Sugar Annual

An Expert's View about Sugar and Support Services in South Africa

Last updated: 27 Apr 2011

Sugar cane production in South Africa is expected to decline even further in the 2011/12 season due to the secondary impact of the worst drought in 20 years.

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: 4/14/2011 GAIN Report Number: South Africa - Republic of Sugar Annual The report discusses sugar production and demand in South Africa Approved By: Ross Kreamer Prepared By: Dirk Esterhuizen Report Highlights: Sugar cane production in South Africa is expected to decline even further in the 2011/12 season due to the secondary impact of the worst drought in 20 years that hit the main sugar producing area in 2010. The forecast for the 2011/12 season sugar cane crop is 15.0 MMT, which is 1.0 MMT lower than the estimated 2010/11 season?s crop of 16.02 MMT. Sugar production for the 2010/11 season is estimated at 1.91 million tons Tell Quell (1.98 MMT raw value), which is the smallest in 15 years. South Africa?s sugar exports for the 2010/11 season are estimated to decline sharply to about 500,000 MT, on the back of declining production and a stronger South African Rand against the dollar. Executive Summary: The worst drought in 20 years in the main sugar producing area of South Africa pushed the 2010/11 season sugar cane crop down 14 percent lower than the previous year at 16.02 MMT. The 2009/10 sugar cane crop of 18.66 MMT was already 600,315 tons or 3.1 percent lower than the previous season. The secondary impact of the drought will also affect the 2011/12 sugar cane crop; hence post forecasts a one million ton drop in sugar cane production to 15.0 MMT. For the 2010/11 season sugar production is estimated at 1.91 MMT Tell Quell (1.98 MMTRV), which is 13 percent lower than the 2009/10 season?s sugar production of 2.19 MMT Tell Quell (2.27 MMTRV). South Africa exported 552,461 MT of raw sugar and 259,267 MT (277,416 MTRV) of refined sugar during the 2009/10 season. Sugar exports for the 2010/11 season are expected to decrease sharply to 270,000 MT raw sugar and 230,000 MT refined sugar (246,100 MTRV), on the back of lowest sugar production in 15 years in South Africa. South Africa has already delivered the full amount of sugar on their 2010/11 Unites States tariff rate allocation. Sources: http://www.sasa.org.za http://www.illovo.co.za http://www.huletts.co.za http://www.tsb.co.za http://www.sacanegrowers.co.za US$1=R6.70 (04/12/2011) Sugar cane Production South African sugar cane growers continue to farm under increasingly difficult situations and sugar cane production continued its declining trend in the 2010/11 season (see also Figure 1). Sugar cane production for the 2010/11 season, which started in April 2010, is estimated at 16.02 MMT. This is 14 percent less sugarcane crushed than the 18.66 MMT in the 2009/10 season and 17 percent less than in the 2008/09 season. The major reason for the decline in sugar cane production in the 2010/11 season was that large parts of the KwaZulu-Natal province, where 75 percent of South Africa?s sugar cane is produced, experienced the worst drought in 20 years. Sugar cane production in the 2011/12 season is expected to decline even further due to the secondary impact of the 2010 drought. Despite the above average rainfall received in last two months of 2010, the associated impacts of the drought, such as cane root mortality and the forced harvest of young cane will affect the 2011/12 sugar cane crop. The South African sugar industry expects that the cane available for harvest in the first half of the 2011/12 season will be limited. This is particularly true for the inland growers that operate on an 