Sugar Annual

An Expert's View about Fiber Crops in Russia

Posted on: 21 Apr 2012

FAS Moscow's record production forecast fell far short in 2011/12 as sugar production totaled 58% higher than the previous record.

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: 4/9/2012 GAIN Report Number: RS1223 Russian Federation Sugar Annual New Crop Forecast Down 8% but Record in Any Other Year Approved By: Morgan Haas Prepared By: Morgan Haas, Mikhail Maksimenko Report Highlights: FAS Moscow?s record production forecast fell far short in 2011/12 as sugar production totaled 58% higher than the previous record and 84% higher than the previous year. In 2012/13, planted area is retreating but still allows for the second largest beet sugar production on record at over 5.0 MMT. Producer prices and adverse weather conditions in the South are driving reduced area. As a result, 2012/13 imports should bounce back from the very low totals being experienced in the current marketing year. Large sugar supplies in 2011/12 should allow Russia to become a net exporter of refined sugar for the first time since 2001/02 as well as carry this status forward into 2012/13. Executive Summary: FAS Moscow?s record production forecast fell far short in 2011/12 as sugar production totaled 58% higher than the previous record and 84% higher than the previous year. In 2012/13, planted area is retreating but still allows for the second largest beet sugar production on record at over 5.0 MMT. Producer prices and adverse weather conditions in the South are driving reduced area. As a result, 2012/13 imports should bounce back from the very low totals being experienced in the current marketing year. Large sugar supplies in 2011/12 should allow Russia to become a net exporter of refined sugar for the first time since 2001/02 as well as carry this status forward into 2012/13. Table 1a. Russian Sugar Beets, Area, Production, and Utilization (1,000 HA, 1,000 MT) 2010/2011 2011/2012 2012/2013 Sugar Beets Russia MY Begin: Jan 2011 MY Begin: Jan 2012 MY Begin: Jan 2013 Old Post New Post Old Post New Post Old Post New Post Area Planted 1,160 1,160 1,290 1,290 1,180 Area Harvested 910 910 1,210 1,200 1,120 Production 21,500 21,500 37,000 47,600 44,500 Total Supply 21,500 21,500 37,000 47,600 44,500 Utilization for Sugar 21,500 21,500 37,000 47,600 44,500 Total Distribution 21,500 21,500 37,000 47,600 44,500 Table 1b. Russian Sugar, Production, Supply, and Distribution (1,000 MT Raw Value) 2010/2011 2011/2012 2012/2013 Sugar, Centrifugal MY Begin: Oct 2010 MY Begin: Oct 2011 MY Begin: Oct 2012 Russia USDA New USDA New USDA New Official Post Official Post Official Post Beginning Stocks 399 399 400 350 455 Beet Sugar Production* 2,996 2,996 4,800 5,500 5,050 Cane Sugar Production 0 0 0 0 0 Total Sugar Production 2,996 2,996 4,800 5,500 5,050 Raw Imports 2,600 2,260 1,400 750 1,000 Refined Imp.(Raw Val) 350 250 275 140 200 Total Imports 2,950 2,510 1,675 890 1,200 Total Supply 6,345 5,905 6,875 6,740 6,705 Raw Exports 0 0 0 0 0 Refined Exp.(Raw Val) 5 17 200 275 275 Total Exports 5 17 200 275 275 Human Dom. Cons. 5,925 5,523 6,230 5,995 6,015 Other Disappearance 15 15 15 15 15 Total Use 5,940 5,538 6,245 6,010 6,030 Ending Stocks 400 350 430 455 400 Total Distribution 6,345 5,905 6,875 6,740 6,705 *New crop beet sugar production in August and September assumed to occur in October for PSD calculation. Production: Sugar Beets Sugar Beet Area FAS Moscow forecasts sugar beet area in 2012 approximately 9% lower than 2011/12 and within the range of local market experts. Producer prices remain low from the 2011 bumper crop that overwhelmed the refiners. As well, the delayed planting season in the south is likely to shift some would-be sugar beet area to oilseeds. Under normal weather conditions, area loss is expected to return to 5%. Sugar Beet Production FAS Moscow?s sugar beet production forecast is 6.5% lower in 2012/13 as