpords and Dominican Government officials, the Dominican Republic fulfilled the U.S. quota and had additional sugar for the export market (EU). In the DR-CAFTA free trade agreement implemented on March 1, 2007, an additional 10,000 MT could be added to the current quota, with two percent growth per year, if the DR can meet the net exporter requirement of the agreement. As of the end of September, 2009, certificates for 175,100 metric tons have been shipped to the United States under the 200/09 TRQ, in addition to almost 60,000 MT to the EU, including some informal trade with Haiti. The opening of the European market under a new economic partnership for Dominican sugar described at the end of this section, allowed a new destination since October 2008. Import duties are 14 percent for raw sugar and 20 percent for refined sugar, plus a 16 percent value-added tax, referred to by its Spanish acronym ITBIS. Imports of sugar and sugar-based products still require permits from INAZUCAR (decree 576-96). With the tariff rate quota negotiated in the Uruguay Round in mind, the Dominican Republic has stated that it could issue permits for up to 35,000 metric tons imports on a first-come, first-serve basis. However, for MY 2009, only 12,000 MT of raw sugar were authorized. With just the 20 percent tariff and 16 percent ITBIS, refined sugar imports (in quota) would enter the country at prices well below those of domestic sugar. So far, imports under this arrangement have not been authorized as a result, a 10 % increase to domestic sugar was authorized in September 2009. In addition to raw sugar exports, other sugar related products are produced for the local and international markets. Molasses and furfural also represent important sources of revenue for the industry. According to preliminary INAZUCAR statistics for MY 2009, sugar exports to the U.S. preferential market represented about US$ 80 million. In addition, the sugar industry produced 30 million gallons of molasses, about 20 million gallons of which were used for local consumption and 17 million gallons (valued at $10.6 million) was exported. In addition to molasses, 31,200 MT of furfural were exported, for an additional US$ 15 million in revenues. In January 1, 2008, the DR as part of a Caribbean group concluded the negotiations with European Commission for an Economic Partnership Agreement (EPA). The agreement will benefit bananas, rum, cocoa, textiles, shoes, and tobacco. Thirty thousand tons of Dominican sugar had access the EU in late 2008 and another 30,000 MT g in 2009 with free access thereafter. As 2009 Dominican sugar will enter the EU at ?335.20 per metric ton, somewhat higher that the U.S. preferential rate. INAZUCAR authorities indicate that exports to the EU will only occur after the U.S. quota commitments are filled. Stocks: Producers mostly hold sugar stocks, although middlemen and wholesalers also carry stocks. As imports were authorized in MY 2009, stock levels have varied. As production and consumption continue unchanged in MY 2010, stocks are estimated to remain in the 30-40,000 MT range. Policy: Several laws regulate the sugar sector. Law 491 controls the relationship between private cane producers and processors and sets the price for cane based on sugar content. Law 619 assigns regulatory functions to INAZUCAR and also governs marketing (domestic and export), price schedules, and statistics. The U.S. sugar quota is divided among the producers according to an established formula based on last three-year individual production levels. Previously, INAZUCAR published the assigned percentages to the industry. Currently, a Presidential decree officially announces the allocation. As part of its WTO rectification agreement, after the Uruguay Round, the Dominican Government established a tariff rate quota for 23,000 metric tons of sugar, with an in-quota tariff level of 15 percent for raw while 20 percent for the refined. This gradually increased to 32,000 metric tons since 2005. Maximum out-of-quota tariffs were established at 100 percent, decreasing to 86.5 percent by 2005 and have remained at that level. Under the new DR-CAFTA agreement implemented on March 1, 2007, the DR will phase out its sugar tariffs over a 15-year period beginning with 85% out of quota tariff. High Fructose Corn Syrup (HFCS) will also be phased out in a similar period. Legislation is moving forward in the direction of sugar diversification into biofuels, specifically in ethanol-gasoline blends. Ethanol appears to be the first option and legislation is already moving forward. See Biofuels report for further details. Marketing: The Secretary of Industry and INAZUCAR establish the base price of raw and refined sugar. As a result, prices are stable and producers sell directly to wholesalers and to large companies that use sugar in their product formulations. As of September 2009, the official sugar prices were as follows: Official Prices for Sugar (March 2009) Type of sugar Producer Wholesaler Retailer (per 100 lbs.) (per 100 lbs.) (per lb.) Raw 742.50 809.60 9.00 Refined 891.00 980.00 11.00 Exchange rate per US$: RD$36 pesos Source: INAZUCAR
Posted: 04 May 2011, last updated 5 May 2011

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