18 to 24 month cycle where production is expected to be 30 percent down on the 2010/11 season. On the North and South Coasts of Kwazulu-Natal, areas hardest hit by the drought, it is unlikely that there will be any considerable harvesting until later in the season. Hence, post forecasts that that the 2011/12 season sugar cane production will be about a million tons less than in the 2010/11 season at around 15 MMT. Figure1: The declining trend in sugar cane production in South Africa The sugar area to be harvested for the 2010/11 season is estimated to decline by 7 percent to 270,000 hectares. Total sugar area harvested in the 2009/10 season was 291.770 hectares, 6.3 percent lower than the 311,425 hectares harvested in the 2008/09 season. For the 2010/11 season, sugar production is estimated at 1.91 MMT Tell Quell (1.98 MMTRV), the smallest in 15 years. The cane to sugar ratio was 8.39. The 2009/10 season sugar production was 2.19 MMT Tell Quell (2.27 MMTRV), 3.6 percent less than in the 2008/09 season. Table 1 illustrates the production of sugar in South Africa for 2008/09 (actual), 2009/10 (actual) and 2010/11 (estimate) and 2011/12 (forecast) marketing years. Table 1: The production of sugar in South Africa Season Area Area Yield Cane Sugar Cane/sugar planted harvested (MT/HA) crushed production ratio (HA) (HA) (MT) (MT*) 2008/09 413,566 311,425 61.8 19,255,404 2,269,087 8.49 2009/10 391,483 291,770 63.9 18,655,089 2,187,542 8.53 2010/11 390,000 270,000 60.0 16,016,000 1,909,000 8.39 2011/12 380,000 245,000 61.2 15,000,000 1,775,000 8.45 *Tel Quell x 1.035 = Raw value, Refined x 1.07 = Raw value Cane prices The South African sugar industry exports nearly 40 percent of its sugar production to the world market annually. In order to distribute exposure to the world market equitably amongst growers and millers, the South African Sugar Association (SASA) has implemented a Division of Proceeds. The Division of Proceeds is the formula where revenue that accrues to the sugar industry is allocated to millers and growers under a partnership arrangement. The Sugar Act and the Sugar Industry Agreement provide regulatory support for the Division of Proceeds. Industry revenues earned from domestic and export sales of sugar and molasses are accounted for by the SASA. After the deduction of administration costs, the net proceeds are shared between growers and millers at a predetermined percentage of net proceeds (see also figure 2). Cane growers are thus paid for their sugar cane according to the quality of the cane delivered to the mill through this revenue sharing arrangement. Cane quality is measured by the Recoverable Value (RV) formula, which estimates the amount of sugar and molasses that can be produced from a delivery of cane. A provisional Recoverable Value (RV) price is declared monthly during the season which is applied to all cane delivered to date. A final RV price for the season is declared in March of each year. Export market Local market Molasses sugar sales sugar sales sales Total industrial proceeds Deduct industrial charges Net divisible proceeds Millers/refiners Growers share Fixed division share of of proceeds proceeds 2008/09 ? 64.07% 2009/10 ? 