compared to 2011/12. High sugar beet area in combination with favorable weather conditions in 2011/12 ultimately resulted in record sugar beet yield (39 MT/ha) and production (47.6 MMT). Nonetheless, yields close to 40 MT/ha are expected in 2012/13, following the five-year trend (excluding the 2010 disaster). Sugar beet production in 2011, while a record, fell well short of its potential. Due to the large production and limited refining capacity, processors forced farmers to renegotiate contracts signed in May 2011 for RUR1,600-2,000/MT to RUR800-1,000/MT in October-November as well as move delivery dates from October to December and January. Of the 47.6 MMT harvested, only 41.1 MMT were delivered to the refineries, of which only 40.0 MMT were processed. Losses in the field after harvest and at Russian refineries were plagued by storage conditions, which included a heavy frost at the end of November and a warm December. Production: Sugar Historically, beet processing occurs from August to January and raw sugar processing occurs from May to July. These two seasons may shift depending on raw material availability and raw sugar prices on the world market, and are accompanied by Russian Government intervention in the application of seasonal import duties. The Russian Government increased the window for low-duty raw sugar imports beginning in April or even March as occurred in 2009/10 and 2010/11; however, no such expectations are held for the current or forecast marketing year. Chart 1. White Sugar Production, 2009-2012, by month According to RBC Market Research, about 70% of Russian sugar beets and raw sugar are processed by the following agricultural holdings: Prodimpex, Rasgulay, Rusagro, Dominant, Kunan Sugar Company, Sucden, and Cargill. Beet Sugar Production In 2012/13, FAS Moscow forecasts beet sugar production to decrease 8%, following reduced area as well as assuming average sugar beet post-harvest losses of 19% and average sugar content of 12.9%. In 2011/12, Russia produced a record 5.5 MMT of beet sugar. However, according to industry experts, refineries experienced high losses as limited refining capacities forced them to process beets with declining sugar content reaching as low as 7% in March. The sugar industry also produced about 700,000 MT of granulated beet pulp in 2011/2012 (400,000 MT in 2010/2011). Beet syrup production accounted for 1.65 MMT in 2011/2012 (1.0MMT in 2010/2011). Sugar Industry Investment New Russian refineries have not been constructed since the early 1980s and capacity upgrades have been slow. However, the sugar industry has become more attractive to investments since Russia launched the State Program ?On Sugar Beet production Development in 2009-2012,? which envisaged state subsidies for the construction of new and renovation of existing sugar refineries. Federal financing for the sugar industry should stimulate the purchase of new machinery and equipment, improve production efficiency, and ultimately boost production while curbing preventable losses. Russia allocated RUR125.8 million in 2011 to subsidize interest rates for RUR4.5 billion in investment loans. In 2011, the Ministry of Agriculture approved three large projects valued at RUR1.0 billion and considered 12 more projects for construction or renovation of refineries and seed production plants. Governors of several regions have stated they need new beet refineries to meet the needs of increased sugar beet production. However, the Institute for Agricultural Market Studies (IKAR) is not convinced these projects will be cost-efficient after Russia joins the WTO, having in mind that Russia is currently protected by high import duties on raw and white sugar. Some specific projects follow. The Voronezh Oblast Government offered an investor its support in construction of a new sugar beet refinery. According to preliminary data, about $250 million will be invested starting in 2012. Construction