64.37% RV Price (R/ton) Figure 2: The Division of Proceeds The final Recoverable Value (RV) price for sugar in the 2010/11 marketing season was set at R2,572.14 per ton. This price is nearly 13 percent higher than the previous season?s RV price of R2,284.20 and reflects the decline in domestic sugar production. Average cane and RV prices the past 9 years for the industry paid by millers to growers are shown in Table 2. Table 2: Average Recoverable Value and cane prices RV Price Cane Price Average R/$ Exchange rate Year (Apr ? March) (Rand) (Rand) 2002/03 1 368.79 171.78 9.72 2003/04 1 357.01 169.08 7.17 2004/05 1 297.19 159.55 6.26 2005/06 1 389.80 173.59 6.40 2006/07 1 701.86 198.78 7.04 2007/08 1 701.90 208.82 7.13 2008/09 2 011.18 251.00 8.87 2009/10 2 284.20 284.15 7.80 2010/11 2 572.14 300.00 7.15 Sugar Cane for Centrifugal South Africa 2009/2010 2010/2011 2011/2012 Market Year Begin: Apr 2009 Market Year Begin: Apr 2010 Market Year Begin: Apr 2011 USDA Official New Post USDA Official New Post USDA Official New Post Area Planted 405 391 405 390 380 Area Harvested 300 292 301 270 245 Production 18,655 18,655 18,670 16,016 15,000 Total Supply 18,655 18,655 18,670 16,016 15,000 Utilization for Sugar 18,655 18,655 18,670 16,016 15,000 Utilization for Alcohol 0 0 0 0 Total Utilization 18,655 18,655 18,670 16,016 15,000 1000 HA, 1000 MT Sugar Production For the 2010/11 season sugar production is estimated at 1.91 MMT Tell Quell (1.98 MMTRV), which is 13 percent lower than the 2009/10 season?s sugar production of 2.19 million tons Tell Quell (2.27 million MTRV). Post forecasts that sugar production in the 2011/12 marketing year will even be lower at 1.78 MMT Tell Quell (1.84 MMTRV) on the back of lower sugar cane production due to the secondary impacts of last year?s drought. Consumption The South African Customs Union (SACU) is the primary market for the South African sugar industry. The SACU market comprises South Africa, Botswana, Lesotho, Namibia and Swaziland. Access to the market is regulated by the Southern African Development Community Sugar Cooperation Agreement. South Africa and Swaziland are the only sugar producers in SACU and together produce in excess of the region?s sugar demand, which is estimated at 1.92 MMT. The per capita consumption for sugar in SACU has decreased in the 2009/10 season to 34.5kg from 35.8kg in the 2008/09 season. The main reasons for this decline were the increase in the retail price of sugar and the slow recovery of the South African economy after the 2008 financial crisis. However, the long-term prospects for increased sugar consumption remain good as the South African economy is expected to grow by more than 3 percent per annum from 2011. Table 3 illustrates the retail prices of a 1 kilogram bag and 2.5 kilogram bag of sugar in South Africa. The increase in retail sugar prices reflects the increase in producer prices due to the decline in domestic production. Table 3: The retail price trends of sugar in South Africa Product Price level (R/bag) Percentage change Jan Apr Jul Oct Jan Jan 2010 to Jan 2010 2010 2010 2010 2011 2011 White sugar 1kg bag 9.11 9.62 9.73 9.99 9.96 9.23 White sugar 2.5kg bag 19.73 18.92 18.85 21.89 22.76 15.31 Source: NAMC It is estimated that the South African sugar industry will supply 1.52 MMT and Swaziland 325,000 MT of sugar to the SACU market in the 2010/11 season. For the 2011/12 season, South African sugar sales into the SACU market are expected to increase by 1.5 percent to 1.54 MMT. Of South Africa?s SACU sales, approximately 42 percent is sold to industrial customers, with the balance sold directly to consumers at retail. Approximately 80 percent of sugar sold to customers is refined sugar and the balance brown sugar. Table 4 contains South African sugar sales into the SACU market for the 2009/10 (actual), 2010/11 (estimate) and 2011/12 (forecast) marketing years. Table 4: South African sales of sugar into the SACU market MT * 2009/10 2010/11 2011/12 White sugar 1,178,156 1,212,520 1,230,000 Brown sugar 307,774 303,130 308,00 Direct sales 858,070 879,077 893,000 Industrial sales 627,860 636,573 645,000 Total sales 1,485,930 1,515,650 1,538,000 MTRV 1,589,945 1,621,745 1,645,660 *Refined x 1.07 = Raw value Trade South Africa exported 552,461 MT of raw sugar and 259,267 MT (277,416 MTRV) of refined sugar during the 2009/10 season. The 2009/10 sugar exports were 38 percent of total production, of which 22,806 MT were exported to the United States. Sugar exports for the 2010/11 season are expected to decrease sharply to 270,000 MT raw sugar and 230,000 MT refined sugar (235,400MTRV), on the back of lower domestic sugar production. South Africa has already delivered on their 2010/11 Unites States tariff rate sugar allocation. Exports and imports for raw sugar and refined sugar for the 2009/10 marketing year are shown in the trade matrixes. For the 2010/11 marketing year imports and exports from April 2010 to January 2011 are shown. Japan (71,336 raw sugars) and Mozambique (35,021 MT raw sugar and 66,427 MT refined sugar) were the major export destinations, outside the SACU market, for South African sugar in the 2010/11 marketing year. Sugar imports represent approximately 6 percent of production and are mostly from Brazil. Export Trade Country South Africa, Commodity Cane Sugar Time Period My Units: Mt Exports to: 2009/10 2010/11* U.S. 22,806 U.S. 23,205 Others Others Indonesia 155,450 Japan 71,336 Japan 131,750 Mozambique 35,021 Mozambique 54,077 Angola 19,328 Bangladesh 50,125 Zimbabwe 24,577 Iran 33,000 Tanzania 10,710 India 30,000 Madagascar 8,488 Russia 25,000 Sudan 5,313 Zimbabwe 33,098 Kenya 5,058 Total for Others 512,500 179,831 Others not Listed 17,155 10,719 Grand Total 552,461 213,755 *April 2010 to January 2011 Export Trade Country South Africa, Commodity Refined sugar* Time Period My Units: Mt Exports to: 2009/10 2010/2011** U.S. 0 U.S. 0 Others Others Mozambique 89,752 Mozambique 66,427 Sudan 35,130 Madagascar 25,347 Madagascar 23,050 Kenya 18,311 Kenya 21,016 Uganda 14,354 Angola 22,566 Indonesia 10,403 Tanzania 17,417 Mauritius 10,008 Uganda 17,040 Sudan 7,344 Zimbabwe 10,414 Ghana 5,954 Total for Others 236,385 158,148 Others not Listed 22,882 22,008 Grand Total 259,267 180,156 *Refined x 1.07 = Raw value **April 2010 to January 2011 Import Trade Country South Africa, Commodity Cane Sugar Time Period My Units: Mt Imports form: 2009/10 2010/11* U.S. 0 U.S. 0 Others Others Brazil 32,941 Brazil 25,803 Total for Others 32,941 25,803 Others not Listed 2,833 26,444 Grand Total 35,774 52,247 *April 2010 to January 2011 Import Trade Country South Africa, Commodity Refined sugar* Time Period My Units: Mt Exports to: 2009/10 2010/11** U.S. 0 U.S. 0 Others Others Brazil 61,434 Brazil 46,647 United Arab Emirates 3,905 United Arab Emirates 2,808 Total for Others 65,339 49,455 Others not Listed 909 2,540 Grand Total 66,248 51,995 *Refined x 1.07 = Raw value ** April 2010 to January 2011 Sugar, Centrifugal South Africa 2009/2010 2010/2011 2011/2012 Market Year Begin: Apr 2009 Market Year Begin: Apr 2010 Market Year Begin: Apr 2011 USDA Official New Post USDA Official New Post USDA Official New Post Beginning Stocks 30 30 70 70 140 Beet Sugar Production 0 0 0 0 0 Cane Sugar Production 2,265 2,265 2,140 1,975 1,775 Total Sugar Production 2,265 2,265 2,140 1,975 1,775 Raw Imports 50 50 70 70 90 Refined Imp.(Raw Val) 150 150 180 150 180 Total Imports 200 200 250 220 270 Total Supply 2,495 2,495 2,460 2,265 2,185 Raw Exports 553 553 550 270 250 Refined Exp.(Raw Val) 277 277 250 230 200 Total Exports 830 830 800 500 450 Human Dom. Consumption 1,590 1,590 1,620 1,620 1,645 Other Disappearance 5 5 5 5 5 Total Use 1,595 1,595 1,625 1,625 1,650 Ending Stocks 70 70 35 140 85 Total Distribution 2,495 2,495 2,460 2,265 2,185 1000 MT
Posted: 26 April 2011, last updated 27 April 2011

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