will last for about three years. The refinery will be able to process 10,000 MT of beets per day. The investor plans to grow about 70% of the necessary beets at its own farms. The Rostov oblast Government reported that an oil company and the oblast Government will build a sugar beet refinery as well as livestock and dairy facilities where by-products of beet processing will be fed to cattle. The project will be completed in 2-3 years. The Stavropol Kray Government is considering providing support for a company which plans to invest ?130 million into construction of a sugar refinery in 2013, of which 80% may be subsidized by the state budget. The plant plans to process beets for four months and produce syrup, ethanol, and dry pulp during the offseason. Sugar Standards Custom Union Resolution #880 of December 2011 includes a list of voluntary standards (GOSTs) to ensure compliance of sugar products with the Technical Regulation ?On food safety?. Other Sweeteners Russia is also developing production of starch-based sweeteners, which are received mainly from corn (more than 80%), wheat (about 15%) and potatoes (about 3%). The utilization of corn is declining while the share of wheat is rising. Production of glucose from all types of starch increased from 491,500 MT in 2010 to 562,400 MT in 2011. The major producer of starch syrup is Cargill, which increased production from 284,000 MT in 2010 to 329,000 MT in 2011. Trade Imports: Raw Sugar Raw sugar imports are forecast to reach only 1.0 MMT in 2012/13, roughly 13% more compared to a low raw sugar import total in 2011/12. High beet sugar production in 2011/12 and an increased minimum seasonal import duty from May 1 to July 31 should limit further growth in the current year. Imports of raw sugar in the fourth quarter of 2011 was much smaller compared to the same period of 2010 when Russia needed raw sugar processing and white sugar for consumption. Russia imported 2,258,774 MT of raw sugar in MY 2010/11. Brazil controls 80-85 percent of the historic market share for Russia?s raw cane sugar imports, while Thailand and Guatemala are also active market participants. Historically, there are two scales of customs duties on raw sugar subject to Russia?s raw sugar suppliers. From May to July, the minimum duty has been $50/MT. However, from August 1, 2012, in anticipation of the sugar beet harvest, the Customs Union has enhanced the protective mechanism of the sugar market, in accordance with Russia?s looming WTO Accession, by increasing minimum duties to $140/MT as well as setting the maximum at $270/MT. Customs Union Decision #913 of January 25, 2012, also increased the seasonal import duty on raw sugar from $50/MT to 140/MT from May 1 to July 31, 2012. The sugar consuming industry opposed the move as it would the increase white sugar price by more than 30%. According to Russia?s WTO Accession, Russia is obliged to reform its tariff regime for sugar in 2012, with a view to further liberalization after WTO accession. However, according to the Russian Ministry of Economic Development (MED), the formula for raw sugar import duty will be the same after Russia?s WTO accession, indexed to the New York Mercantile Exchange. MED noted that parameters of further liberalization have not yet been prescribed since the sugar negotiations ended in 2006, and therefore, Russia will only be in a position to discuss liberalization after 2012. Imports: Refined Sugar FAS Moscow expects Russian refined sugar imports to increase to 200,000 MT Raw Equivalent in 2012/13, also countering lower beet sugar production. FAS Moscow decreased the estimate for refined sugar imports in 2011/12 on higher than expected sugar beet production and limited imports to date. The historical refined sugar suppliers are Belarus, Moldova, Brazil, and the European Union. Imports from Belarus On November 30, 2011, the Russian and Belarusian Ministries of Agriculture agreed that Belarus would be allowed to ship Russia 200,000 MT of refined beet sugar in CY 2012, the same amount as in CY 2011. However, according to Russia?s State Statistical Service (Rosstat), CY 2011 Belarus exports to Russia eventually totaled 192,600 MT, 1.6% more compared to CY 2010. Imports from Ukraine Russian sugar producers have requested the CU apply protective measures on sugar imports from Ukraine to limit alleged ?dumping? of Ukrainian exports. According to the Association of Sugar Producers of the Customs Union, Ukraine is able to produce below cost enabling them to export sugar to Russia at the full $340/MT duty because of Ukraine?s 2% import duty on raw sugar. Trade statistics from Ukraine (Oct-Dec) and the Association (Jan-Mar) also indicate Ukraine allegedly exported Russia 14,300 MT of white sugar in the current marketing year, none of which is reported by the Russian Federal Customs Service. However, it is possible at least a portion of this total may be reported as Belarusian origin by Rosstat. In doing so, the Association believes Ukraine is circumventing the Russian import duty via its free-trade agreements with Belarus and Kazakhstan. Russia eliminated its free trade regime on sugar with Ukraine more than 10 years ago. The latest bilateral protocol excluding sugar from the free trade regime was signed between Russia and Ukraine on January 1, 2009 and remains active through December 31, 2012. In the near future, the 2011 Commonwealth of Independent States (CIS) Free Trade Agreement is expected to be ratified by Ukraine and the Customs Union, and it enters into force 30 days after the first three countries ratify. Russia is the first and only country to yet do so. However, since sugar is one of the very few products excluded from the FTA, the Association hopes it can serve as a mechanism to stop sugar trade into partners. Exports: Refined Sugar FAS Moscow forecasts Russian refined sugar exports in 2012/2013, to reach 275,000 MT Raw Equivalent, the same as in 2011/2012. Russia wishes to increase exports of agricultural commodities and considers itself a major supplier of white sugar to CIS member countries, regardless of its competitiveness. As recent years have proved, Russia?s capability and competiveness to fulfill these wishes has been very erratic. Russia exported a record low 17,000 MT of refined sugar in 2010/2011 and is likely to export a record high 275,000 MT in 2011/2012. In the first quarter of 2011/12, Russia exported 57,177 MT of white sugar, with almost all sugar destined for CIS partners. According to IKAR, Russia exported 400,000 MT of beet syrup (90,000 MT in 2010/2011) and 500,000 MT of granulated pulp (255,000 MT in 2010) by the end of February 2012. Exports could reach 550,000 MT and 600,000 MT accordingly during the current marketing year. Consumption FAS Moscow forecasts human domestic consumption with slight growth in 2012/13 on improved macro-economic indicators which should counter prospects for sustained high sugar prices. Ultimately, despite Russia?s increasing domestic sugar production, production costs under the current sugar regime of less access for raw sugar with a focus on increasing market share of less competitive local beet sugar production holds back potential for robust consumption growth. Looking forward, in addition to improving macro-economic indicators, the Russian Duma Agrarian Committee is considering a State Program ?Strategy of Development of Food and Processing Industry of the Russian Federation until 2020,? which was recently submitted by the Ministry of Agriculture. In total, the Ministry is proposing a RUR724.3 billion investment into the industry. The largest allocation of which ? RUR107.7 billion ? is designated for the development of the sugar processing industry. It also proposes to allocate RUR79.9 billion for the candy-making industry as well as RUR25.6 billion for the starch and syrup industry. Per capita consumption of starch derived sweeteners is 5.5 kilogram, of which 56% is utilized for candies and soft drinks production and 19% for other food products in CY 2011. The rest is applied for non-food products. Prices White sugar prices have remained high despite record sugar production and prospects for another productive year in 2012. Considering the strict market access regime in place, sugar prices above RUR30/kg through the remainder of 2011/12 and into 2012/2013 are a likely reality. While the record high prices of early 2011 began to subside with raw sugar imports and early prospects of a record 2011 harvest, the decline was shallow and relatively short-lived, as prices again started to climb higher as soon as it was evident refineries were facing financial losses due to capacity bottlenecks. While additional supplies were available, the major sugar producers held them back to in order to prop up prices. According to Rossahar, wholesale white sugar prices increased from RUR18.6/kg at the beginning of November to RUR 24.9/kg at the end of November, and reached RUR25/kg by the end of December and continue to climb through March. As opposed to past years, no reduced import duty for raw sugar is expected to further relieve the sugar market. Chart 2. Sugar Prices (RUR/MT) Source: Rossahar Sugar Production Tables Table 2. Russian Sugar Beet Area, Production, and Prices 2000/01 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 Area planted, 805 799 996 1,060 819 819 1,160 1,290 1,000 Ha Area harvested, 1,000 Ha* 750 755 944 986 801 778 925 1,214 Area harvested, %* 93 94 95 93 98 95 79 94 Sugar beets 14.1 21.3 30.7 28.8 29.0 24.9 22.3 47.6 harvest, MMT Yield, MT/Ha 18.8 28.2 32.5 29.2 36.2 32 24.1 39.2 Sugar beets n/a n/a marketed, MMT 17.9 23.3 24.2 24.6 20.9 19.1 Sugar beets n/a n/a marketed, % 84.8 76.1 84.7 86.3 93.4 87.5 Beet prices, n/a RUR/MT 509 965 1,165 1,071 1,163 1,242 1,636 Source: Rosstat * FAS Moscow calculation Table 3. Russian Sugar Beet Area by Category, CY 2011/12 Including Total Agricultural farms Private farms Private households Area, planted, million Ha 1.29 1.10 0.18 0.07 Area harvested, million Ha,* 1.21 1.05 0.16 0 Area loss, %* 6.2 4.5 10 N/A Beet Harvest, MMT 47.6 41.2 6.3 0.23 Yield MT/Ha 39.2 39.3 38.9 30.7 Source: Rosstat *Calculated by FAS Table 4. Russian Production and Processing of Sugar Beets and Beet Sugar, MMT 2010/11 2011/12 12/11, % Sugar beet production 20.6 41.1 199.3 Sugar beet processed 20.0 39.8 197.8 White beet sugar production 2.7 5.0 184.4 Source: Rossahar Table 5. Russian Sugar Standards Standards Commodity Regulation GOST 21-94 Fine regular granulated sugar Technical conditions GOST ? 53396-2009 White sugar Technical conditions GOST 1882-208 Raw sugar General Technical conditions Source: Customs Union http://www.tsouz.ru/db/techreglam/Documents/TR%20TS%20PishevayaProd.pdf Sugar Trade Tables Table 6. Russian Imports, Raw Sugar (170111, 170112), MT Oct ? Dec Partner Country 2008/09 2009/10 2010/11 2010 2011 World 1,763,070 1,948,606 2,258,774 169,725 2,582 Brazil 1,489,518 1,636,819 1,954,788 147,138 180 Thailand 57,708 40,830 123,566 0 0 Guatemala 0 64,515 64,146 0 0 Cuba 142,762 80,863 45,800 0 0 Nicaragua 0 0 25,740 0 0 Honduras 0 0 16,834 0 0 Argentina 0 40,643 20,500 20,500 0 Mauritius 827 3,965 5,786 1,650 1,904 Source: GTIS Note: Belarus is excluded in the entire time series; Kazakhstan is excluded since July 2010 Table 7. Russian Imports, Refined Sugar (170191, 170199), MT Partner C Oct ? Dec ountry 2008/09 2009/10 2010/11 2010 2011 World (Raw value) 258,065 274,641 278,617 93,321 47,919 World 237,411 252,663 256,317 85,852 44,084 Belarus 146,000 180,000 170,000 42,600 39,800 Moldova 30,993 5,742 25,332 23,287 0 Brazil 18,666 3,786 24,038 7,076 3,711 Poland 16,465 36,570 13,285 8,108 5,552 France 1,576 90 9,491 26 21 Source: GTIS, Rosstat Note: Kazakhstan is excluded since July 2010 Table 8. Russian Exports, Refined Sugar (170191, 170199), MT Oct ? Dec Partner Country 2008/09 2009/10 2010/11 2010 2011 World (Raw value) 160,904 34,255 18,402 493 62,151 World 148,026 31,513 16,929 454 57,177 Tajikistan 38,382 10,634 4,732 11 20,980 Kyrgyzstan 2 2 4,246 0 8,084 Uzbekistan 71,738 1,049 3,198 10 6,545 Moldova 3 3 2,382 2,380 741 Turkmenistan 13,677 5,227 1,031 6 5,864 Mongolia 540 691 743 170 195 Abkhazia 4,114 1,260 399 293 885 United States 40 122 119 27 114 Kazakhstan 1,527 12,069 n/a n/a n/a Source: GTIS Note: Belarus is excluded in the entire time series; Kazakhstan is excluded since July 2010 Consumption Tables Table 9. Russian Wholesale Sugar Price, RUR/MT Date Southern region Central region Volga region November 14, 2011 19,700 19,900 20,350 December 5, 2011 21,300 21,500 21,900 January 16, 2012 22,500 22,600 23,000 February 27, 2012 25,100 25,300 25,800 March 16, 2012 25,500 25,400 26,500 Source: Rosstat Table 10. Russian Average Sugar Price, RUR/kg 200 200 200 200 200 200 200 200 200 200 201 201 201 0 1 2 3 4 5 6 7 8 9 0 1 2 Jan 9.3 15. 15. 19. 18. 19. 21. 22. 22. 25. 35. 43. 29. 0 91 18 83 63 60 90 42 03 76 98 64 90 Fe 9.1 16. 15. 20. 18. 19. 28. 22. 22. 27. 37. 44. 30. b 7 18 15 42 63 50 54 05 78 94 22 28 94 Ma 8.8 15. 15. 20. 18. 19. 29. 21. 23. 29. 36. 43. n/a r 8 97 00 70 78 58 45 57 28 71 57 31 Ap 8.9 15. 14. 20. 18. 19. 27. 21. 23. 29. 34. 41. n/a r 4 52 82 62 93 61 28 41 50 75 53 27 Ma 9.8 15. 14. 20. 19. 19. 26. 21. 25. 29. 32. 39. n/a y 7 53 96 39 08 70 15 39 09 49 82 65 12. 15. 15. 20. 19. 20. 25. 21. 25. 29. 32. 38. n/a Jun 21 44 03 16 13 00 82 66 38 62 01 66 12. 15. 17. 20. 20. 20. 27. 21. 25. 29. 34. 39. n/a Jul 82 58 71 08 85 68 87 92 02 68 13 31 Au 13. 15. 17. 19. 21. 20. 28. 23. 24. 31. 35. 38. n/a g 74 72 44 90 10 68 03 47 86 53 73 67 Se 14. 15. 17. 19. 20. 20. 27. 22. 24. 34. 37. 34. n/a p 63 45 23 26 70 17 20 70 20 86 52 84 Oc 16. 15. 17. 18. 20. 19. 24. 22. 23. 33. 37. 32. n/a t 56 20 99 50 25 89 64 23 61 07 56 66 No 15. 14. 18. 17. 19. 19. 23. 21. 23. 32. 39. 31. n/a v 97 92 91 73 86 76 17 86 26 90 27 19 De 15. 14. 19. 18. 19. 19. 22. 21. 23. 33. 40. 30. n/a c 62 88 47 34 69 69 71 63 07 02 62 22 Source: Rosstat Table 11. Russian Average Wholesale Sugar and Sweetener Prices, RUR/kg Commodity 2010 2011 QI QII QIII QIV QI QII QIII QIV Sugar n/a n/a 29.5 24.8 27.6 33.4 28.7 18.8 Starch syrup 12.8 13.4 13.8 15.7 16.6 16.8 17.2 16.1 Glucose-Fructose Syrup n/a 16.0 17.0 16.5 21.0 23.0 21.0 17.0 Source: ?CIS Sugar Market 2012? Conference of All-Russian Scientific Research Institute of Starch Products Table 12. Russian Processor Prices for Syrup and Granulated Pulp, RUR/MT Date Syrup Granulated pulp December 15, 2011 300 ? 400 2,500 ? 3,500 December 5, 2011 600 ? 1,500 3,500 ? 4,000 November 23, 2011 600 ? 1,500 3,500 ? 4,000 Source: Rossahar Other Sweetener Tables Table 13. Russian Starch Syrup Products Supply, 1,000 MT Products 2007 2008 2009 2010 2011 Starch syrup (glucose syrups of all types) 425.3 448.0 446.1 491.5 562.4 Imports 65.6 42.8 18.7 22.5 38.8 Exports 0.2 0.240 4.7 11.5 2.9 Total supply 490.7 490.6 460.1 504.0 599.3 Source: ?CIS Sugar Market 2012? Conference of All-Russian Scientific Research Institute of Starch Products Table 14. Russian Producers of Starch Syrup Products, 1,000 MT Products 2007 2008 2009 2010 2011 Starch syrup (glucose syrups of all types) 425.3 448.0 446.1 491.5 562.4 --OAO Cargill 269.8 260.7 233.7 284.0 329.2 --OAO Ibredkrakhmalpatoka 40.8 37.3 43.5 42.9 39.1 --OAO Starch and syrup plant Novlyanskiy 37.2 41.1 39.1 35.9 36.6 --OAO Khobotovo plant ?Starch products? 30.3 36.2 39.0 40.4 43.2 --OAO Starch plant ?Gulkevichy? 15.9 33.3 38.4 34.4 36.3 --OAO ?Kazatskiy KPK? 24.8 30.7 32.4 6.3 - --OAO Beslan Maisoviy facility 1.2 - 2.5 3.5 11.7 Source: ?CIS Sugar Market 2012? Conference of All-Russian Scientific Research Institute of Starch Products
Posted: 21 April 2012

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